In the digital age, organizations as a whole and procurement departments in particular swim in data. It is everywhere, spread across an alphabet soup of internal and external systems – some connected, some not; some refined, some not; some structured, some not. It wasn’t always this way. Twenty-five years ago, the procurement function was manual, paper-based, and transaction-oriented. “Data” was but a character on Star Trek: The Next Generation. All of that has changed in the past 15 years, following the dot.com bubble and the wave of digitization, connectivity, and automation that has swept over the world. Now, “Big Data” permeates and drives the digital world, and it will only get more intense from here.
There is a Big Data “crisis” sweeping organizations and procurement teams today. But with the right people, processes, technologies, and ultimately the right attitude, this “crisis” can be an opportunity for Chief Procurement Officers (CPOs) and their teams to transform operations and deliver more value to the enterprise. Technologies exist today that allow procurement to not only manage Big Data up and down the source-to-settle value chain, but also leverage it for greater value.
Thus, the following series will explore further each of the eight sub processes to illustrate just how Big Data can be managed and leveraged to make procurement’s life easier and extract the most value out of the data residing inside and outside of the enterprise. Next up, contract management.
A CPO’s History of Contract Management
Traditionally, contract management has involved the creation and execution of contractual agreements between trading partners, as well as the storing, retrieval, and auditing of B2B contracts for post-execution management and compliance. As a result, the process is based largely on the management of unstructured data that resides within the contracts, as well as the documents created and compiled during the sourcing and supplier management phases.
Over the years, digital and automated technologies, like contract authoring tools, electronic signatures, straight-through processing, contract repositories, and search capabilities have come online to remove much of the paper, ink, postage, and time involved in the end-to-end management process. The results include faster time-to-decision, faster contract execution, greater reduction in errors, greater compliance, less legal and financial risk, and enhanced performance for the enterprise as a whole and for procurement and legal departments in particular. This has been the standard value prop for automated and digital contact management solutions for the past few years. But with the emergence of Big Data and analytics tools, there are new ways to get more value out of these processes and systems.
Big Data for Contracts
We live in a time when it is standard to skip the legal mumbo jumbo of a contract (at least in our personal lives) and sign at the bottom while taking it for granted that we are not exposing ourselves to too much risk, or any risk for that matter. Even the best of us that take the time to review every line of every clause of every contract cannot recall offhand the details, specific liabilities and indemnifications, or perhaps even the expiration or renewal dates.
- Maybe there is a condition in the contract that, under certain circumstances, makes it null and void; or
- Maybe there are extra steps one needs to take to preserve a warrantee, like purchasing a service agreement.
- Maybe the contract is favorable to the enterprise and it should be renewed; or
- Maybe it is not favorable and it should be left to expire.
These conditions, limitations, expiration/automatic renewal dates are often buried in the fine print and require significant man hours to retrieve, review, and locate them. It can take days or weeks to fully understand an organization’s legal standing vis-à-vis a sudden development. As an unfortunate result, CPOs and their procurement teams, particularly those that are overwhelmed and understaffed, often operate blind to these risks and cannot pivot in time. Enter Big Data for contracts.
Big Data for contract management is a blend of structured and unstructured data that resides deep within the clauses, amendments, and addendums of a standard contract – keywords, expiration dates, terms, conditions, indemnifications, and liabilities – that may go unnoticed or ignored by a busy CPO and his/her team. Fortunately, there are intuitive, user-friendly tools that can help resource-constrained CPOs and procurement organizations dive deep within their contractual documents and pull actionable intelligence out to avoid/mitigate risks or take advantage of sudden and or advantageous pricing opportunities.
Contract analytics and contract discovery tools operate like other business intelligence and analytics tools by leveraging algorithms to scour reams of contract documents and identify keywords and dates that are of interest to the user. Users enter data ranges and or keywords at the front end using Boolean logic or simple search terms, depending on the desired sensitivity and specificity. They can conduct ad-hoc reporting or set regular reporting cycles; and they can receive tailored, visualized reports straight to their inbox or to an integrated dashboard for immediate action.
Contract management solution providers are developing the next generation of contract analytics and discovery solutions to help solve the Big Data “crisis” occurring within organizations across the globe: too much data, too little time, and too few hands. Artificial intelligence (AI), machine leaning, and natural language processing (NLP) capabilities will boost contract analytics and search/discovery tools to deliver faster, more accurate results that require fewer human touchpoints. In doing so, they will further help CPOs scale resources to get to the bottom of the contract pile and emerge with the nugget of truth when it matters.
Final Thoughts
CPOs, procurement teams, and legal departments whose responsibility it is to understand their organization’s risks, liabilities, and opportunities buried deep within the thousands (or millions!) of pages of contracts and to respond to world or market events in time, take heart. Although it is a tall order, there are solutions in the technology market today – and more coming tomorrow – that can cut the Big Data monster down to size and make quick work of a fast-burning legal inquiry. With contract analytics and discovery tools, CPOs, procurement pros, and legal teams can even turn these crises into opportunities.
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