Contract Lifecycle Management (CLM) has come a long way in the last 25 years or so. The technology started as simple databases where some key metadata was collected to enable search and notifications. Fast forward to today with AI-driven authoring capabilities and automated compliance tracking and it’s clear that much is happening in the CLM space. But CLM is a bit different than other procurement technology solutions or modules, and today we are going to look at why.
CLM Has Two Different Parts
A contract can live for a long time, or even indefinitely if it’s not explicitly terminated. However, there are two very different parts to the life of a contract when viewed from a contract management perspective: the pre- and post-signature phases.
Pre-Signature Phase
Often referred to as contract authoring, the focus is on creating contracts. Using templates, clause libraries, and conditional workflows, contracts can quickly be pulled together based on spend thresholds, governing law, category of spend, and any other conditions deemed necessary. Authoring also includes so-called redlining (i.e., the negotiation of the contract terms and language that goes back and forth between the parties).
Almost all CLM solutions with authoring capabilities are compatible with MS Word and other word processing applications. Some providers have contract portals where the counterparty makes their edits directly online. Other solutions export the contracts into a word processor file format that is sent to the counterpart and then uploaded to the CLM solution once edits are made. Advanced solutions can route contracts for review and approval to the appropriate person based on what clause has been edited before completing the process with integrated eSignatures (if applicable).
Post-Signature Phase
Post-signature contract management technology is sometimes referred to as a contract repository. These repositories allow users to store contracts and capture key meta data, allowing for searches, notifications, and reminders. For some solution providers, a repository might still be applicable. In other cases, the solutions have moved beyond being a passive repository. Support for compliance and performance management have been added to help ensure that negotiated terms, performance levels, and deliverables are monitored and managed.
There is much more to CLM but this captures the differences between the two main components. Some analysts consider contract analytics as a third component, but I would argue that analytics should be an embedded part of both pre- and post-signature contract management.
CLM Is Not Just for Procurement
The biggest difference between CLM and most other procurement solutions is that a CLM solution can, and perhaps should, be used in other parts of the organization than procurement. After all, contracts are created and used by other organizational functions, such as general counsel, sales, HR, finance, and many others. This means that any CLM solution used beyond procurement (i.e., enterprise CLM solutions) must support the needs of other stakeholders as well. Now, while there are some differences from a support perspective, many of the core capabilities and requirements are the same. Workflows, reminders, templates, etc., might be different for procurement users vs. sales users, but a good CLM system should address that through configurations.
But there are some differences, for example, in integrations. Procurement needs CLM integrated into their Source-to-Pay applications to make sure data and negotiated terms from sourcing events are transferred into the contract. Also, once the contract is signed, the right data must then be pushed to operational systems. Sales teams require CLM and CRM integration so they can kick off contracts directly from the sales pipeline, while HR needs integration of CLM with HCM and payroll systems.
And then there’s the legal department, one of the most important (and sometimes difficult) stakeholders. They have their own set of requirements, especially in (but not limited to) the main authoring areas like template management, redlining, and approvals, but also search, mass updates, and so on. Beyond that, they need support for other parts of the legal operation such as matter management, IP management, billing, compliance management, and so on. This support is often found in Enterprise Legal Management (ELM) solutions that often feature CLM capabilities.
Defining the Scope Is Critical for CLM
Given the different needs of an organization and the different parts of CLM, the scope must be defined clearly before embarking on a CLM selection and implementation. Before deciding which solution providers should be evaluated and invited to an RFP, two questions must be addressed.
1) What type of contracts are in scope? If the vision is to use the solution for all the contracts (e.g., sell- and buy-side contracts, HR contracts, leases, and so on) of an organization, the focus should be primarily on the specialized enterprise CLM vendors like Icertis and Sirion Labs, or Conga. While some of the more capable S2P suite providers (like Coupa, Ivalua, or GEP) have the capabilities to support any type of contract, they are stronger when it comes to procurement or “buy-side” contracts where the integration to the rest of the S2P suite can bring great value.
2) Process scope: Will both pre- and post-signature management be supported? By including pre-signature management, it raises the complexity of the implementation significantly and limits the number of solution providers available. At the same time, it adds an additional layer of control, compliance, and productivity. Depending on change management capabilities, a staged approach might be best, where existing contracts are brought under control before pre-signature support is addressed (if at all in scope).
Ardent Partners’ Coverage of CLM
Ardent Partners focuses on the world of supply management, including CPOs and their teams of procurement professionals. As such, our CLM coverage focuses on the buy-side capabilities. This does not mean we only focus on S2P vendors. In many cases, the specialists might be a better choice even from a strictly procurement perspective. As mentioned in my series on Suites vs. Specialists (see Related Research below), innovation is often driven by specialists. Given the massive impact of generative AI and LLM’s on contract management, we will certainly continue to write about this fascinating and fast-moving area.
RELATED RESEARCH
How New or Improved Technologies Can Transform Procurement – Contract Management
Skills for the Modern Procurement Pro – Contract Management
The Best-in-Class Contract Management Program: More than Just Contracts
Magnus Mondays: Procurement Tech — Suites vs. Specialists Part One (Framing the Decision)
Magnus Mondays: Procurement Tech — Suites vs. Specialists Part Two (Home Suite Home)
