Three Arguments to Justify Contract Lifecycle Management Investments

A contract projects an economic exchange into the future. 

This simple definition suggests that a contract doesn't disappear upon its execution, just like some colleagues believe when they leave their contracts poorly recorded and unmanaged the moment they sign them.

Contract Lifecycle Management (CLM) does the rescue by effectively managing contracts from initiation to execution and beyond. 

It systematically and strategically handles all contract-related activities, including creation, negotiation, approval, implementation, and renewal or termination.

As I'm getting through the CLM investment approval with one of my clients, I wanted to highlight the basics that should justify the CLM irrevocably.

Typical misconceptions about Contract Lifecycle Management

Despite many apparent virtues of CLM, several misconceptions often surround it. We witness the existence of most such wicked ideas, and we must admit the difficulties in breaking them.
 
1️⃣ CLM is only for large enterprises. 
🚫 Truth: CLM is beneficial for organizations of all sizes. 
CLM can help you manage contracts efficiently, reduce risks, and improve compliance, whether you're a small business or a large enterprise. It's a scalable solution that caters to the needs of businesses across various industries.
Smaller companies still have many third-party contracts, not just suppliers - customers, employment, states, etc. You may consider migrating all of those into the CLM platform. 

2️⃣ CLM is just about document storage. 
🚫 Truth: While the contract repository is a part of CLM, it's only the tip of the iceberg. CLM encompasses the entire contract lifecycle, including contract creation, negotiation, approval, execution, monitoring, and renewal. It provides a holistic approach to managing contracts and ensures visibility, control, and compliance at every stage.

3️⃣ CLM is expensive and not cost-effective. 
🚫 Truth: While initial costs may be associated with implementing CLM, it's essential to consider its long-term benefits and cost savings. 
CLM improves operational efficiency, reduces manual effort, minimizes risks, and enhances compliance. These advantages ultimately result in significant cost savings, making CLM a wise investment for organizations.
Some studies assume an organization may save up to 4% of its contract spend by effectively managing contract obligations and renewals via CLM. Data privacy risk mitigation alone may justify any CLM investment. 

4️⃣ CLM eliminates human involvement. 
🚫 Truth: CLM is a tool that complements human involvement rather than replacing it. While CLM automates and streamlines contract processes, human expertise, and judgment are still essential for tasks like negotiation, relationship management, and strategic decision-making. CLM empowers professionals by providing them with the necessary information and tools to make informed decisions.

5️⃣ CLM is only for legal departments. 
🚫 Truth: While legal departments greatly benefit from CLM in contract drafting, redlining, and negotiations, it is not limited to their use. 
CLM involves various stakeholders, e.g., procurement, sales, finance, data privacy, facilities, and executive management. It enables collaboration across different departments, enhancing transparency, efficiency, and accountability on all aspects of contracts throughout the organization.
CLM process ownership will be challenging, as this high-profile process may look lucrative for many stakeholders.

The core of CLM justification

Given the above misconceptions, the executive justification of CLM investment may be challenging. Aligning decision-makers with just a handful of CLM winning points is helpful.


We suggest concentrating on just three topics:
  1. CLM is an integral part of the source-to-pay process. Soucing has likely been automated already in your company. It's a matter of end-to-end process integrity to implement CLM alongside e-sourcing and P2P and trace the expenditures from the point of origin (request) to the actual purchase order and payment.
  2. CLM scope is much richer than just contract drafting and negotiations. We explained it on the slide.
  3. CLM is a crucial element of the Master Data system. We need to have some undisputable sources of truth for suppliers, contracts, and SKUs. Without CLM, different stakeholders may have limited visibility of contracts due to random repository locations, varied access rights, and different (if not absent) formats of contract metadata. 
Positioning CLM for the Source-to-Pay process integrity, scope richness, and Master Data may be sufficient to overcome critical misconceptions and justify the investments. 

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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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