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AberdeenGroup

Practical Approaches to Contract


Management Deployment
Accelerating and Optimizing Contract Value

October 2005
The Contract Lifecycle Management Business Value Research Series

Executive Summary

W ith profitability, compliance, and risk management high on executive agendas,


a growing number of enterprises are embracing contract lifecycle management
(CLM) as a leading business discipline.
Contractual agreements define the terms, pricing, and service levels of customer, partner,
and supplier relationships. New business models, market pressures, and regulatory re-
quirements have increased the volume and complexity of corporate contracts, as well as
the urgency for enterprises to better access, monitor, and control contract creation and
performance.
AberdeenGroup defines CLM as the management of contract creation, execution, and
analysis as a systematic and connected process for the purpose of maximizing financial
and operational performance and minimizing risks. The rise in interest in the CLM disci-
pline alternatively referred to as enterprise contract management has sparked a
commensurate increase in interest and investment in contract management automation to
support process efficiencies and information flow across the contract lifecycle.
Aberdeen research of contract management operations and performance at more than 300
enterprises over the past two years including over 50 CLM automation deployments
has quantified the significant impact contract management automation can have on
revenues, costs, compliance, and operations.

Where to Begin
Despite such benefits, inquiries to Aberdeen indicate that line-of-business and informa-
tion technology (IT) executives are uncertain how best to approach CLM deployments.
Contract management spans and impacts all aspects of the organization; process and sys-
tem investments in this area can be politically charged and highly fractious issues. And,
following time-consuming enterprise resource planning (ERP) system deployments and
stalled e-marketplace initiatives, many companies remain gun-shy of large enterprise ap-
plication deployments.

A Measured Approach to Success


Aberdeen research found that the CLM deployments demonstrating the quickest imple-
mentation and return on investment (ROI) were those that took a phased approach to sys-
tem deployment beginning with the areas requiring the least integration and change
management, such as establishing a central contract repository. Enterprises employing
this measured approach reported significant and measurable value and ROI at each phase
of deployment. They also found that success from early phases of the deployment helped
secure internal support and funding for expanded functionality and rollout.
This report examines the most successful CLM implementations and provides a recom-
mended deployment roadmap to speed implementation, maximize results, and minimize
internal resistance and change management issues. It also includes the quantitative cost
and ROI metrics required to build a fact-based business plan for CLM deployment.

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Table of Contents

Executive Summary .............................................................................................. i

Chapter One: Market Factors Make CLM a Priority .............................................1


Contract Management Becomes a Priority .................................................... 1
CLM Automation Drives Measurable Results................................................. 2

Chapter Two: Where to Begin ..............................................................................4


Assessing CLM Needs and Opportunities ..................................................... 4
Building the Business Case for CLM ............................................................. 5

Chapter Three: Practical Approaches for CLM Success ......................................8


1. Establish a Central and Searchable Contract Repository ........................ 10
2. Establish Links for Transaction and Compliance Management................ 11
3. Adopt Contract Creation and Collaboration Capabilities .......................... 12

Author Profile ..................................................................................................... 14

Appendix A: Research Methodology .................................................................. 15

Appendix B: Related Aberdeen Research & Tools ............................................. 16

About AberdeenGroup ...................................................................................... 17

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The Contract Lifecycle Management Business Value Research Series

Figures

Figure 1: CLM Value Contribution by Phase....................................................9

Tables

Table 1: Issues and Costs of Inadequate Contract Management Performance....2

Table 2: Benefits of Contract Management Automation........................................3

Table 3: Contract Management Performance an Assessment Approach .........6

Table 4: CLM Procurement Example ...............................................................7

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The Contract Lifecycle Management Business Value Research Series

Chapter One:
Market Factors Make CLM a Priority

Contract Management Becomes a Priority

P rofitability, compliance, and risk management are high on executive agendas,


causing enterprises to embrace contract lifecycle management (CLM), a process of
systematically and efficiently managing contract creation, execution, and analysis
as a connected process that maximizes financial and operational performance and mini-
mizes risk.
The contract has long been the lifeblood of business, providing the terms, pricing, and
service levels of customer, partner, and supplier relationships. In recent years, new busi-
ness models and market pressures have dramatically increased the volume and complex-
ity of corporate contracts. At the same time, new financial and regulatory requirements
have increased the urgency for enterprises to access, monitor, and control contract crea-
tion and performance. Aberdeen research finds that the following market conditions
make contract management (and supporting automation investments) a top priority:
Uncertain global economic conditions are putting more pressure on businesses
to reduce costs and improve financial and operational performance.
New regulations are requiring companies to establish and document business
controls, procedures for tracking and reporting material business information,
and procedures and systems to ensure compliance and auditing. The Sarbanes-
Oxley Act and new FASB rules, for example, have made improved financial re-
porting an imperative and have rejuvenated interest in real estate lease manage-
ment. In Europe, Basel II is driving demand for contract visibility, controls, and
reporting in financial services. HIPPA has upped the need for better contract con-
trols in the life sciences and healthcare sectors. And new environmental man-
dates from the European Union are impacting all high-tech manufacturers.
Globalization is increasing the types and complexity of contracts, as well as the
risks inherent in trading relationships. Enterprises must negotiate and manage
contracts to support multiple trading regulations and regional business practices.
Outsourcing, licensing, channel, and warranty agreements are growing in num-
ber and complexity.
IT investments are forcing enterprises to extract additional value from their ex-
isting IT infrastructures including previous investments in enterprise resource
planning (ERP), customer relationship management (CRM), and supplier rela-
tionship management (SRM) applications.
These factors are forcing enterprise executives to recognize the importance of instituting
procedures and systems to holistically manage the complete contract lifecycle from
initial authoring and negotiation to contract storage and retrieval to compliance and re-
porting. Yet, Aberdeen benchmarks of contract management operations and performance
at more than 300 enterprises found that few businesses currently have effective proce-

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The Contract Lifecycle Management Business Value Research Series

dures for creating, managing, and controlling contracts. In fact, the typical company con-
tinues to manage contracts with a mix of manual, paper-laden, and informal processes;
fragmented business systems; and ex post facto audits and analyses. This hodgepodge
strategy limits visibility into corporate contracts and performance, exposing enterprises
to inflated costs, diminished negotiation leverage, missed revenue opportunities, poor
compliance, and regulatory backlash.
Table 1 shows the impact inadequate contracting, administration, and compliance proce-
dures and systems are having on enterprise performance.

CLM Automation Drives Measurable Results


The rise in interest in CLM, often referred to as enterprise contract management, is also
causing contract management automation to rise to an all-time high. Evidence includes:
Enterprises participating in three recent Aberdeen benchmark studies rated con-
tract management among the top business application investments that have been
prioritized well into 2007.
Aberdeen has recorded a greater than twofold increase in the number of requests
for proposal on the street for contract management automation this year.
Aberdeen predicts CLM application revenues will increase 27% this year, and
maintain year-over-year growth rates of more than 20% through 2008.
Table 1: Issues and Costs of Inadequate Contract Management Performance

Issue Impact to Procurement Impact to Sales

Fragmented procedures Increased maverick buying Missed sales opportunities


Increased supply and financial risk Increased financial, legal risks
Under-leveraged spending Unprofitable deals
Labor-intensive Long sourcing, contracting cycles Long sales cycles
processes Less spend under contract and mgmt. Missed sales opportunities
Non-competitive negotiations Extended order-to-cash cycles
Poor visibility into Poor compliance Lost revenue
contracts and terms Inconsistent and risky terms No holistic view of customer
Limited visibility into spending SLA and payment penalties
Ineffective compliance Increased maverick buying Lost revenue
monitoring and High PPV, missed rebates, and Missed renewal opportunities
discounts Customer dissatisfaction
management
Overpayments and performance risks
Inadequate No view into category performance Ineffective pricing, performance,
Policy and regulatory violations and profit analysis
performance analysis
Under-leveraged spending, high risk Financial reporting violations

Source: AberdeenGroup, October 2005

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2 AberdeenGroup
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In simple terms, a CLM solution automates and streamlines the creation, storage, man-
agement, and analysis of contracts from initial contract request and negotiation
through compliance and performance management. Most commercially available contract
management solutions provide the following capabilities:
A centralized and searchable repository for contracts, templates, and clauses;
Collaborative contract creation, redlining, and audit trail capabilities;
Monitoring and alerting of predefined agreement milestones (e.g., contract ter-
mination, volume thresholds, etc.) to drive improved compliance;
Integration into transactional systems for activation of key contract terms and
proactive compliance monitoring and management; and
Reporting and analytical tools for contract performance analysis.
Aberdeen benchmarks of more than 50 CLM automation deployments have quantified
significant benefits of CLM automation (Table 2). Many enterprise users have reported
full ROI from their CLM solution investments in less than a year thanks to improvements
in contract compliance, access to pricing discounts and rebates, and enhancements in
revenue capture and acceleration. Contract management solutions have also proven valu-
able in assisting companies in complying with regulatory reporting requirements.

Table 2: Benefits of Contract Management Automation

Improvement Area Performance Impact


Compliance management Improve compliance 55%
Rebate/discount management Improve 25% to 30%
Material/service costs Reduce 2% to 7%
Contract renewal rates Improve 25%
Revenues Improve 1% to 2%
Evergreen contracts Eliminate evergreen contracts
Contracting cycles Cut contracting cycles in half
Procedures and terms Standardize processes and terms to mitigate risks, en-
sure proper approvals, enforce policies
Contract analysis Analyze and maximize performance
Administrative costs Reduce 25% to 30%
Source: AberdeenGroup, October 2005

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Chapter Two:
Where to Begin

D espite such compelling benefits, line-of-business executives and IT managers


remain uncertain of how to best approach CLM deployment. Most are concerned
about the challenges of large enterprise business application deployments. Chief
concerns include:
Conflicting agendas and change management issues: Contract management is
one of the few processes that touch nearly every function within the business
from legal and contracts to sales and procurement to finance and IT. Each of
these constituencies has its own preferences and agendas. For example, legal is
concerned with liability and is generally technology-averse. Finance is concerned
with CLM system costs and its ability to provide better reporting. Sales and pro-
curement are concerned about how CLM will impact existing business processes,
systems, and relations. And IT is concerned with how CLM fits with existing IT
infrastructure strategies, especially ERP consolidation plans. Such factors make
CLM a politically charged and highly fractious issue that can ultimately end in
no decision or stalled initiatives.
Difficulty securing budget and resource support. Despite the importance and
growing interest in CLM, line-of-business executives continue to struggle with
securing sufficient budget and IT resources to support the initiative. CLM com-
petes with application maintenance and ERP consolidation, in addition to busi-
ness-function-specific projects such as CRM and SRM.
Corporate aversion to large-scale system deployments. One of the biggest
challenges in securing support and ensuring successful CLM deployment is
countering fears that an end-to-end CLM initiative will be both costly and time-
consuming to implement. The basis of this concern comes from previous experi-
ences with ERP system implementations, which were costly to implement, had
long implementation and ROI cycles, and required significant changes to existing
operational and information management processes and controls.

Assessing CLM Needs and Opportunities


Overcoming these challenges will require enterprises to clearly identify and prioritize
opportunities for contract management improvements and define a methodical and prac-
tical approach to CLM solution deployment that speeds implementation and time-to-
value cycles while minimizing internal conflict and change management hurdles.
One of the most common mistakes enterprises make is rushing into CLM solution de-
ployment without truly understanding their contracting and compliance competencies and
without accurately defining solution requirements. Consider one large aerospace com-
pany. This leading manufacturer of turbofan and turboprop engines and flight safety and
landing systems licensed a CLM solution to address the full contract lifecycle as a way to
standardize contracting procedures and controls across multiple divisions (including
many that were added through mergers and acquisitions) and to meet stringent regulatory

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reporting requirements. After beginning the system deployment, which was part of a
companywide contract excellence initiative, the manufacturer soon realized that it
needed to better scope its requirements and modify its deployment approach. The com-
pany secured an experienced program manager and reset deployment expectations.
The result: quicker implementation, wider system adoption, and improved financial and
performance results1. One executive said, Too often enterprises rush into a [CLM] in-
vestment. We learned its important to slow down and fully assess your organization
structures, processes, and system requirements before evaluating solutions.
Enterprises must start by conducting an internal assessment of contracting, compliance,
and contract administration competencies. Aberdeen advises enterprises to holistically
assess contract management competencies across five areas: organization, process,
knowledge, technology, and performance measurement. Table 3 provides a first-pass as-
sessment enterprises can use to determine the applicability of CLM for their firm. Or-
ganizations lacking capabilities referenced could achieve measurable benefit from CLM.
Self-assessment is examined in further detail in Aberdeens Best Practices in Contract
Management report (September 2004).

Building the Business Case for CLM


Once an enterprise identifies capability gaps, it should establish targets for expected
revenue, cost, and performance improvements that could result from adopting a CLM
solution. This business case must include measurable targets, including revenue and prof-
itability impact; unit cost savings; improved contract compliance; improved service lev-
els; reduced risks and fines; FTE (full-time equivalent headcount) reductions; lower op-
erating costs; and continuous cost, operational, and performance improvements.
One of the quickest methods to gain budget and alignment for a CLM initiative (and to
mitigate sentiment against it) is to develop a business case that targets not only cost and
ROI, but also time to value (i.e., the timeframe within which ROI and improvements will
be achieved). When possible, link the business case to a pending crisis, such as impend-
ing regulatory reporting requirements (e.g., Sarbanes-Oxley), or financial issues, such as
lost revenue, elongated order-to-cash cycles, or unnecessary waste or cost.
Table 4 provides an example of CLM cost, ROI, and benefits. Enterprises can use this
example as a guideline to model their own organizations and the potential costs and im-
pact of a CLM deployment. Business case development is examined in further detail in
Aberdeens Contract Management Solution Selection Report (June 2005).
To understand the impact a CLM initiative can have on your company, conduct a per-
sonal value assessment at Aberdeens Contract Management Center of Excellence on
www.Aberdeen.com.

1
Best Practices in Contract Management (September 2004).

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Table 3: Contract Management Performance an Assessment Approach


Area Action Sample Assessment Criteria
Organiza- Assess organiza- Do you have a central contracting group?
tion tional structures, Does this group have direct reporting into the CFO?
skills, and deci- How well are contract terms and decisions aligned across the enterprise and
sion-making with business goals?
alignment across Do all your contracts comply with requisite terms, approvals, and policies?
the enterprise Do you have controls to ensure that high-risk terms and payment schedules are
not incorporated into new contracts?
Do you have controls to ensure that service level agreements are satisfactorily
achieved?
Process Assess process Do you have standard procedures for contracting and administration?
standardization At what scope are these procedures reinforced?
and efficiencies Do all your contracts comply with requisite terms, approvals, and policies?
Do you have templates to ensure use of approved standard terms and clauses?
How efficient are your contracting and reporting processes?
Can legal keep pace with the volume of requests for new contracts and agree-
ments?
Knowledge Assess visibility Can you rapidly access a complete list of contracts for a customer or supplier?
into contract Can you easily identify and assess all contracts with a specific clause or risk?
processes, com- Can you compare and analyze the performance and terms of various contracts?
pliance, govern- Can you immediately assess where a contract is in the approval process?
ance, and per- Can executives quickly develop reports on contractual obligations and opera-
formance tional and financial performance?

Technology Assess level of Which contracting and administration processes have been automated and to
automation and what level of effectiveness?
how well it is Are automation investments aligned and integrated across the contract lifecycle
integrated and across the enterprise?
across discrete What decision support and reporting tools does your procurement organization
contract lifecycle use, and how effective is it at meeting your analysis and reporting needs?
management
processes
Performance Assess level and What metrics and procedures does your company use to measure contract
Measure- consistency of compliance and performance?
ment measurement as Are metrics and procedures consistent enterprise-wide?
well as actual Are you capturing all rebates/discounts in supply contracts and all revenue of
performance sales contracts efficiently?
against each Does you company submit invoices promptly, accurately, and according to con-
metric tract milestones?
How does actual contracting and administration performance measure up to
industry peers and the best in class?
Source: AberdeenGroup, June 2005

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6 AberdeenGroup
The Contract Lifecycle Management Business Value Research Series

A solid business case is required for securing strong executive support and funding for a
CLM initiative. Executive support is critical for achieving successful and rapid adoption
of a CLM program, including alignment across functional groups and business units. In
fact, an assistant vice president at one company that implemented a CLM system told
Aberdeen, Sponsorship at senior levels is paramount. You need to have senior buy-in, or
the rest of the organization wont follow.

Table 4: CLM Procurement Example


Key Assumptions
Annual revenue: $750 million
Annual spend: $200 million
% of spend governed by active contracts: 70%
Off-contract (maverick) buying: 17%
% of contracts with auto-renewal clauses: 10%
Contracts (re)negotiated per year: 250
Costs Area of Benefit Impact
License: $275,000 Moving off-contract spend back in compliance $916,000
Implementation: $261,250 Gaining price savings via re-sourcing $700,000
Year-one maintenance: $53,600 Access to rebates and volume discounts $280,000
Total hard-dollar savings $1,896,300
Additional savings:
o Administrative savings $112,500
o Reduced regulatory fines $12,500
Year-One ROI >321%

Source: AberdeenGroup, June 2005

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AberdeenGroup 7
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Chapter Three:
Practical Approaches for CLM Success

A berdeen research has found that the enterprises reaping the greatest value from
their CLM investments were those that could simultaneously paint a grand vision
of an end-to-end CLM initiative but execute a practical and manageable set of
requirements and a moderated deployment schedule.
For example, after doing an initial analysis of the contract management automation mar-
ket in 2000, one large automobile manufacturer was wowed by the advanced functional-
ities and reporting capabilities of available CLM solutions. However, the automaker was
wise enough to realize that incorporating all these functionalities into its initial rollout
plan would result in elongated deployment cycles and greater internal resistance to sys-
tem adoption and process change.
Instead, the automaker began its CLM deployment by focusing on establishing a central-
ized repository for contracts to support procurement optimization activities and enhance
compliance. Where companies fail is when they allow new features to distract them
from their core goals, said one company executive. If you try to adopt [all the features
available in a CLM system] you defeat the purpose of what you really want to do.
The automakers focused CLM strategy yielded an estimated $14 million over its first
five years of deployment. Benefits came from improved prices, terms, and conditions
through enhanced visibility into contracts and compliance, resulting in 571% ROI. The
automaker has since expanded CLM deployment to other business units and has extended
functionality to include contract creation and collaboration and advanced reporting. (See
Best Practices in Contract Management, September 2004, for more details.)
Our benchmarks of CLM application implementations lead Aberdeen to recommend that
enterprises understand and embrace the long-term vision of an end-to-end CLM initia-
tive, but take a more measured and practical approach to solution deployment.
To demonstrate the cost and time-to-value impact of this approach, Aberdeen decon-
structed the case study referenced in Table 4 into the three primary phases of CLM de-
ployment:
1. Establish a central and searchable contract repository.
2. Establish integration and process workflows for improved transaction and com-
pliance management.
3. Adopt contract creation and collaboration capabilities for better productivity and
control.
Figure 1 illustrates the deployment cycles, costs, and actions required to effectively exe-
cute each phase of CLM deployment. It also quantifies the estimated value contribution
of each phase.

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Figure 1: CLM Value Contribution by Phase

$1,600,000
Fine Avoidance
$1,400,000
Administrative
$1,200,000 Rebate Capture
Re-Sourcing
$1,000,000 Compliance

$800,000

$600,000

$400,000

$200,000

$0
Phase I Phase 2 Phase 3

Phase 1 Phase 2 Phase 3*


Deployment 1 3 months 2 4 months 4-plus months
Actions Contract location Transaction process Contracting process
Contract loading mapping mapping
Database development Integration development Rules and permission
Search development and Testing configuration
testing Roll-out Workflow and alert con-
Report development figuration
System training
Contract templates
Value Areas Compliance Compliance Productivity
Re-sourcing Re-sourcing Fine avoidance
Reporting Rebate capture Compliance
Productivity Risk mitigation
Financial improvements
Return as % of 20% 65%-70% 15%
Total ROI
*Additional Phase 3 savings generated through risk mitigation and cost avoidance.

Source: AberdeenGroup, June 2005

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1. Establish a Central and Searchable Contract Repository


While the early focus of CLM involved contract negotiation and collaboration, Aber-
deens benchmarks reveal that most of the tangible and measurable value of system de-
ployment comes from better contract visibility and ongoing compliance management. In
fact, enterprises report measurable value and complete ROI from their CLM investment
just from getting contracts into a central and searchable repository. As Figure 1 shows,
this first phase represents about 20% of the total value and ROI of a typical CLM in-
vestment.
In addition, establishing a central contract repository is the least controversial or politi-
cally charged aspect of a CLM deployment. As Aberdeens benchmark revealed, about
one-third of executives report difficulty in quickly accessing contracts. As such, func-
tional and business unit executives are generally in agreement on the need for a central
contract repository.
A central contract repository offers a single point-of-truth for the details, obligations, ex-
pectations, and status of all of a companys business relationships. Improved visibility
into contracts enables a company to better understand its business and financial obliga-
tions, identify opportunities for revenue acceleration or supply cost savings, and uncover
risky contractual relationships and terms. A central contract repository can also help im-
prove compliance by giving all relevant stakeholders better visibility into existing con-
tracts and obligations, as well as easing procedures for compliance review and analysis.
Ideally, this central repository should store contract information in electronic format and
be searchable by multiple parameters, including contracts by supplier, category, business
unit, and geography. Detailed search capabilities can help companies identify terms and
clauses that present risks (e.g., auto-renewal clauses or liability exposure) or savings op-
portunities (e.g., early payment incentives or volume price breaks).
As Figure 1 shows, activities required for successfully deploying this phase include:
Contract location: While seemingly simple, finding contracts often proves more
difficult than most enterprises expect. In Aberdeens benchmark of contract man-
agement operations, one-third of enterprises reported challenges in locating and
accessing contracts. Several companies even admitted to needing to contact cus-
tomers or suppliers to get a copy of lost contracts. Contracts are typically scat-
tered across the enterprise and are stored in various formats, including home-
grown systems, standard electronic databases, on individual PCs, and in paper
format. Enterprises must aggregate contracts from all of these sources.
Contract loading: The level of effort required for loading contracts into a CLM
system depends on two attributes: the original format of the contracts and the
loading and contract conversion capabilities of the CLM solution provider and its
service partners. Enterprises storing contracts in electronic format will have an
easier time converting these into a usable form within the CLM system, primarily
through a bulk loading and mapping process. Converting contracts from paper
format will require a combination of optical character recognition (OCR) and
manual review and data re-keying procedures.
Database development: Most companies attempt to simplify the development of
a contract repository or database by basic header information (e.g., contract type,

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trading partner name and contact information, pricing lists and breaks, and con-
tract termination dates) in a CLM system. This header information typically con-
tains a contract number that links or directs users to the complete contract stored
either in scanned or paper format. This segmented approach simplifies system
deployment and management. The header information can be used to drive con-
tract compliance and administration activities. However, this header-only ap-
proach limits the ability of companies to initiate performance and risk analysis
across contracts or at the clause or line-item level. Recent advances in OCR, con-
tent management, and pattern recognition technologies are beginning to enable
more sophisticated and efficient contract conversion, allowing companies to ac-
cess and search the entire contract at a detailed level.
Report development: The final phase of establishing a contract repository is run-
ning basic reports and search queries to track contract compliance, rebate cap-
ture, termination and renewal dates, etc. Most CLM solutions ship with standard
reporting capabilities or can export information to third-party reporting tools.

2. Establish Links for Transaction and Compliance Management


The greatest area of return from a CLM investment comes from improved compliance
and management of corporate contracts and commitments as well as regulatory require-
ments. Again, as Figure 1 shows, Aberdeen research suggests that this transaction and
compliance management phase accounts for nearly 70% of total return on your CLM in-
vestment.
Monitoring and ensuring contract compliance in a repeatable and proactive fashion re-
quires the activation of key contract terms and commitments such as prices, volume
breaks and rebates, etc. into transactional systems. The activities required to establish
and maintain integrations required to successfully deploy this phase of CLM include:
Transaction process map: Enterprises must begin by identifying the systems and
transactions that interface with contract data. Key systems where contract infor-
mation is required for successful compliance management include ERP, purchas-
ing, e-commerce, and financial systems.
Integration routines: Next, define the integration routines and approaches best
suited for CLM initiative goals as well as existing systems infrastructure. Integra-
tion routines range from basic scheduled bulk loads up to real-time integration
calls between transaction systems and the CLM system. Many CLM solution
providers offer certified integrations into leading ERP and business applications.
Others leverage standards-based application programming interfaces (APIs).
Some ERP, SRM, and CRM platform providers incorporate contract manage-
ment functionality into an integrated suite of products that covers the broader
source-to-pay or order-to-cash lifecycles.
Alerts and workflows: Most CLM solutions enable proactive compliance moni-
toring and management with rules-based workflow engines that enable enter-
prises to establish alerts for out of compliance transactions or activities. Ad-
vanced systems support alert routing and escalations, and, in some cases, auto-
mated resolution such as applying a new price to a purchase once volume
thresholds defined in a contract are met.

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3. Adopt Contract Creation and Collaboration Capabilities


In most cases, Aberdeen recommends that enterprises make the deployment and adoption
of contract creation, authoring, and collaboration capabilities the final phase of any CLM
deployment. This phase takes the longest to implement due to internal politics and
change management issues. Aberdeen research suggests that contract creation and col-
laboration functionalities deliver the least amount of tangible and measurable value.
To be clear, such functionalities drive significant improvements in productivity and con-
tracting cycle times. Contract authoring and collaboration tools also help companies en-
force the use of standard contracting procedures and language, which can result in con-
tinued improvements in contract effectiveness and risk management. However, value de-
rived from these benefits is either limited in total savings (e.g., reduction of full-time-
employees (FTEs) through the use of automation) or is largely categorized as cost avoid-
ance, which is difficult to calculate and defend to senior management.
Figure 1 indicates that the primary actions required to effectively deploy contract author-
ing and collaboration capabilities include:
Contracting process map: Enterprises must benchmark existing contracting pro-
cedures and, if necessary, redefine processes to ensure streamlined operations
and sufficient cross-functional representation before automating the process
with new authoring or collaboration tools. Enterprises must pay particular atten-
tion to the usage frequency and preferences of individual users and ensure that
the selected CLM solution includes the capabilities to support requirements of all
stakeholders. For example, if the legal department prefers to author and review
contract language in basic word-processing applications e.g., Microsoft Word
be sure to access functionality to support check-in and check out of con-
tract information between the core CLM system and third-party word-processing
tools. Some solutions support access to basic CLM functionalities from within
word processing tools, enabling users to edit and collaborate on contract lan-
guage within their native word-processing environment.
Rules and permission configuration: System administrators must configure
rules and permissions to ensure role-based access to contract data and CLM sys-
tem functionality. Many CLM solutions support the import of employee profiles
from ERP, human resources (HR), or human capital management (HCM) sys-
tems and allow rules and permissions to be assigned to user groups or roles. Such
features speed CLM implementation.
Alerts and workflow configuration: To facilitate contracting and collaboration
efficiency, system administrators must establish optimized workflows to auto-
mate, monitor, and manage the contracting process. Many CLM systems include
workflow configuration wizards and contract templates to speed the set-up
process.
Contract templates and clause libraries: Most companies spend an inordinate
amount of time creating and reviewing contract terms and conditions that are
used frequently across the company. These redundant activities lengthen con-
tracting cycles and hinder productivity. CLM solutions enable enterprises to cre-
ate libraries of contract templates and clauses that empower approved stake-
holders to construct a contract using pre-approved pricing, terms, and conditions

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12 AberdeenGroup
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all while mitigating the use of risky contract language. Templates are defined
for specific and generally highly used contract categories or types, such as con-
tingent labor agreements.
For example, Hewlett-Packard defined a library of contract templates for specific
product and service types. These templates also include variations that support
local requirements and business regulations. The result: HP reports shorter con-
tracting cycles and improved compliance. Advanced contracting solutions offer
predefined process workflows and contract templates to satisfy the unique con-
tract types (e.g., leases or physician agreements) or industry requirements (e.g.,
retail, life sciences). Some solutions also allow rules, permissions, and risk scores
to be applied at the clause level, reinforcing approved language and guidelines.
Aberdeen Conclusions
With continued corporate pressures to cut costs, boost profitability, and meet regulatory
requirements, the benefits of contract lifecycle management and supporting solutions are
highly compelling. However, successful program and system deployment requires a me-
thodical and measured approach to CLM. Enterprises employing such measured ap-
proaches reported significant and measurable value and ROI at each phase of deploy-
ment. They also found that success from early phases of the deployment helped secure
internal support and funding for expanded functionality and rollout. Success in these
phases, as well as on the project itself, can accelerate system deployment, allow an enter-
prise to realize value faster, and make it easier to secure later funding for system en-
hancements and upgrades.

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AberdeenGroup 13
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Author Profile

Tim Minahan
Senior Vice President, Global Supply Management Research
Aberdeen Group
Tim Minahan is senior vice president of global supply management research for Aber-
deenGroup, Inc. Minahan specifically focuses on total cost management (TCM), which is
an organizational and technological framework for managing the total cost of ownership
of supply relationships. Within TCM, Minahan tracks spending analysis, sourcing, pro-
curement execution, contract management, and supplier performance measurement tech-
nologies. Minahan also covers product lifecycle management (PLM) technologies and
their convergence with TCM.

Minahan continually consults with early implementers of these applications to identify


world-class supply management strategies and to determine the strengths and weaknesses
of technology solutions and services that are competing in this market.

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14 AberdeenGroup
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Appendix A:
Research Methodology

This research effort draws on the following AberdeenGroup research activities:


In 2004, Aberdeen assessed CLM implementations of more than 35 enterprises.
Selection approaches and criteria used by these enterprises are reflected in this
report. Since that time, weve benchmarked a dozen other CLM implementations.
In 2005, Aberdeen was also appointed co-chair of the International Association
of Commercial Contract Managers (IACCM) Contract Management Automation
Community of Interest, a group of contracting, procurement, and IT executives
currently evaluating or implementing contract management solutions. The
groups first meeting focused on the proper criteria to effectively evaluate com-
mercially available contract management solutions. Some insights from this
group are reflected in this report.
Between January and June 2005, Aberdeen conducted demonstrations and as-
sessments of more than 20 CLM solutions and providers. Some insights from this
research effort are reflected in this report. Detailed findings from this research ef-
fort will be published in our forthcoming CLM Vendor Assessment Report (No-
vember 2005).
Aberdeen supplemented these research efforts with more detailed telephone interviews
and on-site consultations with additional enterprises. This research initiative aimed to
identify practical approaches for CLM solution deployment.

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AberdeenGroup 15
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Appendix B:
Related Aberdeen Research & Tools

Related Aberdeen research that forms a companion or reference to this report includes:
Contract Management Solution Selection Report (June 2005)
Secrets of Contract Management Leaders (May 2005)
Spend Compliance Management (December 2004)
Best Practices in Contract Management (September 2004)
Contract Management Benchmark Report (June 2003)
Information on these and any other Aberdeen publications can be found at
www.Aberdeen.com.

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16 AberdeenGroup
The Contract Lifecycle Management Business Value Research Series

About
AberdeenGroup

Our Mission
To be the trusted advisor and business value research destination of choice for the Global
Business Executive.

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible busi-
ness value from technology-enabled solutions. Through continuous benchmarking and
analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and
services to help Global Business Executives accomplish the following:
IMPROVE the financial and competitive position of their business now
PRIORITIZE operational improvement areas to drive immediate, tangible value
to their business
LEVERAGE information technology for tangible business value.
Aberdeen also offers selected solution providers fact-based tools and services to em-
power and equip them to accomplish the following:
CREATE DEMAND, by reaching the right level of executives in companies
where their solutions can deliver differentiated results
ACCELERATE SALES, by accessing executive decision-makers who need a so-
lution and arming the sales team with fact-based differentiation around business
impact
EXPAND CUSTOMERS, by fortifying their value proposition with independent
fact-based research and demonstrating installed base proof points

Our History of Integrity


Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers
tangible value to executives trying to advance their businesses with technology-enabled
solutions.
Aberdeen's integrity has always been and always will be beyond reproach. We provide
independent research and analysis of the dynamics underlying specific technology-
enabled business strategies, market trends, and technology solutions. While some reports
or portions of reports may be underwritten by corporate sponsors, Aberdeen's research
findings are not influenced by sponsors.

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AberdeenGroup 17
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AberdeenGroup, Inc. Founded in 1988, AberdeenGroup is the technology-


260 Franklin Street driven research destination of choice for the global
Boston, Massachusetts business executive. AberdeenGroup has over 100,000
02110-3112 research members in over 36 countries around the world
that both participate in and direct the most comprehen-
USA
sive technology-driven value chain research in the
Telephone: 617 723 7890 market. Through its continued fact-based research,
Fax: 617 723 7897 benchmarking, and actionable analysis, AberdeenGroup
www.aberdeen.com offers global business and technology executives a
unique mix of actionable research, KPIs, tools,
2005 AberdeenGroup, Inc. and services.
All rights reserved
October 2005
The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but
is not guaranteed by Aberdeen. Aberdeen publications reflect the analysts judgment at the time and are subject to
change without notice.
The trademarks and registered trademarks of the corporations mentioned in this publication are the property of
their respective holders.