Traditionally, managing contracts has been a laborious and ad-hoc process. Contracts are basically legal obligations and do not have a systematic approach to using data, but the advent of digital transformation has prompted a shift towards a much more data-centric model.
Contracts are at the back of every transaction involving a business and are deeply connected to how we interact with all our vendors, clients, or indeed our internal teams.
Still, for far too long, contracts have been created, looked at, and managed as static, siloed documents buried after signature, brought out only in the event of a dispute or compliance incident.
But one thing is changing: a fundamental shift in the way businesses manage their contracts. Under this comes the data-first contract approach.
This evolution changes the game in contract management by converting the contracts into living, breathing, data-driven assets, into all things to all people, decision-making and risk mitigation as well as optimized overall business strategy.
It is time to really dig into the world of data-first contracts and learn how embracing this new route might future-proof your contract management process.
What is a Data-First Contract?
To start with, let's define what a data-first contract really means.
In simple words, it's a strategy in which data about the contract, meaning much more than the actual document of the contract, forms the root of all contract management processes.
Every clause and term of a contract produces data. When approached from a data-first perspective, contracts become a treasure of power for making decisions, managing risks, and planning strategies.
From where the green grass grew and all that jazz, contracts were pretty much rigid paper, created, signed, and filed within digital folders.
In modern contract lifecycle management systems, which nowadays are specially built on the foundation of an infrastructure such as Microsoft 365, a new world opens up where contracts become dynamic, data-rich tools.
These contracts can now help businesses extract invaluable data points from such information as deadlines, financial obligations, or compliance requirements, to even performance metrics.
Essentially, contracts are no longer passive documents; rather, they drive business intelligence.
Why Data Matters in Contract Management
To recognize the value of a data-first contract, it starts with understanding why data matters in the first place in the contract management process.
Unlocking Business Insights: Contracts are sources of several unutilized business intelligence. This data in your contracts can unlock insights into supplier performance, the value of your contract, and eventual risks. For instance, you could determine whether it's time to reconsider a vendor relationship over recurring penalties for late deliveries.
Better decision-making: The more data you have, the better decisions you can make. If you can envision contract trends, obligations, and performance data, then you could renew contracts, negotiate, and even conduct compliance audits with confidence. Since the approach is data-first, the decisions on the contract will not be gut feelings but facts-based.
Business Agility: Real-time contract data will enable an organization to respond quickly to emergent risks or opportunities. For example, discovering a breach of contract or a compliance issue may happen much earlier than now if such data tracking is automated.
Predictive Analytics and Forecasting: Perhaps the most exciting result of a data-first contract approach is that you can tap into predictive analytics. With a very data-rich CLM system, you can drive those forecasts, so you prevent stuff instead of fighting fires.
Benefits of a data-first approach to contracting
A data-first approach to contracting offers many benefits. Here are some of the most important benefits:
Compliance: The most immediate benefits often include higher compliance. Since structured and available contract data are easier to work through, it is easy to check agreements against internal policies and external regulations; thereby easily flagging non-compliance risks in real-time, allowing businesses to act before it becomes a legal issue.
Proactive Risk Management: A data-first contract management system would use AI and analytics to proactively identify risks in contracts. For example, such clauses containing penalties, ambiguous language, or high-risk terms to draw attention for legal review.
Improved visibility and insights: Contract management is siloed, it doesn't provide great visibility into the status of agreements. A data-first contract system gives organizations a centralized, real-time view of all contract activities, obligations, and risks. With such visibility, tracking performance, identifying bottlenecks, and driving quicker decision-making becomes so much easier.
Better Negotiation Power: A strong bargaining power is given to organizations through access to historical contract data. Knowing how prior agreements have done allows you to negotiate better terms, secure favorable pricing, and get the vendor to be accountable.
AI and Machine Learning: Driving Data-Driven Contracts
AI and machine learning stand out as the difference makers in contract management, especially with a first focus on data added in. It allows contracts to be reviewed in seconds, not weeks, through algorithms analyzing language and detecting risks with recommendations on optimizations.
ML, however, can predict which outcome is likely to result from a contract through historical data. For instance, a machine learning model can predict whether a vendor is going to meet his deadlines or if certain clauses in the contract are likely to cause a dispute eventually.
Interestingly, here is a stat Gartner puts forward: By 2025, an estimated 40% of legal departments will use AI for contract management. In fact, the adoption of AI will reduce organizations' time spent on reviewing and approving contracts by 20–30%.
Data-first Contracts can really allow an organization to significantly enhance their data governance, but there are also some hurdles organizations need to get past during this transition.
Key Challenges
Resistance to Change: Employees who have been accustomed to traditional methodologies will resist any new methodologies. Education and involving the people during the transition process helps overcome this hurdle.
Lack of Trust Between Teams: Data engineering, analytics, and business units must collaborate. Building trust through open communication and regular check-ins can mitigate conflicts of interest.
Complexity of the Data Pipeline: With large-scale data systems, maintenance of quality would be a challenge. Start-off with critical pipelines and make use of automation tools to manage complexity.
Data Quality Issues: One gets confused as well as disputes when poor data quality prevails. Clear-cut metrics and periodic audit-work are very much indispensable for achieving high standards.
Integration Challenges: Implementation of data-first contracts into the existing workflow might be daunting, therefore, with the selection of the right tool and progressive implementation, it might become smooth.
Managing Expectations: Mismatched expectations due to contract clauses generally lead to disappointment. Defining what each role brings to the table and providing a written agreement can help ensure teams have aligned expectations.
Monitoring Compliance: Typically, compliance towards the terms of the contract is seen since ongoing monitoring is in place. Automating monitoring processes and having scheduled reviews assist in making compliance easier.
Resource Constraints: Time, personnel, and finance may be limiting resources in implementation. Key areas mattering the most to lay grounds for building on existing skills would be better made use of existing resources.
The Role of Microsoft 365 in Data-First Contract Management
Using the data-first Contract approach becomes exponentially easier through tools like Microsoft 365. The grounds are based on a familiar and trusted platform which is what delivers an integrated ecosystem by helping in the transformation of data found in contracts into powerful insights as well as enhancing collaboration and security.
Seamless IntegrationMicrosoft 365 lets business organizations integrate contract management systems with others widely used tools like Excel, Power BI, SharePoint, or Dynamics 365. Data flows without silos and contract information is automatically captured, stored, and shared across your whole organization.
Centralized Data ManagementA data-first approach feeds off centralization. Using Microsoft 365, contract data can reside in one place, either in SharePoint or Azure in the cloud. This way, any participant in the contract lifecycle—be it a legal team, procurement officers, or even a contract manager—gets instant access to the data he or she needs. No more email hunting or digging into document folders.
Real-Time CollaborationWith Microsoft 365, such collaborative tools as Teams and SharePoint assist teams to work on the contract documentation in real-time and help manage changes through edits, approvals, and reviews monitored and documented immediately. In this way, approval bottlenecks are decreased, and the precision in the contract lifecycle is improved because the data on contracts remains fresh in the sense of being updated regularly.
Indeed, the future of contracts is certainly data-driven. Organizations will only be able to tap their fullest contract data by adopting a data-first contract approach. It unlocks efficiency, compliance, and growth for the organization. More importantly, it is even easier for businesses using Microsoft 365, given powerful centralization, analysis, and take-action capabilities on contract data in real-time.
So, if you are ready to take the data-first approach, then now is the appropriate time to see how Dock 365 can be beneficial in transforming the management of your contracts. Get a demo today and see how data-driven insights will take your business to the next level.
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