Legal Contracting In Modern Times
Rapid advances in document automation, data analytics & AI have left legal teams in an interesting position.
On the one hand, corporate legal teams have extensively adopted technology solutions for critical processes such as legal research and communication, resulting in massive improvements. Contract automation technology has enabled businesses to reduce contract cycles by half, shorten contract review periods by the same amount, and improve compliance.
Legal contract management software has indelibly altered the contract landscape, but these advances have given rise to several new challenges for businesses.
Over 92% of firms have tried to digitally transform their contracts. But nearly 98% of these businesses say they’ve faced critical barriers, and 38% of them have failed outright.
This inability to adapt is due to several factors, including poorly planned implementation, weak contract processes, & the lack of a strategic vision, to name a few.
The modern contract landscape requires a nuanced approach to document automation that prioritizes quality decision-making, smart automation, and transparent processes. This approach needs to be informed by the challenges faced by legal teams & must primarily serve to alleviate these issues.
Challenges In Contract Efficiency
- Cost is still the most crucial KPI
According to reports, total legal spending is the most important KPI for over 80% of businesses. The importance of cost-cutting for businesses is further compounded in legal contract management.
Over 99% of businesses are looking to reduce contracting expenses by 2024, with one in three aiming to reduce these costs by over 30%. Cost efficiency, therefore, is a major driving factor & point of friction for the adoption of legal contract management solutions.
Legal document management software needs to directly drive lower expenses by reducing processing, documentation & storage costs.
- Contract processes & roles are unclear
Nearly 40% of a legal professional’s time is spent on tasks that don’t require legal expertise. Additionally, 65% of lawyers lose time on administrative tasks and say this is their most significant pain point.
Unclear roles and ineffectual processes directly result from poorly implemented digitization strategies. Businesses often rush to integrate with contract automation solutions without fully considering how their organizational structure and hierarchy will be affected, resulting in convoluted processes and a lack of transparency.
Legal file management software should complement an organization’s existing structure and help to expand it without creating undue systemic stress.
- Technology adoption is creating new gaps
Businesses have been quick to adopt & capitalize on contract management. However, several businesses have been unable to experience the advantages.
Despite 70% of businesses having some variation of formal contracting technology in place, nearly 99% of these businesses say they haven’t got the data or technology needed to optimize contract processes.
Businesses still haven’t figured out how to measure the impact of the new technology and manage revamped contract processes effectively. Several firms also lack a clear through-line from strategy to execution, resulting in muddled efforts with no apparent value created.
Businesses need to partner with the right legal contract management solution provider to implement & manage this new technology the right way.
Adapting To The New Contract Landscape
Before delving into the steps legal teams can take to adapt to the new contract landscape and overcome the challenges mentioned previously, the stage needs to be set with a foray into current contracting trends.
Businesses are aware of the challenges in adopting new-fangled contract automation technology, and the trends reflect this.
According to the Global Legal Department Benchmarking Survey 2021, the top technology priorities for legal departments are – information extraction, document automation, and data analytics.
A further examination of solutions classified as “under consideration” by surveyed legal departments paints a clearer picture of how the legal industry expects to deal with the present contracting challenges.
Data extraction (37%), Data Analytics (34%), Document Automation (26%), and Contract Lifecycle Management (24%) are the most common solutions under consideration by legal departments and firms.
According to these numbers, contract knowledge, process automation, and contract management are crucial drivers of value. This leads naturally to the steps firms can take to adapt to the changing landscape.
Step 1: Prioritize Knowledge & Insights
Contracts can’t simply be perceived as static documents any longer and must instead be viewed as tools for improved decision making and a mine for crucial business insights.
While legal professionals used to be indispensable for this purpose, contract management solutions can now analyze contracts and draw inferences at scale.
Contract lifecycle management (CLM) solutions need to be employed to quickly extract information from contracts and analyze this information to offer insights and knowledge. Once contracts are signed, performance tracking and analytics should be leveraged to evaluate whether obligations are met and to glean crucial information.
Legal contract management software can help businesses get more out of their contracts by turning them into growth and knowledge tools. Additionally, it can help offset costs by optimizing decision-making.
Step 2: Improve Visibility & Controls
While document automation certainly improves the speed and efficiency of legal firms, its effects on visibility and transparency cannot be understated.
Firms must maintain their organizational structure in the digital realm and ensure that it’s reflected appropriately in the contract management system they choose to employ.
Leveraging smart approval matrices with pre-programmed hierarchies, custom user roles & access, and intelligent audit trail creation, helps firms organize their contract processes to ensure high visibility and transparency.
CLM software additionally boosts contract efficiency by streamlining processes such as authoring, approval & tracking with sufficient oversight.
Step 3: Centralize Contract Management
Finally and most importantly, businesses must unify their contracts on a single platform.
Context switching for drafting, signatures, and analytics leaves room for errors and mismanagement. Legal teams also lose time on administrative tasks if contracting isn’t streamlined.
By centralizing contract lifecycle management, legal teams can collaborate seamlessly with other verticals and ensure that strong contracting practices are followed.
Additionally, creating a “nerve center” for CLM simplifies and optimizes legal document management across the organization, improving cost efficiency and helping businesses scale.
Future Directions – Smart Contract Automation
Despite nearly 99% of businesses having contract technology in place and legal teams prioritizing knowledge-driven technology, several businesses have been left in the dust.
Organizations must rethink their relationship with contract lifecycle management technology and how best to derive value from contract automation solutions.
Knowledge-driven analytics, flexible controls, and unified contract management are essential for businesses looking to get the most out of contract lifecycle management solutions.
Legal contract management is a powerful and valuable tool, and businesses must learn to adapt to the new landscape of modern business contracting that it has helped create.