With the vast majority of CEOs expecting their business models to change over the next three years, it’s no surprise that digital transformation (DX) continues to be a strategic priority for organizations of all industries and sizes. But what does DX mean for legal teams and what is their role in the execution of it?
A big part of that answer is centered around the concept of digital contract transformation (DCX). DCX is all about the digitization of contracts and contract lifecycle management (CLM) processes. DCX is a foundational element of an organization’s broader digital transformation strategy because it not only modernizes their contracting efforts, it enables them to harness the data in their contracts to deliver actionable business insights which is the heart of digital transformation.
Let’s look at ten best practices that legal teams can implement and be well on their way to achieving a successful digital contract transformation.
- Use a cloud-based central repository to track, manage, and secure your contracts.
Many organizations store and track contracts in shared folders and spreadsheets. This makes it hard to digitally access and gather information (i.e. data) in and across your contracts. What if you want to search all your agreements for a specific clause? Or, maybe you want to view all agreements by contract type, but they are only organized by vendor? Centralizing your agreements in a digital contract repository eliminates these issues. It keeps agreements organized and reduces the risk of them being lost, overlooked, or accessed by the wrong individuals.
- Set automated alerts to avoid missed deadlines and obligations.
Missing contract obligations can result in serious consequences. Imagine missing the termination window of an automatic renewal you wanted to cancel or missing a certain condition that’s activated by a milestone that makes you eligible for a discount. Setting up automated alerts and tasks is the perfect way to stay on top of these critical contract deadlines. No more manually tracking dates using filters and custom sorting in spreadsheets or setting reminders in Outlook, Gmail, or iCalendar.
- Create cloud-based clause and template libraries to increase contract compliance and speed.
Drafting an agreement can be time-consuming when staff members are unsure if they have the most recent language. This uncertainty is a liability and hard to avoid when using manual contract management techniques. Creating shared and legal-approved clause and template libraries is key to increasing the productivity and compliance of any contract process. They help assemble documents faster—while eliminating deviations from standard legal language. Documents can be automatically formatted eliminating the need for any manual clean-up. You can also apply your organization’s business rules around which clauses to use under specific circumstances such as a contract value or local laws.
- Maintain version control to avoid missing, duplicate, or incorrect information
Keeping track of all the edits throughout contract negotiation is a difficult task when you are managing them manually. Not only do multiple people have a copy of the document at the same time, but they are making simultaneous changes that may or may not be tracked properly. The key to effectively managing version control is to use a digital contract management solution that tracks changes by user and allows them to simultaneously review, redline, and approve contracts directly in the system. This ensures you avoid missing, duplicating, or using inaccurate data that can result from emailing back and forth and comparing different versions.
- Clearly define workflows for the entire contract lifecycle to automate processes and improve compliance.
There are many steps and stages throughout a contract’s lifecycle. To keep things moving smoothly, it’s important to have well-defined and documented workflows that follow your business rules. This ensures governance and compliance to your existing processes. One of the keys to digital contract transformation is to create automated contract workflows that eliminate the need to manually track and facilitate each step required to request, draft, review, approve, and execute a contract. Workflows can differ by role, contract type, or by any data within a contract.
- Streamline approvals with automated notifications and electronic signatures.
Securing contract approvals is usually one of the slowest parts of contract management. That’s why a key part of any digital contract transformation is about automating and digitizing the approval process. This helps speed up your approvals in two main ways. First, when a contract is ready for approval you can automate email notifications to be sent to the approvers alerting them they need to sign. Second, you can use e-signatures to get documents signed electronically from any device anywhere in the world in minutes. Another advantage is increased security because e-signatures carry a digital record about who, when, and where a document was signed.
- Leverage role-based and feature-based permissions for greater security
Another best practice is ensuring that people in your organization have appropriate access to contracts and parts of the process. For digital contract transformation, it’s important to be able to set role-based and feature-based permissions for enhanced contract security and compliance. This prevents unauthorized users from seeing or editing specific contract details. For example, you may not want anyone on the sell-side of the business to see contracts executed by procurement. Or perhaps you only want to give “read-only” users access to specific parts of the process.
- Create dashboards and custom reports to get real-time insights
Reports and dashboards are key for measuring the success of your contracts and tracking productivity so you can refine and optimize your process. You’ll want to ensure that you can generate reports that provide real-time visibility into your contracts, processes, and associated risks. And dashboards take your valuable report data and present it in a graphical, user-friendly format. This will give you actionable insights to make data-driven business decisions, establish benchmarks, and track KPIs – all of which are core to DX.
- Establish a standard, simple, and online contract request process
Relying on email, voicemail, or hallway conversations to request contracts and capture the info necessary to create them usually results in incomplete or incorrect data. An important best practice is to establish a standard and easy-to-use process for intaking contract data digitally. This lets your team accurately submit existing contracts, request new ones, and if they have the authority, instantly create a contract themselves.
- Keep a full audit trail for compliance and regulatory requirements
When you have a decentralized, spreadsheet-based, and/or shared folder-based contract management process it makes it really hard to create an audit trail. Having a centralized and digital contract repository with complete audit trail data and auditing capabilities tied to each agreement is critical for digital contract transformation. You’ll want to make sure you can capture and store full contract history data such as edits, updates, logins, and user permissions. And automated alerts and process workflows make preparing for an audit more routine and less rushed and stressful.
The need for digital transformation is accelerating. Legal teams can play a vital role in leading DX initiatives by embracing digital contract transformation. By implementing these ten best practices, you can make significant progress in achieving digital contract transformation for your organization. You’ll be able to improve your overall contract management effectiveness and leverage the wealth of data in your contracts to make accurate and intelligent business decisions.