The Sirion Blog
NEWS, IDEAS, AND INSIGHTS FROM THE SIRION TEAM
The Journey from CLM to CLM++: A Critical Ingredient for Enterprise Transformation
This article by Claude Marais, Co-founder and President, SirionLabs, was originally published on Forbes on May 21, 2020.
The start of a new decade offers a natural opportunity to reflect on the profound changes that have taken hold in our industry. Even more fitting given that the year is 2020, hindsight allows us to contemplate what has been successful and what can be improved. In co-leading a CLM platform and solutions company, I have seen tremendous change in contract life cycle management (CLM) technologies and the efficiencies CLM has delivered in many areas. However, as I step back, I am struck by a fundamental issue that needs to be challenged: a narrow, misunderstood definition of CLM.
For the longest time, CLM technology has been reactionary. Many of today’s contract management software solutions have been earnest attempts at keeping up with and solving specific pain points at different stages of the contracting process. Despite the recent technological advancements, most CLM providers continue to remain fixated on a narrow view of what CLM is.
They have focused time, energy and investments in what essentially are point solutions to address specific narrow areas. This approach has created incremental value but can fail to deliver the promised business transformation.
While companies have tolerated their underperforming CLM strategies for years, the expectations are now changing. To enable a deeper business impact, the traditional boundaries of CLM are being redrawn to encompass a wider scope of business processes. This expanded CLM vision represents the future direction for commercial contracting.
The graphic below provides a useful road map for companies to implement this expanded vision.
Most organizations start on the left by using technology to automate the creation and storage of contracts. This is the traditional definition of CLM, and unfortunately, most organizations stop their CLM journey here, under the impression that this is all contract management technology can do for them.
Even these disciplines are undergoing a transformation of their own, with newer technologies enabling unprecedented advanced capabilities (e.g. AI-powered contract analysis to automatically suggest preferred clauses from the clause library, concurrent editing by multiple users, auto-computation of risk scores for drafts, automated contract change management capability, etc.).
Contract analytics represents the next level of CLM capability — we call it CLM+. This entails leveraging advanced AI-powered technologies for deeper visibility into the contract portfolio, enabling:
- A clear understanding of the overall profile and hygiene of your spend/revenue arrangements (e.g., who you work with, how much you spend with different suppliers, where the latest contract documents are, which contracts are coming up for renewal, etc.).
- Effective risk assessment based on inclusion/exclusion of key clauses and deviation from standard positions.
- Auto-extraction and structured review of obligations and business outcomes promised as part of the engagement.
The real business transformation, however, awaits organizations at the next level of CLM capability. CLM++, as we like to call it, extends the role of contract management technology to the actual realization of the desired business outcomes.
While currently seen as the realm of a few organizations, CLM++ should be on the contract management road map for all large enterprises because this is where, in my experience, billions of dollars are lost in unrealized enterprise value.
CLM++ entails the use of advanced automation technologies to auto-compute and monitor performance (i.e., obligations, service levels, compliance) against the contract at the individual obligation level. This is critical for both buyers and suppliers in strategic, complex spend categories.
Going one step further, CLM++ enables auto-validation of supplier invoices to identify and flag any discrepancies — incorrect rates, duplication of charges, nonapplication of discounts, out-of-scope charges, incorrect consumption data, etc. This is especially critical with complex, service-oriented contracts where the basic PxQ calculations will not suffice. We have audited $40+ billion in invoices on SirionLabs’ CLM platform, and we have extensive data that shows up to 10% of the contract value is at stake due to these invoicing errors.
CLM++ goes even further by allowing organizations to tap into a powerful enterprise network, seamlessly connecting people, systems and data within and across enterprises. It leverages a permissioned ledger architecture and plug-and-play integrations to enable improved collaboration, transparency and alignment across and within buyer and supplier teams. This also enables smart sourcing to improve future supplier engagements based on the insights gathered from hundreds of commercial engagements across the network.
This is not a one-size-fits-all template for planning your CLM journey. The journey from CLM to CLM+ to CLM++ will not follow the same script for all organizations — it will vary in pace and will not always follow this linear order (for example, some of our clients address performance management and invoice auditing before they move to contract authoring). However, visualizing this expanded view of CLM is important because what has been considered a state-of-the-art CLM setup in the past is only a small subset of this larger universe today.
Organizations need the capability to manage their contracts and suppliers faster and better. But where do you start? Best practices used to be that you got all the processes right before you engaged technology, and that you spent the effort to get all your contracts into a single repository before attempting advance supplier governance activities synonymous with larger and more complex contracts. While this was good advice in the past, speed and focus on highest return on investment dictated a new paradigm in best practices.
Today, a much faster pace is required and therefore dictates that organizations implement processes and technology concurrently. In fact, technology can help standardize processes and facilitate adaptation much faster than if it is done manually, and with a much higher rate of adoption. Secondly, we cannot hunt the mice while the elephants run wild. Focus in the first place should be on the small percentage of contracts that represent the majority of the spend. Once these contracts are thoroughly managed, the focus can turn to smaller and less significant contracts. These and other best practices will be discussed in more detail in future articles.
Even if you are not ready for CLM++ today, it is important to deploy software that has the breadth to support your expanded contract management vision over time.
If you have questions about how this expanded CLM vision could benefit your organization, please reach out to me at Claude.Marais@SirionLabs.com.
If you found this article interesting, you should also check out our latest whitepaper with Spend Matters titled Combining Organizational and Digital Maturity to Achieve Commercial Excellence. This paper provides a framework for organizations to assess their current contract management maturity level and describes the capabilities needed to move up the CLM maturity curve.