January 18, 2022

CLM contracts consulting contracting

Listen to a conversation with legal industry contracts leaders, Elevate VPs Prashant Dubey (PD) and Pawan Kumar (PK), as they explore the current CLM environment.

PD: Pawan, I’ve wondered what drives companies to have multiple CLM systems when there is a growing trend to consolidate to one enterprise CLM.

PK: Agreed! After 20+ years in this industry, I still marvel at how companies switch their CLM and how they have so many CLM systems across the enterprise. Why is that the case?

PD: I have thoughts on using multiple CLM solutions, how often switching occurs – and the interconnection between these two phenomena. The use of multiple CLM solutions is hardly uncommon. The larger and more dispersed the corporation, the higher the probability of using various solutions.

PK: Why?

PD: Larger corporations have multiple business units across many geographies, all of which contract but each with unique contracting needs.

PK: Good point. I’ve also observed another trend: business units with increasing autonomy in selecting technology. The IT-centric approach to technology selection is waning. Today, a business unit can frequently buy tech without IT’s involvement if it doesn’t touch other enterprise systems.

PD: There’s also a software company dynamic. With CLM, two big things happen. First, most CLM systems are SaaS, and using them doesn’t require much IT involvement making it relatively easy for multiple business units to use different systems. Second, system “functionality creep” is ongoing. For example, systems for procure-to-payment (P2P), e-sourcing, and procurement now offer CLM modules. Decision-makers responsible for procurement and supply chain do not buy a particular system for its CLM functionality. But they often use that functionality since it is readily available. After all, the account records are consistent, and data integration isn’t an issue, so why not?

Same with CLM modules available in sales, IP, or HR systems. None of these CLM modules does a lot, so at some point, it becomes necessary to build a specialised CLM system from scratch to tie the entire enterprise contracting business process together. When a business unit is large enough to buy its grown-up CLM system, almost always, it does so without considering whether that meets the needs of the entire enterprise.

These three factors – organisational complexity, procurement autonomy, and software dynamics – create a “perfect” storm of system proliferation in larger organisations. In smaller organisations without formal business function leadership, it’s possible to “brute force” a single system to meet company-wide needs (at least until the company grows). As a result, system creep is less prevalent.

PK: And there is a push to reduce fragmentation. The best method of establishing a centralised repository is to evolve from a single point of truth within a company’s law department and tailor a single point of truth for an entire business’s contracting process. The goal is to consolidate contract documents and related data across a sales CRM, a procurement SRM, HR systems, and Legal’s ELM or CLM. But right now, companies continue to switch systems regularly. Why is that?

PD: The same factors we just discussed impact how often a company switches its CLM. Often, business units realise duplication, and they change to address that, or none of the systems in use meets everyone’s needs.

Other times, it’s a matter of system functionality:

• The incumbent lacks critical capabilities.
• Staff find the systems hard to use and resist adopting them.
• Business and strategic goals dictate obtaining a system that can do more.

Legal considerations can create a need for more rigour and consistency in contracting. Consider a pharma company under a Corporate Integrity Agreement (CIA) from the US Department of Health and Human Services for alleged contracting acrobatics with doctors prescribing their drugs. Under the CIA, the pharma company has a legal obligation to report quarterly all the contracts with clinicians, with high data integrity. If their existing system – or systems – can’t do the job, they must get a system that can.

Combine this with ‘the appeal of the new’ and aggressive marketing from software vendors that drives demand. We have AI. We have new-generation UIs. We have innovative bells and whistles! In your experience, how often do the things I’ve described occur?

PK: There’s a consistent trend of companies changing applications every three to five years. Incorporating AI into CLM design and the new tech stacks have accelerated this trend. I still see businesses with multiple CLM apps because Legal won’t use the CLM the rest of the company deployed. Nevertheless, there’s a growing push for convergence toward enterprise CLM focused on the contracting business process. It’s happening!

PD: This matches our point of view and our service delivery and consulting approach. We are finding regularity in customers wanting our guidance on how to consolidate CLM systems and select one system that meets their enterprise needs – and they want our support to implement these systems. 2022 is already shaping up to be a busy year in this regard!