Understanding that contract intelligence and contract management are not one and the same is nothing short of crucial. They may seem similar on the surface, but they're vastly different concepts. Ignoring the distinction between the two can lead to significant misjudgment and wasted resources. Don't be misled by the similarities — make sure to take the time to truly understand the difference between contract intelligence and contract management. It could end up saving your organization more than you think.
But why should you care? What does it matter if you’re not sure which is which?
Here’s an example: let’s say a global financial services company suddenly realizes they have little to no insights into their contracts, renewal dates, or what IT portfolios were owned. The company has no way of knowing which people, whether internally and externally, mapped to which contracts.
A standard CLM has no way of extracting the information this company needs to shed some light on the situation. It would require manual searches and data compilation, a massive undertaking for an organization of such size. But a CLM that’s powered by contract intelligence can easily pull renewal dates, portfolio info, names of stakeholders, and more. What’s more, it could pull this information in mere minutes.
Using such a tool would enable the finance company to stay on top of contract renewals, reduce investment on products with little or overlapping value, and implement internal accountability to fix the issues. Bit of a game-changer, right? Therein lies the importance of knowing how to choose contract intelligence over standard contract management.
This blog post covers the meaning of contract intelligence, along with its use cases and benefits. Let’s get started.
What Is “Contract Intelligence”?
As it’s a fairly newer term, “contract intelligence” doesn’t really have an official definition.
Here’s how we define it:
Contract Intelligence (noun)
The extraction of important data from contracts to enable people to do their jobs easier and make better, faster decisions from said data.
So, if intelligence is finding and gathering data, the other side of that coin is analytics. Contract intelligence is what enables a CLM solution to display data in dashboards and reports. Analytics is a layer of intelligence that discovers, categorizes, interprets, and predicts insights about your contract data. Both elements are equally necessary in optimizing contract management, saving time and money, and getting the most out of supplier agreements.
When a solution is powered by artificial intelligence, the “intelligence” component is already built in. Most CLMs have little to no AI powering their platform, meaning you, the user, has to do all the heavy lifting. You’re in charge of searching for, aggregating, and analyzing your own contract data. The average CLM merely exists to house and organize your contracts — it wasn’t designed to offer insights into the details of said contracts.
But contract governance is a complex process. Siloed data and poor collaboration force teams to be reactive, which leads to lost value in negotiations with suppliers. Leaving the majority of the work in the hands of the user is a highly suboptimal way to play this game. A CLM that’s fueled by contract intelligence ensures all your data is stored in one place with an intuitive user interface and fast, simple metadata extraction.
The average CLM just isn’t smart enough to offer valuable insights. However, a CLM with contract intelligence has just that — intelligence — designed to make your job easier.
What Problems Does Contract Intelligence Solve?
Stay with us here. In the video game world, games are constantly getting new updates from their developers. One of these update categories is called a “quality of life” update, referring to features or aspects of the game that don’t change the game itself, but improve or optimize gameplay experience. These updates result in reduced risk of player burnout and increased satisfaction from players.
Because the problems solved by contract intelligence span such a wide range of issues, while ultimately enhancing the end-game contract management results, implementing a contract intelligence tool is like the ultimate quality of life update for your organization and your people.
Looking for specifics? Here are just a few.
Empower Yourself with Unobstructed Insights
Believe it or not, most organizations don’t have quick or simple access to their contract data. This means that insights regarding their finances, renewal dates, potential areas risk, etc., can be easily overlooked or neglected altogether.
But overlooking said insights can lead to financial and repetitional damage: fines, late fees, soured vendor partnerships, even legal action. It’s important to leverage contract intelligence to not only ensure fiscal profitability, but healthy, lasting supplier relationships as well. The ROI organizations get from contract intelligence goes beyond fiscal; it’s interpersonal, too.
When it comes time to make important decisions, these insights can be the lynchpin that secures your chances of cutting costs or fighting for budget. Having accurate contract data collected and visually displayed for simple interpretation has never been easier to achieve than with a CLM powered by contract intelligence.
Stop Wasting Money
Reducing wasted or redundant spend is arguably at the top of the list when it comes to contract intelligence perks. It’s become clear that, given the sheer volume of contracts most businesses are dealing with (Forbes reports that Proctor and Gamble has over 75,000 suppliers; Walmart over 100,000), they simply can’t afford to opt out of analyzing supplier-related spend. Yet so few of these businesses are able to actually take control of this situation due to a lack of contract intelligence.
This lack of intelligence yields substantial loss for the average company. The amount of money hemorrhaged on poor contracting is staggering: 9.2% of an organization’s annual revenue, according to a study from World Commerce & Contracting (formerly IACCM). And that number is even higher for large capital projects — up to 15% of the contract value.
Imagine what you could do with almost 10% of your organization’s annual revenue. With contract intelligence, that sum could be reallocated to innovation efforts, culture-building initiatives, even performance incentives. Redistributing a tenth of revenue back into an organization could be pivotal for many reasons, but that number is just a jumping-off point. Terzo customers have seen up to $6M in cost savings opportunities across a subset of contracts in just 90 days.
Reclaim Your Time
Time is one of our most valuable resources. This isn’t exactly a controversial statement, yet many SPVM experts often find themselves with not enough hours in the day to do their jobs. People across all different industries and professions are constantly being asked to do more with less. Everyone is so busy trying to finish all their tasks for the day or week or month that there’s often not a lot of time (if any) leftover for things like innovation, team building, or professional development.
A lot of this time is taken up by simply searching for specific pieces of information. And for business teams, this means sifting through contracts. In fact, according to a report from McKinsey, workers spend an average of 19% of their work week searching for and gathering information. In a 40-hour work week, that’s almost eight hours of hunting down information — an entire business day. Utilizing Contract Intelligence means you get to leave the searching and aggregating to the technology — which, by the way, can be done in seconds as opposed to hours. Who wouldn’t want to get back an entire day of their week?
The Impacts of Contract Intelligence
Deploying a CLM solution that uses contract intelligence can have immediate effects throughout your organization. Once you implement the right tool, the “aha” moments just don’t stop coming. From spotting trends or areas of risk in past contract data to helping make better decisions for the future, leveraging Contract Intelligence will revolutionize the way your company does business.
Budgeting and Forecasting
It’s important to be proactive rather than reactive. The further you’re able to look ahead, the more prepared you’ll be for business curveballs that inevitably get thrown your way.
Being able to forecast and plan more accurately makes all the difference in the world. Sure, you could put together a team to work on this — or you could leverage contract intelligence and know with absolute certainty that the numbers don’t lie. This kind of technology can help you see the next 1-5 years of commitments, so you can make smarter decisions and implement changes to meet budget requirements.
If the past few years have taught us anything, it’s that supply chain issues can devastate a business. Although these issues are mostly unpredictable, having all your supplier-related data in one place allows you to spring into action when assessing the damage and making a plan. You might not be able to forecast a global disruption, but you can lean on a contract calendar to predict impending fallout before it happens.
In many cases, intelligence = inventory. Particularly inventory broken down by category or supplier. Knowing exactly what products and services you own — and how much you’re paying for them — is critical to organizational success. Yet so many companies are in the dark on their inventory levels as this data is scattered across hundreds or even thousands of different contracts.
Contract intelligence collects all this information and displays it in one place, so you can visualize your portfolio at a glance. For instance, Terzo’s AI can extract SKUs of products, services, support, and more to provide deep inventory analytics. You can see what you’re paying per unit across all inventory categories and use this information to create reports.
Cost rationalization, or the process of addressing the sources of costs throughout the supply chain, is already a complex matter. But when an organization’s supply chain information is scattered or lost in a spreadsheet wasteland, the process becomes infinitely more difficult to get a handle on.
“Rationalization is necessary for a company to increase revenue, decrease costs and improve its bottom line,” writes Will Kenton in an article for Investopedia. “Rationalization may also refer to the process of becoming calculable. For example, the introduction of certain financial models or financial technologies rationalizes markets and makes them more efficient.”
Given its importance, optimized cost rationalization should be a top priority for leaders. They just need the right tool for the job. Contract intelligence gives you the ability to identify duplication and redundancy with the click of a button. Terzo’s AI goes deeper with data normalization categories and inventory catalogs, so organizations can find ways to consolidate and rationalize their spend. “The process of rationalizing is especially common during recessions and after corporate actions such as a merger, acquisition, or new CEO hire,” Kenton adds.
Investing in contract intelligence technology for your business teams is like upgrading from a pencil and paper to a supercomputer. It opens up a world of opportunities to streamline and optimize operations, giving you new insights and perspectives on how you do business with suppliers. Why miss out on the potential benefits that this technology can bring to your organization?
Once SPVM professionals are able to truly see into their contracts and get down to granular data — spend, inventory, SKUs, workflows — they can harness that previously unknown information to make more informed, quicker decisions. Make the smart move and bolster your teams with contract intelligence technology.
It’s hard to settle for lackluster contract management once you’ve experienced the power of contract intelligence. We’d love to show you a more in-depth look into just how effective this technology can be. Click here to schedule a demo with our team to learn more about how Terzo can revolutionize the way you manage your contracts.