What is Contract Lifecycle Management?

Behind the scenes of every organization there’s a never-ending stream of document workflows, processes and agreements. How you manage this operational infrastructure is important - it's an engine that keeps your organization moving forward.

In this blog, we’ll cover everything you need to know about contract lifecycle management—so your organization can implement a contract management strategy that promotes productivity, inspires clients and drives revenue:

• What is contract lifecycle management?

• What is the contract lifecycle management process?

• What is a contract lifecycle management system?

• How to know if you need CLM?

• What to consider when evaluating a CLM solution

• Best practices for implementing CLM

What is contract lifecycle management? 

Contract lifecycle management (CLM) refers to the effective management of contracts throughout their entire lifespan, from contract creation to termination. It systematically handles contract stages and activities, including drafting, negotiation, and integration with other systems.

CLM is effective for any agreement in the contract management process, including:

• Purchase orders

• Sales contracts

• Loan documents

• Real estate contracts 

• Lease agreements

• Employee offer letters 

• Change orders 

• Non-disclosure agreements

Contract lifecycle management ensures essential contracts smoothly transition from one stage to the next, reducing common bottlenecks within a growing organization.

CLM software

Gartner defines contract lifecycle management software as "an application that proactively manages contracts from the initiation stage through the award, compliance, and renewal stages.

Many agreements require multiple drafts, legal reviews, and signatures as they travel through your organization and between acting parties. Traditionally, organizations manually conducted contract administration tasks. A contract was printed, signed with pen and ink, scanned, and returned to the sender.

Today, advanced CLM solutions help businesses manage contracts digitally. Digital management increases transparency across the organization and streamlines every stage of the contract management process.

What is the contract lifecycle management process?

Contracts are one of the first places to look when searching for ways to promote efficiency within your organization. They navigate a predictable path through nearly every organization, from drafting to signing.

But businesses often need help identifying improvement areas in the contract management process. Where can time be saved? How do you avoid errors? How can you increase revenue?

Understanding the stages of the CLM process is essential.

Five stages of the CLM process

Every contract, no matter its size or complexity, has to go through the five stages of contract lifecycle management. Understanding those stages can help you find areas of improvement in the contract administration for your organization.

1. Document generation

Document generation is the first step in every contract management process. It starts with the initial contract request, followed by creating the contract from a template or an existing version. It includes any initial drafting and information-sourcing procedures required when someone makes a new document.

2. Routing and negotiation 

After the initial preparation of your agreement is complete, where does it go, and how does it get there? The routing and negotiation stage of contract management has multiple internal and external stakeholders. It includes any contract management workflows in sending, editing, and negotiating a newly generated agreement.

Many contracts spend a significant portion of their life in routing and negotiation. As a result, optimizing this area can significantly impact your organization's operational efficiency. If you rely on manual management of your contracts, emailing versions or tracking changes can quickly weigh your organization down. Fortunately, there are easy ways to simplify even the most complex contract workflows, as you'll see later.

3. Document signing 

Document signing accounts for a sliver of document management, but it's arguably the most critical step. The legality of every contract depends on a secure, verifiable signature. 

Since business is regularly conducted online, requiring manual signatures can create significant bottlenecks in the contract management process. 

These days, electronic signatures make it easy to execute documents instantly and anywhere--worldwide. Because it's online, it creates a quick, seamless remote document management experience for all counterparties.

4. Integration with systems of record

Integrating your CLM solution with your other Systems of Record is a crucial, time-saving step in the CLM process. Integration allows you to automatically pre-fill contracts with information from existing data sources (like contact info or product pricing). The automation, in turn, helps you reduce the amount of contract administration required to move contracts forward.

An integrated CLM solution also makes it easier to act on completed agreements. For instance, an e-signature sent to HR from a new hire may automatically trigger the next step in the onboarding process, such as sharing tax forms or training resources.

5. Search and analysis

After a contract is signed, the final stage in the contract management process involves storing it in a centralized, searchable location. Existing contracts are one of your organization's most important assets. It's important to keep close tabs on completed contracts. For instance, if your contracts are tied up in unsearchable PDFs, analyzing and amending existing contracts as industry regulations evolve is next to impossible.

Modern CLM solutions have features like contract analytics and artificial intelligence (AI), making contracts easier to find and access. These features help instantly identify specific clauses and terms embedded in the language of existing agreements.

What is a contract lifecycle management system?

Contract lifecycle management systems are software applications that help organizations and departments manage contracts more efficiently. Unlike manual document management strategies, CLM systems are built to help you store and find agreements, supplier information, standard contract terms, and contract templates with ease. Ultimately, contract management systems make managing contracts—and running your business—less work. 

How does contract lifecycle management work?

A contract lifecycle management system is a suite of tools that makes it easier to manage your agreements.

Historically, agreement management required ongoing coordination between multiple internal and external stakeholders. Contract lifecycle management brings everything together under one roof to create a seamless end-to-end agreement management experience.

Centralized dashboards increase contract visibility and minimize the need for communication among parties. Automated drafting, routing, and workflow management accelerates completion time and reduces the risks associated with manual data transfer. Electronic signatures offer an efficient and secure way to approve business agreements—anywhere, anytime.

Ultimately, system interconnectivity gives any enterprise CLM solution its might. One simple System of Agreement promotes a secure, agile operational infrastructure, making life easier for you and your counterparties.

How to automate contract workflows—routing, collaboration, and negotiation 

End-to-end automation sits at the heart of every enterprise contract management solution. Automating each stage helps simplify complex workflows and enables a flexible, configurable document management system.

For example, take the agreement approval process, which 53% of businesses cite as their biggest challenge within contract management. Sales proposals are typically drafted, then sent to various sales and legal team members via email. Feedback typically lands via email, too, creating a lengthy, reply-all thread that can quickly become unmanageable. 

To add icing to the cake, some parties arrive late to the thread, resulting in changes to outdated document versions. This wastes effort, creates confusion, and can cause deal-jeopardizing delays.

Automating and centralizing the contracting process from the outset accelerates the creation of efficient, secure contract workflows between sales and legal teams. Once a contract is generated, the contract management solution takes three important actions precisely and meticulously:

1. makes the contract accessible to all stakeholders

2. keeps the agreement updated with real-time revisions and comments

3. sends it through the right workstreams in a timely way.

Multi-system integration—connect the contract process across the org

Connectivity along all stages of the contract management process–from contract creation to negotiation to signing contracts–is critical. CLM software solutions enable integration at the enterprise level by facilitating coordination within your organization's existing Systems of Record.

Bringing client, patient, or customer data online can be painful without the right tools. When it comes to managing contracts, automation is a game-changer. You unlock a world of possibilities for streamlining your operations by using a CLM solution that works seamlessly with other cloud-based software, such as Salesforce.

You can generate contracts instantly with just a few clicks, saving precious time and effort. It also ensures accuracy and consistency, fosters customer trust and satisfaction, and helps optimize your resource allocation.

Reduce risk—searchable contract repository, analytics

Email, as a business platform, is especially vulnerable to cyber-attacks. Despite this tremendous vulnerability, almost 80% of contract management professionals regularly use email to share sensitive agreements.

As more business moves online, organizations around the globe must elevate their cybersecurity awareness. In addition to streamlining operational procedures, the right CLM system can safeguard sensitive or private information with advanced encryption. 

Every document also produces a court-admissible, digital audit trail. This function is invaluable, especially in industries with strict data regulations, and provides contract management professionals and legal officials with full track-and-trace capabilities. Additionally, business security can benefit from CLM tools like document analytics and contract repositories. These tools help identify and minimize compliance issues embedded in the language of existing documents.

For instance, as the London Interbank Offer Rate (LIBOR) becomes obsolete in the financial community, $240 trillion worth of contracts may need renegotiating. Manually searching through existing contract data to track down risky language is burdensome and impracticable. 

Bottom line: Investing in integrated AI solutions and searchable contract repositories now will dramatically reduce the time and money your organization spends on contract management down the road.

How to know if you need CLM in your line of business

Every business can benefit from the simplicity and efficiency that an enterprise CLM solution offers. After implementing an enterprise CLM solution, companies may realize a potential return on investment of as much as 365%. But how do you know if investing in a CLM solution suits your business goals?

First, consider which departments would benefit the most from automation or more efficient operational procedures. Everyday use cases for CLM software include: 

Sales

Your business can only move as fast as your sales agreements. That’s why sales teams across all industries reinvent their agreement processes to be more agile, efficient, and customer-focused.

During the sales process, contracts define every major milestone—from negotiating and signing to billing and renewal. As a result, inefficient contract management and storage (like email or Excel spreadsheets) can cost the average business up to 9.2% of its annual revenue. Not only does an effective contract management solution streamline the sales process and minimize operational costs, but it also improves the customer experience—driving revenue and greater client retention.    

Legal

Legal review and approval is a crucial step in every contract’s journey, but it’s also traditionally one of the most time-intensive steps. According to a 2020 study conducted by Forrester and commissioned by Docusign, 50% of legal professionals reported inefficiencies in their contract management process stemming from the manual transfer of data. Another 62% reported having to rework contracts regularly due to errors.

The longer it takes to get an agreement finalized and out the door, the less business finds its way in. A successful transition from manual to digital contract management eliminates errors, ensures compliance, and accelerates time to value. 

Procurement

As the primary link between an organization and its vendors, procurement teams face immense pressure to act fast and maximize value. Using manual or paper-based contract management methods can lead to inefficiencies and unexpected costs, hindering their ability to contribute value.

A 2020 Forrester survey revealed cost reduction and risk mitigation as top priorities for procurement leaders. Moreover, 84% of supply chain managers identified low contract visibility during procurement as their main challenge. Automated solutions to address these issues are readily available.

Forrester research and interviews with Docusign customers found implementing an enterprise contract lifecycle management solution can deliver significant potential benefits, including: 

• 20-day reduction in contract processing time 

• 83% faster time to value 

• Savings of $1,750 per contract on outside counsel

• Reduced risk exposure due to increased contract visibility, valued at $527,000 

• Reduced contract value leakage by identifying redundant vendor contracts and opportunities for volume discounting, valued at $1.46 million 

• Improved contract integrity

Throughout an organization, optimized procurement workflows translate to lower costs, stronger compliance, and more visibility across the board.

What to consider when evaluating a CLM solution

Once you decide to update your CLM solution, your decision becomes: What makes one CLM solution better than another? Let’s start by considering what contract management software is designed to accomplish:

• Increased visibility: Provide a 360-degree view of the entire contract management process from start to finish. 

• Reduced operational costs: Save time and money with pre-approved templates and standardized workflows.

• Minimized risks: Lower risks by introducing analytics, security, and track-and-trace capabilities into the contract management process.

• Improved compliance: Enhance operational, contractual, and regulatory compliance with clause libraries and artificial intelligence.

Common CLM features

When evaluating CLM solutions, you’ll want to select a system with features that ensure the above goals are met. Here are some common features to look for in your next CLM software:

• Flexible, configurable workflows: Defines, deploys, and maintains contract workflows at the enterprise level easily—creating a faster path to value and lower total cost of ownership as processes change. 

• Document generation: Creates preconfigured templates and auto-populates contracts with pre-approved language or CRM data during the drafting process. 

• Collaboration and negotiation: Enables parties to send contracts for review, track changes across multiple versions, and maintain a secure, transparent digital audit trail to hold all actors accountable for their role in the approval process. 

• Clause library: Stores pre-approved clauses and fall-back language to eliminate in-depth legal reviews on every document. 

• Centralized, searchable repository: Stores, tags, and organizes contracts in a single, searchable location—with permission controls. 

• CRM integration: Seamlessly integrates with your other Systems of Record, such as Salesforce or another CRM system. For instance, integration helps automate the document generation process—auto-filling new agreements with existing CRM data. 

• Security: Complies with your industry’s regulations, e.g., SOC 2, HIPAA, TRUSTe, and FedRAMP.

Gartner Research evaluates software vendors based on 15 criteria, including touchpoints like market responsiveness and overall customer experience, to aid your search for the right CLM solution. See the latest Gartner Magic Quadrant for CLM report.

Best practices for implementing CLM 

The benefits of automation are clear: greater operational efficiency, higher employee productivity, and increased customer satisfaction. However, even thinking about the possibility of a digital transformation can be daunting. Many professionals don’t know where to start.

Fortunately, there are a few simple steps you can take to move your business toward an automated contract management process. Eight easy steps prepare your company for deploying an enterprise-wide contract management system based on the experiences of hundreds of organizations.

These steps allow you to spend less time pushing paper, and create a frictionless contract management process that reduces costs, accelerates revenue, and enables your organization to respond quickly to changes in the business environment.

1. Begin at the executive level. All executives must buy into the adoption of a new contract management system. Without enterprise-wide support, allocating resources for budget and training becomes an uphill battle. Clear communication and alignment at the highest level also inspires adoption throughout the organization. 

2. Establish governance. Once leaders are on board, assemble a qualified and diverse team to shepherd the implementation and execution of your CLM program. Strong alignment on the enterprise's rules, practices, and processes starts with the right team. 

3. Empower enablement and train your team. Successful adoption of a CLM solution at scale requires enabling and training workers across multiple departments. Help users get up to speed quickly and teach each employee how to use the new technology within the specific context of their role.  

4. Identify current processes and visualize the future state. If you don’t know where you’re going, you’ll never get there. Getting the full value out of your CLM system requires closing the gap between your current and future states. This starts with assessing your current contract management system to identify inefficiencies and opportunities for improvement. 

5. Define project success. Clearly defining what project success looks like for your organization is a critical but often overlooked step in the implementation process. Stating the metrics and goals of your new CLM system at the very beginning enables you to demonstrate continued ROI as you grow.  

6. Start small. Even simple changes to enterprise contract management initiatives can yield quick ROI. So rather than tackle the entire implementation, break it into bite-sized chunks. The added benefit of starting small—or introducing a minimal viable product (MVP)—is that it allows you to learn as you go and leverage key insights down the line. Begin by prioritizing high-impact, lower-risk use cases. 

7. Prioritize and migrate contracts. Migrating active legacy contracts and compliance documents is a primary concern for any organization starting its digital journey. Even today, a significant number of businesses store contracts in filing cabinets—which makes finding and digitizing contracts a challenge. Collaborate with your vendor to create a plan for migrating documents onto a new CLM platform. 

8. Test robustly. Who knows what they want to get out of your new CLM more than your business’ subject matter experts? Get the most knowledgeable people in your organization involved in contract management testing. Properly configuring your CLM solution through rigorous testing saves time on roll-out and reduces project risks.  

Are you ready to automate your agreement lifecycle?

Are you ready for process automation that makes managing the full contract lifecycle easier? Are you ready for greater visibility into risks and opportunities at a lower cost than manual contract management?

Contract management offers an opportunity to cut back on the processes that slow business down. Stay agile and promote company-wide efficiency with an enterprise CLM solution.

Learn about Docusign CLM.