Why Contract Digitization Isn’t Enough?
Digitization does not equal Transformation
Amrita Tahiliani Joshi – CMO, App Orchid
I led sourcing for a mortgage bank almost 20 years ago and spent a few years as a sourcing advisor thereafter. When I inadvertently reentered the sourcing and procurement arena in 2019, I was shocked that very little had changed in how procurement and sourcing was done! Still the same lengthy RFP process with the same months of dragging contract negotiations. Although some companies had digitized parts of the process, most of those systems just pushed same old process through a digital workflow. Even though the world of procurement and sourcing had gone through changes such as increased number of vendors and shorter-term lengths – very little innovation had occurred in terms of how the work got done.
Most CLM software addresses only the basics
My observations were not alone. Most companies (even the large ones!) still have not gone through a major digital transformation effort for their sourcing and procurement departments. In the last webinar we did with WorldCC on Why Does Procurement Take So Long we polled 280 attendees and found that 39% of the participants were not leveraging a CLM tool and that the majority that were -45% of participants, were using a CLM tool with very little automation.
Since launching ContractAI, I have spoken to hundreds of companies about their existing CLM software (if they have one) and what they are looking for. What is interesting (but kind of sad) is that most are looking for the most basic of functionality vs. innovation that could leapfrog their procurement department.
When embarking on digitizing most companies come down to the basics of looking for a “tool”.
“We are looking for a tool that…
…houses all our contracts in one easily searchable repository.”
…automates the approval process / workflow.”
…tracks and alerts us of contract obligations.”
Although there is nothing wrong with looking for a tool that solve the above pain points – the problem is that they only solve the most basic of procurement problems. Companies go through long implementation cycles to fit the tools to their internal process (or vice-versa) only to find that the tool they implemented does not bring the break-through results they expected.
The Consequences of Choosing a Basic CLM software
- Budget is used up – getting budget for additional tools is difficult.
- Team is spent – the time and effort used to implement a new tool and then learning new tool has sapped the team – no one wants to go through it again.
End-to-end CLM in a Hospitality Company
For example, one major hotel chain we spoke to had just implemented a well-known CLM system that has a good reputation of being “end-to-end”. 3 months into their contract they were already talking to us about leveraging ContractAI because the process of ingesting old contracts and extracting data into the CLM was so cumbersome that they had completely left them out of the system! So although their process going forward was fine – inability to bring in their prior contracts and data automatically had rendered the system ineffective.
Contract Analytics in a Financial Services Company
One financial services company we spoke to wanted to implement an analytics tool to help them with compliance and internal policy adherence. The implementation took 2 years because the process was so manual (for example, they had to assign risk ratings at the sub-clause level for every fall-back position for every type of contract) that they were stuck. Even though this process continues to be manual with updates – the team was so spent they couldn’t stomach the thought of moving to a more advanced tool that could eliminate this manual process.
Be Bold - Look Beyond CLM Software that Just Digitizes
Procurement departments are so swamped and have such little budget – that when you are fortunate enough to have the budget to implement new technology – look beyond CLM tools that just digitize your current process or solve a specific process pain point. Many CLM systems can solve the basic problems well enough. Look beyond those tactical issues to tools that can truly transform your processes.