CLM in a Pandemic World: Recovering with Resilience and Strength through Contract Analytics

Data Driven companies have been more successful during these trying times. They treat data as an important corporate asset, derive insights from it and make decisions that improve their operations. The pandemic highlights the need for technology and a shift to digital is more critical than ever. 

Better analytics lead to business innovation, a greater understanding of customers and suppliers, that accelerates and improves decision making. 

Prior articles from Mainspring addressed the CLM Future State and Contracts AI. This article explains how companies use advanced analytics and data visualization. These methods provide a far more objective and dynamic assessment of the quality of their operations than traditional methods, particularly when it comes to contracts.  

Scrutinization of boilerplate language through contracts analytics

Through the power of Contract Analytics, the financial terms of contracts such as volume discounts on spend and market share commitments are continuously scrutinized, including boilerplate language. While boilerplate language might seem innocuous, it sometimes can specify requirements that can lead to unexpected fines or costs to remediate if missed, such as onshore, domestic requirements for goods and services. Contracts Analytics can offer a forward-looking view on fulfilling contractual commitments so that adjustments can be made in real time and the full value of the contract can be realized BEFORE they expire and/or unnecessary risks are incurred. This forward-looking approach helps organizations drive contractual relationships dynamically towards meeting their business objectives, not just relying on a rear-view mirror of transpired data, often converting obligation management from an administrative burden and cost center to a revenue generator. 

Visualization approach to contracts analytics

We introduce a Contracts Analytics dashboard below to demonstrate how to visualize contracts to dissect business transactions intuitively and understand ongoing key business terms or KPIs over the life of the agreements.  

Benefits of operationalizing contract analytics

Contract Analytics, combined with Contracts AI, can interpret contractual information over tens, if not hundreds of thousands of agreements, into real-time trends for dynamic decision making and business execution. We offer a handful of use cases below in which clients can benefit from operationalizing Contract Analytics.

(1) For dramatically reducing Indirect spend, i.e., spend not directly contributing to the process of manufacturing goods or delivering services, e.g., IT, HR, Legal, Marketing. 

This can be accomplished by having Contracts Analytics identify the top three to four contracts—those with the largest spend or that are strategically important to your company's business objectives. 

Use Contract Analytics to:

• Conduct a "top-down" analysis to determine how much cheaper they could be if all cost-savings tactics were deployed based on a combination of industry benchmarks, expert interviews. and analysis of past purchases.
• Request external data from vendors such as resource-mapping data, e.g. list of individuals with fulfilling services for an agreement, including their role description, start/end dates, percentage of dedicated time, expertise and skills. These line items can then be included in a "top-down" analysis to understand the value gap between what is being paid versus what is being delivered. 
• Uncover multiple contracts that subscribe to the same service that can be consolidated.
• Identify auto-renewing and evergreen contracts that can be terminated.

(2) For developing a contract negotiation strategy based on buying habits, patterns, and trends. 

Past behaviors and habits won't necessarily be what consumers and customers want when the crisis ends, so developing a clear perspective on which habits will stick, which won't, and for which segments, will be crucial. Contract Analytics will help give organizations a more accurate picture of developing demand, including price-sensitivity and incorporate these learning for preparation and real-time during contract negotiations.

Use Contract Analytics to:

• Collect customer information and insights for improved negotiations particularly around typical key objectives on price, flexibility and performance.
• Formulate a response strategy and prepare for upcoming negotiations by capturing internal performance data.
• Establish target outcomes that generate the greatest or most desired value.
• Define support levels including performance incentives and/or penalties for exceeding/missing SLAs.

(3) For Pandemic Recovery Planning and Preparation

Build a "Plan-Ahead" team1 that pulls together information, builds scenarios, devises actions for each scenario, then makes recommendations to decision makers on which actions to take. It is different from the "strategy team" that explores what might happen in the future, and the "crisis team" handling emergencies and what's happening right now, this “Plan-Ahead” team plans across all time horizons simultaneously. So, the Plan-Ahead team will need to have a grasp on contracts for existing business transactions and trends as critical input for the financial viability and risks of the company. Using Contract Analytics, the plan-ahead team can alleviate pressure on the top executives by bringing them information with contracts as input that is already synthesized and decision ready. The leadership does not have to grapple with gathering information and thinking through scenarios of their business. 

Use Contract Analytics to:

• Review various scenarios if suppliers are running out of capacity or if your product or services being sold are in high demand. What if a big demand drop-off happens in three months? And on a one- to two-year horizon, what is the return journey?
• Assess and reevaluate current business models. How will your industry change in support of customer's business objectives? What actions need to be taken immediately to accommodate these changes in needs?
• Determine if current pandemic conditions, such as working remotely, will impact the business, once reversed or stay permanent. If fewer people go back to offices and more people work from home, that has numerous implications for today's business models and future business opportunities.

While it is impossible to know and predict the future, it certainly is possible to start thinking and preparing constructively about what could happen once recovery from the pandemic and the economy begins. As lockdown restrictions begin to ease, businesses will need to learn how to operate in new ways. Contract Analytics provides an effective measure for helping organizations assess business performances and anticipate future scenarios, helping them become more resilient and emerge stronger than ever before. 

Footnote:

1 - McKinsey Insights, “How Business Leaders Should Plan Ahead for the Next Stage” podcast transcript featuring Martin Hirt

 This is the third article in a series of three. The first article can be found here where we introduced the Business Transformation model and the CLM Future State. It outlined concepts to document and automate processes with CLM best practices without a major financial commitment. Our second article can be found here where we focused on interpreting, predicting, and prescribing a course of action for greater resiliency using contracts and Contract Analytics.