In today’s business environment, enterprises face several considerable challenges with respect to effective contract management. These challenges include high associated costs, extended cycles and inconsistencies in contract workflows. Contract management costs include the direct costs of drafting, executing and fulfilling contracts as well as the indirect costs related to managing incompetency and errors. Contract structures generally vary across different verticals and regions; this leads to inconsistencies in drafting standard contracts. Additionally, the contract cycle time, from initiation to execution, can be unnecessarily long, and may lead to delays in project kick-off and revenue recognition. All these issues together hinder an enterprise’s ability to operate competently and efficiently in the market.
Many enterprises still depend on outdated approaches to contracting, which aggravates these problems. For instance, it is quite common for companies to have several thousand contract templates in various languages, each customized to suit the needs of specific regions or business units. This fragmentation makes it difficult to maintain consistency across contracts and control over negotiated contract terms and conditions. Moreover, the absence of a unified repository for these templates means that employees often spend a large amount of time searching for the correct document, which leads to further delays and inefficiencies.
Most organizations have their own standard forms of contract. Moreover, the majority of these contracts (buy- or sell-side) are negotiated, which often causes delays.
Therefore, there is an immediate need for a streamlined, modern approach to contract management, as the current methods are no longer sustainable in an international business environment.
Challenges faced by commercial teams
Commercial teams within enterprises, including account executives, face a unique set of challenges related to contract management. In organizations where we have implemented CLM systems, only about 26% of their affected workforce is actively involved in implementing the CLM system. The majority of end users lack awareness of this strategic initiative. Usually, the systems in the client’s technology landscape are isolated, and the flow of data between them is limited, which leads to manual intervention from the teams, making them prone to errors. In sell-side contracting, account executives often do not know the status of a contract. This prevents them from providing real-time updates to clients and promptly addressing issues that may arise during the negotiation process. This lack of visibility and active collaboration among internal teams can lead to delays and the risk of accepting non-standard contractual terms. Additionally, acceptance of any high-risk clauses can lead to reputational and financial risks for the organization. Furthermore, an inability to instantly locate previously agreed terms in the signed contracts complicates any renewal discussions, thus negatively impacting customer confidence and relationships.
Another pressing issue is the financial impact of poor contracting processes and management. In projects where we performed assessments of our client’s as-is contracting processes, it was observed that enterprises can experience revenue leakage of up to 5–9% annually when obligation management is not adequately addressed. This leakage occurs because of overlooked deadlines, unfulfilled contractual obligations, and an inability to fulfil agreed terms and conditions effectively. Without a robust CLM system, enterprises struggle to monitor their contractual commitments, leading to missed revenue opportunities and greater risk exposure. Thus, implementing a comprehensive CLM solution can augment the financial performance and operational efficiency of an enterprise by enhancing visibility and control.
A practical approach to contracting issues
An innovative recipe for addressing contracting problems faced by enterprises is built on an agile, three-pronged approach.
By streamlining the contract management process, PwC helps organizations to cut down on unnecessary cost and allocate resources to functions that are critical to the business. This strategy also emphasizes the optimization of contract processes, ensuring that each contract is tailored to meet specific business needs while supporting compliance measures and minimizing risks. In addition to reducing the cycle time for contract creation, negotiation and approval, this approach improves overall efficiency, which leads to a more functionally optimized and seamless process flow.
This improves the process by bringing together several interconnected systems, ensuring seamless data flow, collaboration among teams and connectivity across all stages – from lead generation and quote creation to drafting, signing and invoicing.
PwC’s approach leverages auto-generation of contracts using advanced clause and template libraries. This feature allows enterprises to quickly and accurately produce contracts that adhere to the industry best practices and established legal standards, thereby reducing the occurrence of errors and omissions.
By using these repositories in an efficient manner, organizations can ensure standardized contracts, while adhering to compliance requirements and reducing risks.
The auto-generation capability of contracts helps to considerably reduce the time required to draft contracts, helping enterprises to stay active in a competitive market and respond to opportunities in a timely manner.
This approach resolves common pain points and enables enterprises to operate more effectively and efficiently.
In our experience, proven benefits of automating the cycle are as follows:
- The scope for manual errors was reduced by using advanced clause and template libraries to ensure consistency across contracts.
- A reduction of nearly 30% in contract turnaround time was observed for organizations that leveraged our standardized template and contract types.
- Contract review time for our clients was cut by approximately 50%, thereby unlocking key insights and improving negotiation outcomes.
- A Return on Investment of approximately 125% year-on-year over three years was observed following the implementation of the CLM system.
The benefits of this kind of CLM implementation strategy extend beyond cost reduction and operational efficiency. For account executives, the increase in transparency and visibility in contract management processes provides better control and oversight. Enhanced visibility allows account executives to make more informed decisions and address potential issues before they escalate.
Operational improvements through CLM implementation
According to our observations, companies are increasing their spend on process simplification and system integration.
The integration of CLM into lead-to-cash (L2C) and procure-to-pay (P2P) processes is a major aspect of the described approach and a key reason for its favorable outcomes. In the L2C process, effective CLM ensures that contracts are aligned with sales and revenue goals, easing transitions from lead generation to cash collection. This adjustment helps to reduce sales cycle times, thereby improving customer satisfaction and revenue predictability.
The comprehensive approach to CLM, when integrated into the L2C process, provides a solution that strategically aims to achieve future growth. PwC’s CLM implementation helps organizations to navigate the challenges in contract lifecycle management by focusing on compliance, efficiency, visibility, cost reduction and relationship management. In the future, in addition to integrating CLM into operational processes, organizations can gain considerable advantages by introducing artificial intelligence and other such advanced technologies into CLM platforms in order to stay relevant and experience exponential growth.
