Are You Ready to Successfully Implement CLM Technology?

May 6, 2024

Procurement teams commonly employ contract life-cycle management (CLM) solutions to support the design and management of contracts throughout the supplier life cycle. They’re commonly used to optimize performance by boosting workflow efficiency, improving internal adherence (such as curbing unauthorized expenditures), and fortifying supplier compliance when it comes to preventing overcharges, lost discounts, and more.

CLM implementations typically take one of two paths – either as a stand-alone solution or part of a broader source-to-pay transformation. With stand-alone implementations, there is an immediate return on investment driven by having standardized contracts all in one place. As part of a broader transformation, an organization will gain real-time visibility into how the entire procurement life cycle works – from strategic sourcing to awarding suppliers with the contract, all the way through to using the contract for purchasing and invoicing. Overall, since contracting occurs at the beginning of the process, it’s an important piece of the puzzle that sets the stage for success.

Implementing a successful CLM solution requires careful consideration of key success factors related to people, process and technology that will help enable world-class performance for an organization. For many procurement teams, it is not as simple as moving an often disjointed, offline contract management process into an online cloud-based tool. Inefficient practices are usually symptoms of an organization needing broader structural reform. By identifying and evaluating the key challenges that a company wants to solve with a CLM tool, bottlenecked processes can be rightsized prior to using technology to ease the day-to-day activities performed by the team.

Based on our experience with CLM technology and related best practices, we are well versed in identifying the root causes of critical issues and providing recommendations on how to reshape contract management practices into a world-class state before implementation. In this blog, we cover the five key CLM implementation best practices that will ensure that your organization is ready to implement CLM technology successfully. Each of these best practices has grown out of our experience in working with procurement teams like yours, providing practical recommendations on the challenges faced, solutions that work and benefits to be gained.

Contract approval policy

A poorly defined contract approval policy – with unclear, misaligned or nonexistent contract approval thresholds – makes configuring approval and signature workflow difficult. The approval and signature workflow allows the configuration of system-generated workflow in the CLM tool to enable efficiency gains. Failing to configure this functionality effectively will open the door to inconsistent and noncompliant contract approvals and signatures.

Start developing a contract approval policy three to six months before a CLM implementation, defining policies around key questions. For example, should people who have approval authority also be allowed to sign contracts? If contract signatory authority is limited to executives, does their approval limit align with other spend types such as requisition approval? It is best to keep the policy simple (e.g., limit the variations by business unit, region and department) to streamline the process and reduce the system maintenance complexity. Most contract management systems function more efficiently with simple, well-defined contract approval thresholds to determine who has signature authority for a specific document.

Contract types and templates

Lack of standard contract types and the associated contract templates makes it difficult to realize the benefits of a streamlined authoring process in the CLM solution. Additionally, if contract templates have not been fully vetted by the legal department, then the organization can be exposed to risk. There is often work to be done to establish standard contract types and associated templates prior to deployment of a CLM tool.

Work with your legal team to define standard contract templates for major contract types (e.g., master services agreement, statement of work, nondisclosure agreement). Minimize the overall number of templates and instead identify specific clauses that can be inserted into standard templates, as required.

Contract templates can be configured into the CLM tool to allow for the automatic population of metadata into the contract for streamlined authoring. This also promotes consistent use of preapproved contract clauses, protecting the organization from unnecessary risk.

Legacy data migration

Collecting and formatting legacy contract metadata is a time-intensive, but necessary, activity to ensure legacy contracts are loaded correctly and operationalized in the new CLM solution. Legacy supplier master data may also need to be migrated to the new CLM tool in the correct format.

Begin planning for contract data migration activities three to six months before the intended go-live, especially if you do not have a legacy tool from which metadata can be extracted. Determine the volume of legacy contracts that will be migrated to the new CLM solution. Given the time-intensive nature of this activity, consider limiting the scope to critical contracts (e.g., active, high value, high risk) that will be most valuable to have in the tool at go-live. Identify key pieces of metadata that will be required for both legacy contracts and new contracts, including supplier records associated with the contracts, and determine roles and responsibilities for completing this activity.

Extracting and formatting legacy contract data ahead of a CLM implementation will help ensure the necessary information is migrated to the new tool without any delays to the implementation schedule. Many organizations are not aware of the work required to complete this activity, so careful scoping and planning will prevent delays in system go-live.

System integrations

There are considerations on what data is available to be used in other procurement software (e.g., purchasing, sourcing, third-party risk management tools), depending on the specific CLM solution that is being implemented. It is imperative to have a robust understanding of the tool’s technical capabilities to minimize the risk of having poor or nonexistent data connections.

During the selection process, allow ample time to have discovery conversations on what the solution is capable of with regards to data input/output, extraction and transformation. Understand what kinds of integrations are possible with both the tool selected and any other procurement software being used (e.g., enterprise resource planning, source-to-pay suites, point solutions) in the wider technology landscape. Additionally, keep in mind the scope of contracts being managed in the CLM tool. If sell-side contracts are in scope, ensure you understand the requirements and capabilities of integrating with your customer relationship management tools.

Understanding the scope, possibilities and limitations during the software selection process allows for better planning of resources to ensure the tool is optimized within the overall source-to-pay technology landscape.

Change management

A new CLM solution and associated process can be poorly adopted without executing an effective change management plan. Shortfalls in effective communication and end-user training will leave the organization ill-equipped to utilize the new CLM solution effectively. Define the stakeholder groups within the source-to-pay organization that may be impacted by the implementation. Typically, CLM technology implementations will impact stakeholders within sourcing, procurement strategy, legal, finance and the business. Develop a comprehensive communication and training plan to ensure the organization is properly informed of the upcoming changes and educated on how to use the new CLM solution.

Having a holistic view of the impacts of change allows an organization to start planning early. An effective change management strategy will help ensure the organization is prepared, promotes a higher level of adoption and supports fuller realization of the expected benefits from the CLM implementation.

Using artificial intelligence to enhance contract life-cycle management

Our data shows that just over one-half of procurement teams have started evaluating the use of generative artificial intelligence (Gen AI) in procurement, which reflects the still early stages of development of this technology. Of those organizations, the most promising opportunity areas are spend analytics and contract life-cycle management, which are areas where easy access to accurate data can greatly enhance the effectiveness of procurement personnel.

As AI becomes more powerful, CLM solution providers are harnessing its capabilities in their products. Some examples include:

  • Extract and categorize contract metadata, increasing efficiency by mimicking optical character recognition tools.
  • Understand existing legal language and generate contract clauses to be fit for purpose.
  • Provide guidance on the drafting of contracts and legal agreements by recommending specific contracting terms and/or language.
  • Build a more complex repository of data points to be used in advanced analysis of value drivers, opportunities and risks.

As with any source-to-pay transformation, CLM implementations are faced with challenges that can be effectively overcome through proactive planning and effective architecting of the final solution.

Implemented well, CLM technology can yield many benefits, including improved sourcing leverage, enhanced workflow efficiency, increased internal compliance and strengthened supplier compliance.

Download the report today to find out more about the challenges procurement teams face and the best practices you can use to overcome them.