Don’t Execute Contracts. Manage Relationships.

Every relationship is rooted in an agreement of some kind. Those in romantic relationships agree to be monogamous and to support each other in their life’s pursuits. Neighbors agree to behave civilly and to respect each other’s property boundaries. Your favorite barista agrees to remember that you like an extra shot in your latte, and you agree to remember their name and tip them well.

These agreements are essentially contracts. Some are unwritten or even unspoken, some are formally spelled out, but they all serve to guide behavior and expectations between parties.

We sometimes think of written contracts in disconnected, technical terms, treating them as legal documents rather than what they are (or should be): The representation of a relationship. As I recently wrote in my piece titled “The Contracts Matrix,” contracts are everywhere – an unseen but all-important layer to our world. Every contract communicates something significant about the agreement and gives/gets between people or organizations. We don’t necessarily think about them… until something goes wrong, that is.

This distinction between “contract” and “relationship” may not seem that significant for more straightforward or transactional interactions. It is when we get into deeper, more complex alignments – co-marketing relationships with partners, employment agreements, supply chain provisioning agreements, and so on – that the difference becomes vital.

CLM => xRM

To put it simply: Complex, nuanced, and important relationships must be codified and managed appropriately. I’ve previously discussed the importance of taking a  strategic attitude to contract management and the design of your digital contracting platform. To take the next step, I propose we change the name for this type of contract management to something new: Universal relationship management, or “xRM”,  to coin YATLA (yet another three-letter acronym).  Your operations systems support the creation and ongoing “execution” of your relationships.  Your CRM is for customers, procurement systems for suppliers, HRIS for employees, etc. But your contract management system is your xRM. It creates, renews, amends and tracks the core formal agreements that are the backbone of all of these relationships.

Once you realize that your CLM is not simply a utility to spit out a signed agreement with all the necessary formatting and signatures, your perspective on digital contracting shifts.  Most organizations have come to realize this.  But you should also not limit the role of your CLM to the maintenance of the core legal agreement being established – the terms and conditions, obligations stated or implied in the agreement, identifying details about related parties.  Beyond these table stakes for CLM, your digital contracting platform needs to be able to bridge universal relationships across your business systems.

Contracts as Relationship Middleware

To use a technical analogy, your digital contracting platform is like the integration platform for your business relationships.  Just as middleware connects and integrates systems, the xRM ties together data and obligations from many sources..  System integrations enable applications to share capabilities with each other through connections that are governed by data models, performance expectations, and so on- much like contracts between entities doing business together, with terms and conditions and obligations.

For system integrations to function effectively, they need to navigate the data models and process dynamics of the systems they connect.  A CLM is the same with respect to business entities.  The agreement itself ties two entities together in terms of identifying information and contractual clauses related to responsibilities and performance.  But beyond this, the CLM needs to bridge core data and process across the operational units involved in the relationship.  An order form, for example, needs to reference the relevant product, account and contact IDs from the sales CRM, and it needs to provide payment details in a structured form that can be referenced in the finance world for invoicing and revenue recognition.  Similarly, a vendor agreement needs to provide breadcrumbs to supplier records in the procurement systems, chart of accounts in the finance system, etc.

Amendments to agreements are analogous to versioning on the system integrations.  Things change one one or both sides of the integration, and the connection logic needs to be updated.  An amendment to a contract reflects changes that are needed because of changes in the relationship.  The CLM needs to maintain the history of these amendments in order to provide the effective agreement in place between the entities – the currently applicable terms and conditions and obligations given the original agreement and all amendments.

Managing Your CLM as an xRM

Business partners across your organization are creating relationships to enable and expand your core business model.  These relationships expand revenue channels, enable direct and indirect resource needs, and manage risk.

Your digital contracting platform needs to live in the middle of the cyclical nature of these relationships.  They are created, they evolve, they eventually fall away and new ones take their place. As your operational teams in sales, procurement, HR and marketing execute their relationship management processes, they need to do so with a seamless coordination of their operational systems with the digital contracting platform.

Your CLM needs to be managed with this in mind.  Every agreement process needs to be designed in consideration of the fact that the relationships it represents are linking entities within this web of relationships. The sales contracts represent relationships that could impact (or be impacted by) buy-side contracts for direct services related to what is being sold.  HR compensation agreements could impact the shape of sales contracts negotiated by sales reps.  And on and on and on.

And of course there is the global risk and general governance aspects of these relationships.  Managed effectively, your CLM-as-xRM allows you to globally manage clause positions and deviations, contract attribute structures and standards, localized variants.  If you run into a situation where you need to quickly navigate this relationship web, your CLM-as-xRM will enable both static and dynamic, tactical and strategic insights based on these core agreements.  In the face of a service failure, who is impacted? Who do we depend on to resolve this? When this is resolved, who pays who for SLA penalties, business impact liabilities, recovery costs, fee refunds? And in the aftermath, how should we re-optimize this relationship web in order to improve our position for similar incidents in the future?