What is Contract Lifecycle Management?

Behind the scenes of every organization there’s a never-ending stream of document workflows, processes and agreements. How you manage this operational infrastructure isn’t just a matter of personal preference: it delineates an engine that keeps your organization moving forward.

In this blog, we’ll cover everything you need to know about contract lifecycle management—so your organization can implement a contract management strategy that promotes productivity, inspires clients and drives revenue:

  • What is contract lifecycle management?
  • What is the contract lifecycle management process?
  • What is a contract lifecycle management system?
  • How to know if you need CLM?
  • What to consider when evaluating a CLM solution
  • Best practices for implementing CLM

What is contract lifecycle management? 

Gartner defines contract lifecycle management (CLM) as the “applications used for managing contracts from initiation through ongoing management and eventual renewal or termination.” In simpler terms, contract lifecycle management refers to the methods you use to prepare, sign, store and act on your business agreements. 

Contracts are used in every department and industry—by organizations of any size. Here are a few types of contracts that may be involved in your contract management process:

  • Purchase orders
  • Sales contracts
  • Loan documents
  • Real estate contracts 
  • Lease agreements
  • Employee offer letters 
  • Change orders 
  • Non-disclosure agreements

As they travel through your organization and between acting parties, many documents require multiple drafts, legal reviews and signatures. Traditionally, these administrative tasks were conducted manually—a contract was printed out, signed with pen and ink, scanned and sent back to the sender. Today, advanced CLM solutions help businesses manage contracts digitally, which increases transparency across the organization and streamlines every stage of the contract management process. 

What is the contract lifecycle management process?

From drafting to signing, contracts navigate a predictable path through nearly every organization. But without a clear understanding of the contract management process, many businesses have trouble identifying areas in their internal processes that are ripe for improvement—where time can be saved, errors avoided and revenue captured. 

Contracts are one of the first places to look when searching for ways to promote efficiency within your organization.

5 Stages of the CLM Process

Here are the 5 stages of the CLM process.:

1. Document generation

Document generation is the first step in every contract management process—and includes any of the initial drafting and information sourcing procedures that are required when a new document is created. 

Many times, the process starts by locating an existing version of a document that needs renegotiating, updated language or a new, secure storage location. Next, you might make a copy and adjust the agreement’s terms or pull in new information—like names, addresses, product pricing or terms and conditions. 

2. Routing and negotiation 

After you're done with the initial preparation of your agreement, where does it go—and how does it get there? The routing and negotiation stage of contract management accounts for any workflows that are involved in the sending, editing and negotiating of a newly generated agreement—with both internal and external actors. 

Routing and negotiation is where many contracts spend a significant portion of their life. As a result, it’s an area of the process where optimization can have a significant impact on your organization’s operational efficiency. If you rely on manual management of your contracts, emailing versions or tracking changes can quickly weigh your organization down. Fortunately, there are easy ways to simplify even the most complex contract management workflows—which will be covered in greater detail in the following section. 

3. Document signing 

Document signing accounts for a small sliver of the document management process—but it’s arguably the most important step. The legality of every contract depends on a secure, verifiable signature. 

For centuries, pen-to-paper signatures served as the sole document-signing solution. Today, since business is regularly conducted online, requiring manual signatures can create major bottlenecks in the contract management process. These days, electronic signatures make it easy to execute documents from anywhere in the world in an instant—creating a quick, seamless remote document management experience for all counterparties.

4. Integration with Systems of Record

A crucial, time-saving step in every successful contract management process requires integrating your CLM solution with your other Systems of Record. Automatically pre-fill contracts with information from existing data sources (like contact info or product pricing), and reduce the number of unnecessary administrative tasks required to move contracts forward. 

An integrated CLM solution also makes it easier to act on completed agreements. For instance, an e-signature sent to HR from a new hire may automatically trigger the next step in the onboarding process—sharing materials like tax forms or training resources. 

5. Search and analysis

After a contract is signed, the final stage in the contract management process involves storing it in a centralized, searchable location, where it can be easily accessed. Existing contracts are one of your organization’s most important assets. It’s important to keep close tabs on completed contracts. If your contracts are tied up in unsearchable PDFs, for instance, analyzing and amending your existing contracts as industry regulations evolve is next to impossible. 

Modern CLM solutions have features like contract analytics and artificial intelligence (AI) to help instantly identify specific clauses and terms that are embedded in the language of existing agreements.

What is a contract lifecycle management system?

Contract lifecycle management systems are software applications that help organizations and departments manage contracts more efficiently. Unlike manual document management strategies, CLM systems are built to help you store and find contracts, supplier information, standard contract terms and contract templates with ease. Ultimately, contract management systems make managing contracts—and running your business—less work. 

How does contract lifecycle management work?

At a basic level, a contract lifecycle management system is a suite of tools that makes it easier to manage your agreements.

Historically, agreement management—from authoring and approval to routing and signing—required ongoing coordination between a number of internal and external actors and solutions. Contract lifecycle management works by bringing disparate operational processes together, under one roof, to create a seamless end-to-end agreement management experience. 

Centralized dashboards increase contract visibility and minimize the need for communication among parties. Automated drafting, routing and workflow management accelerates time to completion and reduces the risks associated with the manual transfer of data. Electronic signatures offer an efficient and secure way to approve business agreements—from anywhere, at any time.

Ultimately, it’s system interconnectivity that gives any enterprise CLM solution its might. Integrating every stage in the contract management process to create one simple System of Agreement promotes a secure, agile operational infrastructure—which makes life easier for you and your counterparties. 

How to automate contract workflows—routing, collaboration and negotiation 

End-to-end automation sits at the heart of every enterprise contract management solution. Automating each step helps simplify complex workflows—and enables a flexible, configurable document management system. 

For example, take the agreement approval process—which 53% of businesses cite as their biggest challenge within contract management. Sales proposals are typically drafted, then sent to various members of sales and/or legal teams via email. Feedback typically lands via email, too, creating a lengthy, reply-all thread which can quickly become, in a word, unmanageable. Additionally, some parties arrive late to the thread, resulting in changes to outdated versions of the document—which wastes effort, creates confusion and can cause deal-jeopardizing delays. 

Automating and centralizing the contracting process from the outset accelerates the creation of efficient, secure contract workflows between sales and legal teams. Once a contract is generated, the contract management solution makes it accessible to all stakeholders, keeps it updated with real-time revisions and comments—and sends it through the right workstreams in a timely way, managing each step precisely and meticulously. 

Multi-system integration—connect the contract process across the org

Connectivity along all stages of the contract management process is critical. CLM solutions enable integration at the enterprise level by facilitating coordination between your organization’s existing Systems of Record. 

Bringing client, patient or customer data online can be a painful process without the right tools. However, a CLM solution that integrates with other cloud-based management software (like Salesforce) provides the connectivity you need to seamlessly automate your operational infrastructure. Auto-fill contracts with existing client information and generate contracts at a moments notice—securing client relationships and saving valuable resources at the same time. 

Reduce risk—searchable contract repository, analytics

Email, as a business platform, is especially vulnerable to cyber attacks. Despite this tremendous vulnerability, almost 80% of contract management professionals regularly use email to share sensitive agreements. 

As more business moves online, organizations around the globe must elevate their cybersecurity awareness. In addition to streamlining operational procedures, the right CLM system can safeguard sensitive or private information with advanced encryption. Every document also produces a court-admissible, digital audit trail—providing contract management professionals and legal officials with full track-and-trace capabilities. 

Additionally, business security can benefit from CLM tools like document analytics and contract repositories, which help identify and minimize risks or compliance issues embedded in existing language. For instance, as the London Interbank Offer Rate (LIBOR) becomes obsolete among the financial community, $240 trillion worth of contracts may need renegotiating. Manually searching through existing contracts to track-down risky language is overly burdensome and impracticable. Investing in integrated AI solutions and searchable contract repositories now will dramatically reduce the time and money your organization spends on contract management down the road.  

How to know if you need CLM

Every business can benefit from the simplicity and efficiency that an enterprise CLM solution offers. In fact, after implementing an enterprise CLM solution, businesses may realize a potential return on investment of as much as 365%. But how do you know if investing in a CLM solution is really right for your business

First, think about which departments would benefit the most from automation or more efficient operational procedures. Common use cases for CLM software include: 

  • Sales: Your business can only move as fast as your sales agreements. That’s why sales teams across all industries are reinventing their agreement processes to be more agile, efficient and customer-focused.  During the sales process, contracts define every major milestone—from negotiating and signing to billing and renewal. As a result, inefficient methods of contract management and storage (like email or Excel spreadsheets) can cost the average business up to 9.2% of their annual revenue. Not only does an effective contract management solution streamline the sales process and minimize operational costs, but it also improves the customer experience—driving revenue and greater client retention.    
  • Legal:. Legal review and approval is a crucial step in every contract’s journey, but it’s also traditionally one of the most time-intensive steps. According to a 2020 study conducted by Forrester and commissioned by DocuSign, 50% of legal professionals reported inefficiencies in their contract management process stemming from the manual transfer of data. Another 62% reported having to regularly rework contracts as a result of errors. The longer it takes for you to get an agreement finalized and out the door, the less business finds its way in. A successful transition from manual to digital contract management eliminates errors, ensures compliance and accelerates time to value. 
  • Procurement: As the primary link between an organization and its vendors, there’s enormous pressure on procurement to move quickly and maximize value. Procurement teams that rely on manual or paper-based contract management procedures introduce their company to inefficiencies and unforeseen costs—limiting the team’s ability to add value to your organization. According to a 2020 Forrester survey shared with procurement leaders, cutting costs and mitigating risks are top priorities. Additionally, 84% of supply chain managers point to low contract visibility during the procurement process as their biggest challenge. Automated solutions for these concerns are readily within reach. 

Forrester research and interviews with DocuSign customers found implementing an enterprise contract lifecycle management solution can deliver significant potential benefits including:: 

  • 20-day reduction in contract processing time 
  • 83% faster time to value 
  • Savings of $1,750 per contract on outside counsel
  • Reduced risk exposure due to increased contract visibility, valued at $527,000 
  • Reduced contract value leakage by identifying redundant vendor contracts and opportunities for volume discounting, valued at $1.46 million 
  • Improved contract integrity

Throughout an organization, optimized procurement workflows translate to lower costs, stronger compliance and more visibility across the board.

What to consider when evaluating a CLM solution

Once you decide to update your CLM solution, your decision becomes: What makes one CLM solution better than another? Let’s start by considering what contract management software is designed to accomplish: 

  1. Increased visibility: Provide a 360-degree view of the entire contract management process from start to finish. 
  2. Reduced operational costs: Save time and money with pre-approved templates and standardized workflows.
  3. Minimized risks: Lower risks by introducing analytics, security and track-and-trace capabilities into the contract management process.
  4. Improved compliance:  Enhance operational, contractual and regulatory compliance with clause libraries and artificial intelligence. 

When evaluating CLM solutions, you’ll want to select a system with features that ensure the above goals are met. Here are some common features to look for in your next CLM software:

  • Flexible, configurable workflows: Defines, deploys and maintains contract workflows at the enterprise level with ease—creating a faster path to value and lower total cost of ownership as processes change. 
  • Document generation: Creates preconfigured templates and auto-populates contracts during the drafting process with pre-approved language or CRM data. 
  • Collaboration and negotiation: Promotes transparency in the routing process. Enables parties to send contracts for review, track changes across multiple versions and maintain a secure, digital audit trail to hold all actors accountable for their role in the approval process. 
  • Clause library: Stores pre-approved clauses and fall-back language to eliminate in-depth legal reviews on every document. 
  • Centralized, searchable repository: Stores, tags and organizes contracts in a single, searchable location—with permission controls. 
  • CRM integration: Seamlessly integrates with your other Systems of Record, such as Salesforce or another CRM system. For instance, integration helps automate the document generation process—autofilling new agreements with existing CRM data. 
  • Security: Complies with your industry’s regulations, e.g., SOC 2, HIPAA, TRUSTe and FedRAMP. 

To aid your search for the right CLM solution, Gartner Research evaluates software vendors based on 15 criteria,  including touchpoints like market responsiveness and overall customer experience. See the latest Gartner CLM Magic Quadrant report.

Best practices for implementing CLM 

The benefits of automation are clear: greater operational efficiency, higher employee productivity and increased customer satisfaction. However, even thinking about the possibility of a digital transformation can be daunting. Many professionals don’t know where to start. Fortunately, there are a few simple steps you can take to move your business towards the efficiency of an automated contract management process. Spend less time pushing paper, and create a frictionless contract management process that reduces costs, accelerates revenue and enables your organization to respond quickly to changes in the business environment.   

Here are eight easy steps to prepare for the deployment of an enterprise-wide contract management system, based on the experiences of hundreds of organizations: 

  1. Begin at the executive level. It’s essential that all executives buy into the adoption of a new contract management system. Without enterprise-wide support, allocating resources for things like budget and training becomes an uphill battle. Clear communication and alignment at the highest level also inspires adoption throughout the organization. 
  2. Establish governance. Once leaders are on board, put together a qualified and diverse team to shepherd the implementation and execution of your CLM program. Strong alignment on the rules, practices and processes across the enterprise starts with the right team. 
  3. Empower enablement and train your team. Successful adoption of a CLM solution at scale requires enabling and training workers across multiple departments. Help users get up to speed quickly and teach each employee how to use the new technology within the specific context of their role.  
  4. Identify current processes—and visualize the future state. If you don’t know where you’re going, you’ll never get there. Getting the full value out of your CLM system requires closing the gap between your current and future states. This starts with an assessment of your current contract management system to identify inefficiencies and opportunities for improvement. 
  5. Define project success. Clearly defining what project success looks like for your organization is a critical but often overlooked step in the implementation process. Stating the metrics and goals of your new CLM system at the very beginning enables you to demonstrate continued ROI as you grow.  
  6. Start small. Even simple changes to enterprise contract management initiatives can yield quick ROI. So rather than tackle the entire implementation all at once, break it into bite-sized chunks. The added benefit of starting small—or introducing minimal viable product (MVP)—is that it gives you the opportunity to learn as you go and leverage key insights down the line. Begin by prioritizing high-impact, lower-risk use cases. 
  7. Prioritize and migrate contracts. Migrating active legacy contracts and compliance documents is a primary concern for any organization that is starting their digital journey. Even today, a significant number of businesses store contracts in filing cabinets—which makes finding and digitizing contracts a challenge. Collaborate with your vendor to create a plan for migrating documents onto a new CLM platform. 
  8. Test robustly. Who knows what they want to get out of your new CLM more than your business’ subject matter experts? Get the most knowledgeable people within your organization involved in the contract management testing process. Properly configuring your CLM solution through rigorous testing saves time on roll-out and reduces project risks.  

Are you ready to automate your agreement lifecycle?

Are you ready for process automation that makes it easy to manage the full contract lifecycle? Are you ready for greater visibility into risks and opportunities at a lower cost than manual contract management?

Contract management offers an opportunity to cut back on the processes that slow business down. Stay agile and promote company-wide efficiency with an enterprise CLM solution. 

Watch a quick video to learn more about how DocuSign CLM works.

Additional reading: 

How To Build a Compelling Business Case for Contract Lifecycle Management

Four Stages of Contract Lifecycle Management Success

The Role of Contract Lifecycle Management in Business Continuity 

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