When it comes time to select a new Contract Lifecycle Management (CLM) solution, you may find the number of choices overwhelming. Precedence Research reports that the CLM software market size was estimated at $2.15 billion in 2022, and is estimated to hit $5.8B at the end of 2030. The report states: “One of the main causes influencing the adoption of CLM technology to reduce risks, create a stronger framework for compliance management, and improve customer experience is the growing complexity of corporate operations.”
Considering the above, it’s no wonder more and more businesses are hopping on the contract management train. The only downside is that they might be uninformed — and end up choosing the wrong system for their business needs. There are lots of different models of CLMs, so how do you know which is the best choice for your organization? Whether you are ditching spreadsheets and entering the world of CLMs for the first time, or you’ve decided it’s time to upgrade your current contract management tool, the importance of this decision cannot be overstated.
But before you make that final decision (or even shortlist the front-runners), you need an effective, verified process on how to choose the correct CLM vendor. Here are our tips on how to do just that.
Identify and Prioritize Your Business Goals
This may seem like an obvious place to start, but it’s a bit trickier than you think. Organizations often purchase contract management software before thoroughly assessing their company’s unique needs. Because all CLMs are not created equal, it’s imperative to focus on the specific kind(s) of support your organization needs from a CLM, as well as the types of teams that CLM can support.
For instance, if the CLM is designed primarily for legal teams, but the intended users at your company work in legal, procurement, finance, operations, and beyond, that solution isn’t a good fit for what you need.
Similarly, if your organization wants contract insights regarding spend analytics and forecasting, choosing a CLM tool that isn’t powered by the necessary AI technology to provide said insights is going to be a gigantic waste of time and money.
Some key contract management capabilities to evaluate are:
Contract-related spend analytics and forecasting
ESG compliance and risk analysis
Contract renewal processes and workflows
Supplier relationships and overall satisfaction
Contract insights (metadata extraction)
Understand Your Contract Infrastructure
After an internal needs assessment, the next step is talking to multiple CLM solution companies and figuring out if they’re the right fit. But if you’re unsure of the technicalities and current capabilities regarding your contract processes, it might be difficult to figure out how to successfully navigate those conversations.
In addition to your business goals (i.e. being able to forecast budget or discontinuing contracts with non-compliant vendors), understanding the types of contracts your organization needs to manage will be critical in figuring out which CLM software will best serve your company. A recent Gartner report, “3 Questions to Answer Before Shortlisting CLM Vendors,” suggests asking the following questions in order to narrow down the list of CLM tools to consider:
“How complex are your contract requirements?”
Our answer: If your organization currently uses a manual contract management process, you may want to consider an “express” CLM software — designed for customers that want to start small and build over time — as opposed to an enterprise solution. These are also sometimes known as “turnkey” solutions. Conversely, if you want to grow your contract management practices more quickly, many newer CLM solutions (like Terzo) offer basic support and beyond, right away.
“What types of contracts need to be managed?”
Our answer: Some CLM vendors can support all types of contracts, but some specialize in buy-side/supplier contracts, and some focus on sell-side/customer agreements. Some CLM tools even cater to specific industries (like healthcare), which may or may not be relevant to your organization. Gartner recommends working with your legal, procurement, and sales leaders to determine the types of contracts you will be managing.
And buyer beware: most of the CLM solutions on the market today were only designed to support legal teams. To learn more about this, check out our article with Procurement Magazine about why you need a CLM designed for procurement teams — not just legal — that further explains the distinction, and need for a separate tool.
“Are advanced contract analytics capabilities needed?”
Our answer: This one is basically a question of whether or not you want a “smart” contract management solution (aka one that’s powered by AI.) However, most organizations today are discovering just how important AI technology can be in optimizing their contract management processes. Automated functionalities, contract risk assessment, and data extraction are all examples of more advanced capabilities that many legacy CLM solutions can’t provide.
Consider a Software Audit
Until now, the two options for data entry were either time-consuming manual entry from internal teams or expensive manual entry from consultants. Neither of these options are ideal, and both require a number of steps to turn raw data into meaningful insights.
With manual entry, the output often comes in the form of a static CSV file. The extracted data then needs to be manipulated, and dashboards need to be built. In some cases, the data is manually keyed into a contract system like Icertis or Ariba, which often have weak contract analytics. This means that the data needs to be exported into a format that can be used by PowerBI or Tableau to build dashboards.
That’s a lot of different steps and software to do what some CLM solutions, like Terzo, can pull off straight out of the box. A great CLM platform can serve as a single pane of glass for your contract data while seamlessly integrating the necessary tools you need to keep the contract management processes optimized. The investment in one of these tools can alleviate the need for several others that only do one job in a complex process.
We recommend evaluating your organization’s existing software budget, mapping out what that software can and can’t do, and seeing where your potential new CLM tool’s capabilities overlap with what’s currently being paid for. The right product might end up saving your business more than you initially thought.
Implement Trackable Contract Management Metrics
Decide when and how you will measure if your new CLM tool is performing the way you need it to. There are a number of metrics to zero in on and keep track of, so find the ones that most resonate with your organization. If you aren’t sure where to start, our eBook, The 5 KPIs That Enhance Contract Performance, can be a great jumping off point. Click here to get your free download.
Because, sure, implementing a new SaaS solution is great, but you need to be able to see tangible benefits to your organization — ideally, sooner rather than later. Just rolling out a contract management tool isn’t enough; you need a solid strategy behind this initiative in order to get the results you want, as well as be able to track them effectively.
Business News Daily writes: “It isn’t enough that an organization has professionals in place to handle contract management. Employees must be augmented with the presence of processes and software companions to satisfy increasing compliance and analytical needs.”
They go on to say that a successful contract management strategy will yield the following:
Your organization’s projected business benefits and ROI are realized
The chosen CLM tool is cooperative and responsive in supporting your business needs
The organization encounters no contract disputes or surprises.
Both parties (your organization and your suppliers) find the relationship and agreed-upon contract experience satisfactory
Getting crystal clear on the outcomes your business expects (or requires) of your new CLM software can make or break the overall success of implementing said software. And it’s no secret that a failed software rollout can cost companies millions of dollars, as well as countless hours of wasted time. Make sure your organization takes the time to establish this before making your contract management tool selection.
We know that the process of choosing the correct CLM vendor might feel daunting at first. But with these tips in mind, it doesn’t have to be. Like any sort of procurement endeavor, having an action plan sets up your business for success and helps negate any unpleasant surprises or snags along the way — and should anything unexpected come up, you know you have something to fall back on.
Understanding your needs, making a list of priorities, and asking the right questions can all help to ensure that the CLM you do eventually land on is the right one for your organization. It’s up to procurement specialists and decision makers to implement these steps before the CLM search and selection process begins.