Has the pursuit of contract management efficiency been counterproductive for legal departments?
For the past decade a cacophony of voices has been singing (screaming?) at us – or maybe with us – about the importance of contract management efficiency for legal departments. What follows wraps around a smaller, more affordable approach we call crawl-walk-run that can stop the chaos. What’s behind it? How does it work? Let’s find out…
Make no mistake, on average contracts comprise an estimated 40 - 50% of the work done by in-house legal teams, so the important operations sit around the intake, planning, execution, and review of contracts. Done properly, efficient contract management can save each lawyer and each legal department many thousands of hours and dollars.
That’s why contract management cannot be ignored. Its ‘efficiency’ alone has become an industry. From consultants, software providers, legal operations associations, conferences, publications, podcasts – to legal departments and individuals who implement the systems and processes – an entire ecosystem revolves around this single issue.
What is happening to us in our pursuit of efficiency? Has contract management become too complicated to derive real return on investment (ROI) for its buyers? Where are our chaotic contracting processes taking us? Can they make our analytics meaningless?
To gain better clarity, let’s take a step back in time to assess where we are today and why. Undesirable practices don’t happen overnight, they evolve sometimes slowly and incrementally.
The good old days (not so good)
Twenty-five years ago, legal departments made it a practice to email drafts of a contract back-and-forth with counterparties until they reached an agreed form. Internal approvals were stacked in a pile for the chief executive officer (CEO), the chief finance officer, (CFO) or the chief operating officer (COO) to check. Parties would either sign multiple copies of the agreed contract in counterparts or sign the contract. Each party would retain the originals to be entered into a hard copy file.
What happens when time elapses and you need to find the contract? Go to the file? So simple! My tongue is firmly in my cheek when inferring the simplicity, efficiency, and repeatability of this process.
We endured many inefficiencies performing this strategy! Suffice to say that the world began to develop a more efficient way when we started to digitize files. E-signature was born and the speed of doing business increased significantly.
Unfortunately, these ‘efficiencies’ managed to create a separate set of inefficiencies, which cannot be ignored when considering the overall return on investment from contract management initiatives.
The state of play today – inefficient contract management
Common inefficiencies in legal departments and organizations today include:
- Inefficient contract creation:
- Contract creation begins with a template. Right?
- And that template is an internally agreed form that should be used to generate the first draft of an agreement. Right?
- That template is stored in a place that everybody understands and uses reliably so there is consistency across all contracts for your organization. Right?
- Contract creation should not be “find the last, most relevant executed contract and save a new copy.” Right?
- Hmmm.
- Lack of Centralization: Digital storing of contracts is good – in theory – because they can be searched for and easily found, supposedly. But what happens when contracts at all stages of the drafting and signing process are scattered across platforms, business units or individual inboxes and there is no single filing cabinet to rule them all? You could say they are out of control. Which means the ‘search’ for an executed version of a contract can cost a business many hours and end with an unsatisfactory result. Loss of business, missed deadlines or credibility with suppliers and customers are all casualties of the inability to locate contracts within a reasonable timeframe.
- Inefficiencies in Approval Processes: Long internal review cycles that delay finalization are common. Approval processes are often undefined or undocumented, are managed via email threads (adding to already exploding inboxes) and leave little room for clear approval (or disapproval) with comments. Elongating this final stage of a contract equals loss of income.
- Limited Visibility: Missing oversight of contract obligations, key dates, and compliance risks are critical contract management failures. Without a central place to manage key dates, you can miss lifecycle events, expiry and renewal dates. As a result, you can lose revenue or discover that unwanted contracts have renewed automatically.
Note: The inefficiencies of digital contract management can extend far beyond these items, but for the purposes of this discussion we will focus on the highest pain points with the lowest threshold for resolution.
Not all these inefficiencies are new to the digital age; variations of these inefficiencies existed in the analog age (cue image of a stack of contracts sitting on a desk waiting to be approved and/or signed!), but the efficiencies we thought we were achieving with modern contract management are less efficient than we expected them to be.
Is the solution worse than the problem?
If you spend even an hour on LinkedIn and explore a few contract management-related hashtags, you will rapidly enter a world of never-ending options to solve every single one of your contract management inefficiencies. Each option would be idyllic, with dream-like perfect efficiency in an “end-to-end system.” Your legal team would never have to touch a contract again with automation at every stage, and you would have more data than you could dream of identifying bottlenecks and you would continuously optimize your contract process.
So why are we still left with a graveyard of failed contract management projects across North America right now? Why is there steaming frustration coming from the ears of corporate legal departments who have invested heavily in consultants, systems and project implementations but are yet to ‘solve’ the problem?
- Could it be that the dream is much more difficult in reality?
- Could it be that humans are more efficient than the systems seeking to replace them?
- Could it be that it is too much? Too fast? Too costly?
The answer is – of course – that a balance between the ‘dream’ and the ‘execution’ is required. Digital solutions and automation have a key place in improving efficiency, but the humans who select, configure, implement, and adopt those systems also have a role to play, and they cannot be ignored in the process. This sentiment applies whether you are considering generative AI or more vanilla digital and automation solutions.
KISS. Keep It Simple
Inefficiencies in the contract process can be solved in all (or many of) the ways the contract management ecosystem promises, but you cannot achieve this in one massive project. Why?
Change is hard. Your organization might be struggling with major contracting pain points but throwing a huge new process or software into the mix and expecting immediate digestion is naive -- destined to fail. You need to iterate or eliminate one step at a time with a smaller, slower, and more affordable approach that is less prone to failure. We think of this as the crawl-walk-run methodology.
Most important point
An incremental approach to contract management allows teams to move at a pace that matches their digestion capacity. When contract management is improved incrementally, you will address the most difficult pain points, speed up your business process and mitigate risk around contract lifecycle events.
How? An incremental, step by step approach…
- Reduces risk of change fatigue: When teams adopt manageable improvements at their own pace, they gain confidence in a process designed to help them, rather than add another burden to their heavy workload. Resistance is lowered and buy-in grows.
- Makes it possible to customize all team sizes: Even a small team can progress a small project. Choosing the right place to start means all teams can pull together the amount needed for their present context.
- Achieve high ROI: Slight changes lead to tangible time and cost savings early in the process. These wins cumulatively leave more room for more changes and the process toward the ideal system grows exponentially.
How does crawl-walk-run work?
No matter the size of your organization – from very small to very large – each step below can help you move incrementally and influence your stakeholders to move with you.
Crawl: lay the foundation
Chaos is real: contracts scattered across many systems, departments and inboxes equates to hours of unproductive time spent searching. And that can’t even account for the brain space required to keep track of where contracts are in their lifecycle, or which individuals were engaged through the process, or whether a copy of the contract has been returned to you… and so on.
A contract repository, a single, central source of truth might sound small – and a bit boring – but this makes it the perfect place to start:
- A repository is not difficult to set up. A spreadsheet is better than nothing, but there are systems that have out-of-the-box options you can start using today. For larger organizations, start with a single contract type, or a single business unit.
- Configuration can happen in a matter of minutes. Don’t overcomplicate it – all you need to track in the beginning is:
- Name of contract
- Description of contract
- Contract owners
- Copy of contract
- Date of execution
- It is not difficult for your team to use. Make the system centrally available (subject to access or permissions) and be so intuitive that no training is required.
Walk: speed up your business process
With a quick, impactful win in the bank, you can invest time in your next initiative. This doesn’t mean that the next step must be big. Your attention should turn to the lowest hanging fruit that impacts the greatest number of stakeholders in your process.
Your business wants to move fast and the need for a contract is a blocker to getting something across the line. Take a moment to identify where the largest time-sucking blockage lies (time elapsed, not time taken) and focus on speeding this up.
Note: Beware of the many impressive solutions within contract management tools that don’t necessarily match your biggest blockers.
Consider your approval and signature processes for the ‘walk’ stage. Setting up a clear, automated process can be a huge time saver which:
- Can start very simple – one approval level for one contract type.
- Can be performed as quickly or as slowly as required, adding contract types or approval levels.
- Eliminates an opaque and frustrating process and replaces it with a clear audit trail to be retained with the contract record.
Run: The magic of automation
Automation is an obvious next step to have your contract process ‘running’ smoothly – it is scalable and when done properly, low cost. The return on investment from good automation initiatives is excellent, measurable and will pay dividends for a long time.
However, the temptation to automate everything is strong. You must resist. You can apply the crawl-walk-run philosophy within this stage alone!
Contracts that have many variations and result in an enormous decision tree of possibilities will take you months (possibly years!) to automate properly. Your return on investment will be significant where you:
- select simple contracts with high volumes;
- speed up or create the first draft for your legal department; and
- provide your business with self-serve tools on low-risk contracts.
GO SLOWER TO GET THERE FASTER!
The journey toward greater contract management efficiency does NOT need to be counterproductive. But, if you dream too big, go too fast or think throwing money at the solution will solve all your problems at once, then you might fail to successfully address your pain points.
A slower and more considered approach will allow you to win buy-in from your stakeholders and gather momentum through the process.
Ultimately, a crawl-walk-run approach will help you and your stakeholders achieve a faster, better, and cheaper way to receive, plan, execute and review contracts much sooner than a single, behemoth project.
ABOUT THE AUTHOR
Jodie Baker is the Group CEO of Xakia, a leading provider of intuitive legal matter and contract management solutions for in-house teams. She has a background as an in-house lawyer and financial analyst, was the architect, founder and managing director of Hive Legal and is the past-Chair of the Australian Legal Technology Association.