The Five Levels of Contract Management Maturity
Contract management is a multi-dimensional activity with various stakeholders involved. If there is any intra-organizational or inter-organizational business activity, it probably is governed by some clause in some contract! A contract directly affects the interests of the parties involved in it, and often also of the unseen and invisible parties to it (such as the larger public whose health and safety may be dependent on the way the contracting parties conduct the business with each other). It is for this reason, that Line of Business leaders know too clearly that contracting is not a single step but a phase, one that is legitimately time-intensive and iterative in nature.
Once a contract is signed, often the immediate parties feel that a necessary evil has been surpassed. However, controllers and legal teams know better. They see that contract as a guide for the future, a way of safeguarding against the unknown, and for them, contract management extends way beyond the ‘phase’ of contracting. It has a lifecycle of its own! That brings us to a completely new operational challenge — one of monitoring the fine print throughout the term of the contract and of making sure that the parties involved are adhering to their commitments made.
As with everything else in the world, for every challenge, there is a solution. So is there one for contract management or rather, contract lifecycle management. This technology has evolved over times and is constantly evolving. Let’s look at the five key stages we feel you must know about, if contract management is one of your areas of responsibility as a Legal, Finance, or Sales leader.
Maturity Level 1: Digital files but manual processes
In this stage of contract management, paper and email-based contracting characterize the authoring and storage functions. At the most contracts could be word files stored in shared drives. The main technology gap in this scenario is the huge dependency on manual effort for searching, cataloguing, segregating contracts, as well as redlining, version comparison and drafting.
Maturity Level 2: Central repository but manual drafting
Here the contract files are made available in a single place such as an access-based computer folder or the company’s shared drive. However, drafting continues to be largely manual. Some level of version control comes in with use of MS Word features for track changes and document comparison, but the overall process is cumbersome when lengthy contracts and multiple versions come hand in hand!
Maturity Level 3: Automated contract drafting
This is the only stage where the software takes one major operational burden off the shoulders of legal team and helps in streamlining internal contracting (authoring) processes across all stakeholders inside as well as outside the organization. From availing pre-approved templates to creating contracts collaboratively, to automating the approval workflows based on various parameters, authoring becomes a smooth and efficient process at this level of maturity.
Maturity Level 4: Contract Management that listens!
In this stage, contract management platforms can receive one-way communication from other enterprise systems and provide insights about utilization, obligation fulfilment and overall contract performance via key performance indicator (KPI) measurement. This is a major leap, because now, technology helps throughout the contract lifecycle, and not just in the authoring phases.
Maturity Level 5: Contract Management that is so intelligent, that it can talk back!
In this stage, contract management solutions can both listen to and talk to other enterprise systems and help retain a single truth across the contract lifecycle for various deliverables, deadlines and compliance factors. Here, CLMs truly transform into ‘intelligent’ programs that work for the stakeholders in ways that are a delight for users across the board. Thus, begins the age of artificial intelligence (AI) based contract management which unfolds innumerable possibilities for legal, finance and operations heads.
Learn more about Ultria’s AI based Contract Management solutions for requesting, authoring, storing and tracking contracts, if you would like to take your contract management technology to the next level!
