The 4 Vs of Contract Management: Volume, Variety, Velocity, and Veracity
In today’s fast-paced business environment, contract management has evolved from a mere administrative function to a strategic one. In a previous blog, Contracts: The Ultimate Digital Asset, I explored this tactical to strategic elevation and why companies should reframe the way they see contracts and the lifecycle they move through. As organizations grow and their contracts become more complex, the need for an effective and efficient contract management process becomes crucial. Enter the concept of the 4 Vs of Contract Management: Volume, Variety, Velocity, and Veracity.
Let’s dive deep into each ‘V’ to understand their significance and impact on modern contract management.
- Volume: Scale with Efficiency
The sheer number of contracts that a modern enterprise deals with can be overwhelming. From procurement contracts to employee agreements, sales contracts, partnership deals, and more, the volume can reach staggering numbers.
This vast volume poses several challenges:
- Tracking and Monitoring: With hundreds or even thousands of active contracts, how does one ensure that they are all compliant and no deadlines are missed?
- Storage: Where do all these contracts reside? A simple file cabinet or a digital folder is not enough, given the need for quick access and search capabilities.
- Reporting: Executives need insights into contract performance, expirations, renewals, etc. Managing this with a high volume can be cumbersome.
The solution lies in leveraging technology. Modern CLM can handle large volumes, automating many of the tasks that were previously done manually.
EDF Renewables mentions managing over 200 contracts at one time using Malbek. This system not only keeps them in compliance but also diligently tracked. It’s not uncommon for companies to start managing contracts in the hundreds and rapidly escalate to the thousands or scale up to hundreds of thousands.
- Variety: Address Different Contract Types
Contracts come in all shapes and sizes. Some are straightforward purchase agreements, while others might be intricate joint venture contracts that span several years. Each type has its own set of terms, conditions, and compliance requirements.
The variety factor throws in challenges like:
- Standardization: Different contracts might be drafted by different teams, which can lead to inconsistencies in language or terms.
- Complexity: Some contracts, especially in industries like real estate or M&A, can be incredibly detailed, requiring expertise to manage.
- Lifecycle Management: Different contracts have different lifecycles. A short-term service agreement differs vastly from a long-term lease.
Here, a CLM can provide templates, standard clause libraries, and lifecycle automation to ensure contracts, regardless of their variety, are managed effectively.
Contracts can vary widely, but new users of CLM typically experience remarkable improvements within just three months. They notice faster processing times, less time hunting for agreements, and a notable 20% decrease in possible revenue losses. This enhanced efficiency introduces greater flexibility in the kinds of contracts they can handle, from sales documents to partnership agreements. Moreover, drafting these diverse contracts has become much more efficient, reducing creation times from weeks to mere hours.
- Velocity: Speed of Execution
In a competitive marketplace, the speed at which contracts are drafted, negotiated, approved, and executed can be a competitive advantage. Velocity is all about the ability to swiftly move through the contract lifecycle, which not only accelerates business operations but also positions companies to seize opportunities in a timely manner.
- Approval Bottlenecks: A contract might be held up because it’s stuck in someone’s inbox awaiting approval.
- Negotiation Delays: Going back and forth with counterparties can be time-consuming.
- Integration with Other Systems: If your CLM doesn’t integrate with, say, your CRM or ERP, then data entry and tracking can slow things down.
Embracing native capabilities of a feature-rich CLM solution like Malbek, with workflow automation, and system integrations can significantly increase contract velocity. By reducing manual intervention and decision-making delays, organizations can significantly expedite contract approvals. It will also be a source for new legal operations KPIs.
SurveyMonkey provides a compelling case study. They’ve reduced their time to close by an impressive 50%, with pre-approved clauses and fallbacks proving invaluable in this acceleration. Another significant mention is Pantheon. Their focus on shared efficiency across departments led to a notable 36% efficiency gain within just the first quarter. Their heavily process-driven approach sets them apart from more typical use cases.
- Veracity: Ensure Accuracy and Truth
Now we arrive at my favorite and final ‘V’ which stands for the truth and accuracy of contract data. Given the legal implications of contracts, ensuring that their information is accurate and up-to-date is paramount.
Potential issues are:
- Outdated Information: Changes in company policies or regulatory shifts can render contract clauses obsolete or non-compliant.
- Errors in Data Entry: Manual processes are prone to errors, which can be costly in a contract’s context.
- Audit Challenges: In the absence of accurate data, audits can become nightmarish.
Technology, combined with best practices like regular audits, training, and a culture of accuracy, can address veracity concerns.
Accuracy in contracts cannot be overemphasized. TIBCO’s success story with Malbek highlights the importance of veracity in contract management. In an impressive global implementation spanning just four months, tens of thousands of legacy contracts were migrated to Malbek by TIBCO with minimal external dependencies.
AI-driven extraction of contract terms played a pivotal role during M&A due diligence. Their integration process with key business systems required no customizations, a testament to the robustness of the Malbek platform. This allowed TIBCO to transition from using a CLM primarily as a repository to a comprehensive platform driving their growth strategy. They’ve achieved a 70% reduction in contract cycle times, AI-assisted contract reviews, and have consolidated their contract process onto a single platform. Legal, Sales, Finance, and Procurement teams now collaboratively engage in the contract process, yet they spend significantly less time on manual reviews. TIBCO has optimized its operations, allowing the company to redirect its focus on strategic business initiatives.
Veracity can also refer to a “fair and balanced” contract. An agreement wherein the rights, obligations, risks, and rewards are equitably distributed between the parties involved. Such contracts are designed to ensure that no party is disproportionately advantaged or disadvantaged.
Here are a few key aspects:
- Mutual Benefit: Both parties should derive value from the contract. This doesn’t mean that the benefits have to be identical, but both sides should perceive them as fair. By fostering an environment where both parties see advantages in the contract, a foundation of trust and collaboration is established.
- Clear Terms: The terms and conditions should be clear, unambiguous, and transparent, so each party understands their obligations and rights. Transparent language helps each party fully grasp their responsibilities, reducing the potential for miscommunication and disagreements.
- Risk Distribution: Risks should be allocated to the party best positioned to manage or mitigate them. Neither party should bear an undue burden of risk unless it’s balanced by a corresponding benefit. An equitable distribution of risk safeguards against one party being burdened with disproportionate liabilities.
- No Hidden Agendas: There shouldn’t be any hidden clauses or “fine print” that could be used to unfairly advantage one party over the other. All terms, even those in fine print, should be clearly disclosed and discussed. Concealing information can erode trust and result in adversarial relationships. A fair contract promotes openness and full disclosure of all relevant terms.
- Flexibility: A fair contract often has provisions that allow for adjustments or renegotiations if unforeseen circumstances arise that significantly alter the contract’s initial assumptions. Flexibility ensures that parties can adapt to changing circumstances without resorting to contentious disputes.
- Fair Remedies: Remedies for breach or non-performance should be equitable and not unduly punitive. Draconian measures can lead to strained relationships and legal battles. By implementing proportionate remedies, parties can navigate disagreements with an eye toward resolution rather than escalation.
In many jurisdictions and industries, the concept of “good faith” underpins contract negotiation and performance, ensuring that parties deal with each other honestly and fairly. Having a fair and balanced contract is not only ethically sound but also fosters trust. This trust is crucial for nurturing long-term business relationships, embodying the essence of Veracity.
In conclusion, embracing the principles of the 4 Vs of Contract Management can empower organizations to optimize their contract management processes. With products like Malbek CLM, we are pushing the boundaries of what’s possible in contract management.
For more insights into our vision and the transformative impact of our solutions on contract management, visit Malbek.