Sixty-four percent of companies say contract approval processes are causing deals to stall, according to a new report from SpringCM. The biggest challenge organizations face is managing contract workflows and getting sign-offs from primary stakeholders. The biggest barrier faced by companies, according to the survey, is the lack of processes to manage and move along contracts. Sixty percent of companies are using email to manage contracts, while only 32 percent of companies are using a contract management tool. Six percent of companies say they have no contract management process in place at all.
"Trying to get contracts through internal and external approval processes is just a miserable experience," said Erik Severinghaus, Chief Strategy and Alliances Officer at SpringCM. "A contract is fundamentally unstructured data you're working across two different organizations with two different sets of tools and processes. At the end of the day if you're executing through email and attachments, what then happens is nobody has visibility into the process, and nobody can optimize the process."
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"If you look at the survey and the respondents' biggest challenges," said Will Wiegler, SpringCM Chief Marketing Officer, "the top four are workflow, generating new contracts, tracking, and approval. Those are business processes that are stuck. Typically, people don't even know where contracts are in the process. Whose inbox is it in? Who gets it next?"
(Image Via: SpringCM)
What Contract Management Can Do
Contract management tools offer businesses the ability to store, track, resurface, and run reports on contract-based data. This typically involves cloud-based software that can automatically read and aggregate data, as well as deliver alerts to stakeholders when it's time for action to be taken on a specific contract. Severinghaus said companies attempting to manage these processes without software are struggling to corral data from upwards of seven or eight different document or file types, and then translating that information into a standardized contract or invoice. In these scenarios, he explained, "There's bound to be human error."
In fact, even companies that are taking advantage of contract management software are still struggling to avoid common mistakes. Ninety-two percent of contract management errors are attributed to humans, according to the respondents. Seven percent of companies say human errors happen very often. "A salesperson loves to talk to customers, loves to build relationships, but they generally hate mathematics, arithmetic, finance, and the manual work of translating numbers across different systems," said Severinghaus. "If you task them with moving this stuff around manually, you shouldn't be surprised if you see errors in the process."
(Image Via: SpringCM)
A quarter of all businesses surveyed say IT is involved in the contract workflow process, a move that could help to offset some of the human error involved in logging and processing contracts. Before contract management software vendors speak to potential clients, the IT department has typically worked with business analysts to help define a standardized workflow that takes into account business processes, technology, and any previous issues combining the two (e.g. why spreadsheets won't translate into invoices).
For example: The best contract management tools we reviewed offer things like workflow automators, in-app chat functionality, and email alerts that warn people when it's time to act on a contract. Some of these features can be found in Editors' Choice tools like Agiloft and Mitratech Getting Contracts Done, as well as SpringCM.
These features can also help to accelerate the contract cycle and save companies money. The length of the typical contract cycle for survey respondents was between one and two months (33 percent). Twenty-two percent of respondents say their contract cycle lasts longer than four months. Twenty percent of respondents say using contract management software has saved their business money.
Future Contract Management
When you add emerging technologies such as artificial intelligence (AI) and machine learning (ML) to the mix, contract management has the potential to be even more beneficial to users. "AI is going to be incredibly important," said Severinghaus. "There are nascent use cases where AI is allowing for mutual non-disclosure agreements. AI can do basic contract review and contract classification."
Unfortunately, AI won't solve the difficult challenge of developing a contract management process, which is the first step toward automation. "We are a ways off from AI solving the challenges of business processes," Severinghaus said. "New technologies emerge and everybody thinks they will be the magic bullet. Because this technology now exists they think we won't have to do the hard work and analyze our business processes. AI in particular is at this point where people are saying they won't have to do the hard work because AI will do the magic work for us. In fact, AI is the epitome of a system that's dependent on structured data and a structured process to train those algorithms."
This lack of standardization is why companies like SpringCM implore businesses to develop a process for managing contracts even before talking to a vendor. "Not having a process is a recipe for problems at all stages," said Wiegler. "You can't scale a business without a process for how you manage contracts." To begin codifying the contract management process, Wiegler said businesses must ask themselves the following questions, "What are you doing now? What can be structured in terms of a process that can be identified?" Once you've identified what your process has been, and should be, you'll be able to work with IT and software vendors to create a system that works. Or, as Wiegler said, "You can't automate something if you don't understand what it is first."
SpringCM surveyed 1,409 respondents, 32 percent of whom are from companies of fewer than 100 employees, and 16 percent of whom are from companies of more than 8,000 employees.