4 Priorities to Manage Contracting Complexity and Increase Profitability

Whether you’re working with suppliers, distributors, service providers or licensees, contracts and agreements define the terms of engagement. These critical documents cross all departments and lines of business, forming the foundation for building and securing the trusted relationships that are crucial to a company’s growth.

But the complexity of the contracting process can impede achieving goals. Rather than driving revenue, inefficient contract-generation processes with long turnaround times can cause companies to lose business and incur high costs—or worse, inconsistent contract terms can increase the risk of litigation or regulatory action. Therefore, it’s imperative that enterprises develop a more efficient and consistent contracting process.

A recent EY Law Survey, done in conjunction with the Harvard Law School Center on the Legal Profession, interviewed more than 2,000 business leaders from 17 industries and 22 countries to gain insight into the reasons companies face lost profitability through the contracting process—and what they can do to prevent this leakage. The survey findings identify four priorities in contracting that can lead to improved revenue. Docusign, a corporate partner of EY, found similar results from customer research. 

Let’s examine the survey’s findings and the ways CEOs and C-suite executives are prioritizing improving contracting processes across their departments.

1. Reducing the cost of contracting through automation

The costs of contracting can quickly stack up. According to EY’s research, “the average basic contract costs nearly $7,000 to create. Complex contracts, meanwhile, average $50,000.” Docusign’s research indicates that 48 percent of companies manage over 500 contracts per month. Multiply the costs identified by EY by a factor of 500, and contract completion  becomes a major, monthly, bottom line expense.

It’s no surprise then that EY found that 53% of CEOs are planning a “significant cost-reduction effort” within the next year. Moreover, they found that more than a third are targeting cost savings of 30 percent or more, and virtually all (99 percent) are planning to reduce the cost of contracting over the next two years. But huge cost savings like this come with upfront investments. To unlock profitability hidden by contract costs and complexity, enterprises should look at where they can implement automation.

Digital contract lifecycle management (CLM) solutions are proven to greatly reduce costs. Increased turnaround times and streamlined negotiation cycles mean less money spent during the contracting process and more revenue realized in a shorter time. According to commissioned research from Forrester, by using Docusign CLM customers saved over $4 million on contracting costs and $1.3 million from reduced spending on outside counsel over the course of three years.

2. Mitigating risk through standardization and contract analytics

The entire contracting process—generating, negotiating, managing, storing and more—is prone to risk, with companies potentially opening themselves up to consequences from both major and minor errors. That’s why risk mitigation and management is a priority across C-suites. EY found that 53 percent of CEOs cited risk management as a primary area of focus in implementing changes over the next three years.

While there’s potential risk throughout the process, according to EY research, risk commonly arises in three areas: contract creation, negotiation and storage. Companies are at increased risk when they don’t use pre-approved contracts with standard language (as 69 percent of companies don’t) or follow contract playbooks or guidance documents (also cited by 69 percent of respondents).

In the negotiation process, three out of four organizations said they don’t have pre-approved fallback terms.

And when it comes to storage, 90 percent of companies face challenges locating their contracts, and almost half (49 percent) lack a “defined process for storing contracts after execution.” These inefficiencies and lack of standardized processes drive risk, and make it more likely that a serious problem may arise.

EY’s research also showed that 61 percent of CEOs want a more data-driven approach to risk management, but 71 percent didn’t have the technology to monitor deviations in contracts from standard terms and 78 percent said that they don’t have a method for systematically tracking contractual obligations.

Contract lifecycle management technology eases the heavy burden of risk management. For instance, templates offer a starting point for many common types of contracts, and enable users to automatically highlight risk in contract terms and auto-populate fields to cut down on errors. Customers who implemented Docusign CLM saw a reduction in risk exposure and improved compliance adherence valued at close to $600,000. And by avoiding regulatory and compliance infractions, they’re spared fines that could potentially cost millions.

3. Digitizing processes with end-to-end technology

For an enterprise focused on the bottom line, technology can reduce costs, improve efficiency and streamline workflows. When it comes to contracting—an area that requires both a fine-tooth comb and the ability to handle volumes of complicated documents in a short time—contract lifecycle technology can generate significant ROI.

So when EY reports that 61 percent of CEOs are planning “significant investments” in their technological capabilities, it’s clear they see both positive financial returns and solutions that can drive growth. CEOs know that in times of economic downturn, building up their capabilities now effectively positions them to scale quickly as the economy recovers.

But recognizing the importance of digitization and taking the right steps to implement it are two different things. 87 percent of companies face challenges with contracting technology, and 47 percent face challenges with technology implementation. Docusign’s research shows that lack of integration with other systems, non-intuitive software and lack of training are three of the top reasons departments such as sales, legal, procurement and human resources do not utilize software to its fullest extent. Increasingly, companies are relying on external providers to help bring their technology strategy to life.

One of the top priorities for many companies is e-signature—84 percent use it extensively, according to EY research. Docusign offers a full suite of contract solutions from eSignature to CLM. Along with making it easy and fast to obtain signatures, Docusign CLM provides the end-to-end technology to facilitate contract generation, negotiation and storage, along with a searchable contract repository, contract analytics, AI-powered risk evaluation and many other out-of-the-box features with customizable potential.

And because digital solutions shouldn’t be siloed, Docusign CLM works across departments—sales, legal, procurement, etc.—as well with the digital platforms that enterprises use most, such as Salesforce, Google, Microsoft and Slack. For the 61 percent of CEOs who want a more streamlined approach to contract management, making use of digital platforms in document creation, storage, retrieval and analysis, integration is essential. Enterprise-level connectivity improves efficiency and visibility for internal and external stakeholders alike.

4. Driving growth through scalable solutions

Even before the turmoil in Eastern Europe erupted, EY’s research showed that two-thirds of CEOs did not expect revenue growth in 2022 due to already existing supply chain disruptions, labor shortages, and other complicating factors. However, history shows that economic downturns are followed by periods of remarkable growth. Enterprises that put in place the tools to quickly scale gain a competitive edge—and more business means more contracts.

Yet, the EY study showed that 94 percent of business development teams face challenges with their contracting process. When contract management workflows are overwhelmed by a sudden influx of documents, the result is slower turnaround times at a critical moment, and the significant potential for missed opportunities.

In fact, EY’s research found that half of business development professionals surveyed lost business opportunities due to inefficiencies in their contracting process. When automation is used to replace slow, error-prone manual processes, workflows keep moving even when dealing with huge quantities of documents.

Docusign CLM customers found the contract process became 83 percent faster, with a corresponding increase in revenue. Docusign CLM is purpose-built to seamlessly scale with customers’ needs. There’s no change in platforms; additional features and capabilities are built upon existing infrastructure. A strong foundation now enables you to scale at a moment’s notice.

Automation meets the challenges of contract complexity and unlocks profitability

Companies must be prepared to seize the moment in boom times, as well as challenging ones. Having an efficient and comprehensive contracting process is an essential part of being able to quickly scale when the moment strikes. As the EY study shows, enterprise leadership across all sectors recognize that improvements in their contracting practices needs to be a priority to clear the way to greater profitability and growth.

Learn more about how contract lifecycle management software can transform your contract processes.