Everyone knows that knowledge is power. But in our fueled, fast-moving economy, it’s not just any knowledge; yesterday’s knowledge isn’t as powerful as today’s. In a business context, markets move by the millisecond, environmental and situational disasters occur in minutes and societal shifts arise overnight. All of which can have a serious impact on organizational strategy.
So, what happens to businesses and, legal departments, who don’t have ready access to up-to-date knowledge? Contracts are some of the most data-intensive documents in your organization, containing a wealth of information that doesn’t only put your business at myriad risks if not handled correctly, but more importantly, could help propel the business with cost savings, plugging revenue leakage and an opportunity to generate new revenue.
Below are nine ways contract management can help your business:
- Shared drives don’t offer any advantages
Using a shared drive to access contracts is still common because it works. Except when it doesn’t. With legal, risk, compliance and others teams all accessing the same drive, there is little or no consistency in naming conventions, huge risk of human error – such as files being accidentally deleted, moved or changed without consent, and no way of accessing the intelligence these contracts offer. With strong contract management, all the files are searchable, in a safe and secure repository with a full history of movement and file protection where it’s required. Vitally, data points can be collated and curated to provide information that helps GCs and their stakeholders make more informed decisions.
- Legacy contracts pose a threat
Everyone has legacy contracts, either in filing cabinets or some far-off digital file that sits who-knows-where. These are the ones that can keep GCs awake at night; the ones you don’t know about, the ones with unknown obligations, unheard of terms and hidden hazards. These legacy contracts are the risk bearers; the ones that can pose the greatest threat to your organization. Captured within a CMS system, all contracts would be visible, stored, searchable, and the data available for analysis, not only reducing risk and reducing revenue leakage but also helping GCs sleep better.
- Manual processes are ineffective
Market conditions are constantly changing; companies get acquired or go bust, internal restructuring and external global situations can change rapidly, all of which can negatively or positively impact the organization. Having to manually review 100s of contracts to check obligations and react to these influences is costly and laborious. With no oversight of contractual information, understanding the impact on your business is guesswork at best. Any business or competitive advantage is lost or worse, any communications to alert clients, the supply chain or partners isn’t forthcoming, increasing the risk of reputational damage.
- Heighten commercial understanding
GCs are under constant pressure to demonstrate an understanding of the commercial drivers of the business and deliver value to the organization. Having a CMS enables GCs to better understand strategic imperatives from a company perspective, and using this knowledge to become an advisor to the business and guide stakeholders on key decisions. For example, with a CMS, contracts can be analyzed to understand which suppliers or partners are most profitable to work with. This data can be passed back to the stakeholders, who can leverage this information during negotiation processes.
- Locate and plug revenue leakage
Contract management is not just about saving money on renegotiation with vendors, although this is certainly another advantage gained with a CMS. It’s about detecting revenue leakage through mismanaged contracts, auto-renewals, or auto terminations. For example, IT budgets are usually some of the biggest in any organization and often, especially in times of data security threats or when the business is under pressure, CIOs will accept standard SLAs without informing the legal department. Without a CMS this opportunity is lost, unable to be retracted or amended and any terms agreed must be adhered to. With no oversight, the contract may include extortionate renewal terms or auto termination clauses that result in loss of discounts and service plans, leaving the organization exposed to data security risks.
- Deliver frictionless business
GCs have an enormous amount of contracts to negotiate, draft and amend for the organizations including the commercial teams who drive new business. With contract management in place, some of this workload could be automated or passed to the business, with standardized terms and obligations that require minimum legal intervention and negotiation. This positions the legal team as enablers and ensures that deals get signed quicker, enabling frictionless business to be conducted. It also empowers the sales team and helps foster trust between legal and sales departments. Sales teams are then also more likely to seek legal advice for any issues or contract negotiations earlier, which in turn reduces risk.
- Prevent litigation costs and disputes
Around 20% of disputes arise from your contract portfolio, according to IACCM research. Lack of contract visibility and an inability to locate the contract under dispute are common without a CMS and can substantially increase risk. Conversely, with insight from good contract management, GCs can proactively manage any disputes, saving potential litigation costs. In addition, the data from a CMS can be compiled to indicate where disputes are common, or potentially high-risk areas, further helping GCs manage their contract portfolio and reduce the chances of disputes reoccurring elsewhere in the future.
- Prioritize risk
All risk is relative – some risks are greater than others, but without a CMS it’s almost impossible to factually understand what those risks are and prioritize them accordingly. For example, in a multi-organizational structure, each business is governed by its own rules, regulations and risk profiles, which is a huge challenge for GCs. If one of the businesses succumbs to an event, the reputational risk is likely to impact the group.. Having an overview of your contracts means this risk can be curated and prioritized, so GCs can focus on the right level of their attention on the right risk.
The days of manual processes and ad hoc contract management with spreadsheets and shared drives are over. Or at least they should be. Legal is transforming. The data within contracts is the leverage GCs need to help their organizations differentiate, demonstrate their value to the business, and help the C-suite make better decisions. Without the overview, insight, and analytics that contract management enables GCs to perform, making any decision is educated guesswork. In order to become a true partner to the business, GCs need to be the cornerstone of steadfast and reliable decision making that drives the business forward in a strategic and profitable way.