What is Contract Lifecycle Management? CLM Explained

Every business runs on contracts. They dictate terms of employment, business relationships, and countless other critical business details. Contracts touch every dollar going in and out of an organization, every partnership, every hire, and every idea.

Follow a contract through a company, and you’ll know everything you need to about that company’s approach to technology, process optimization, and risk management.

Does a company prioritize speed over security? Does it maintain a number of systems that don’t communicate with each other? Does it save money by automating high-volume processes? Contracts tell the story.

Contract lifecycle management aims to digitize and automate the contracting process through each stage to achieve much greater efficiency and better collaboration. Done right, it helps keep operations moving smoothly across the company, whether it’s helping sales close a key deal or IT installing new technology that powers the company’s next wave of innovation.

Centralized data, shared workflows, transparency, and compliance are just some of the benefits of contract lifecycle management.

Quiz: Test Your Team’s Contract Management Maturity

Contract lifecycle management (CLM) is the process of digitally managing agreements made with customers, vendors, partners, or employees through every stage of the cycle, and encompasses creating, managing, sharing and archiving business contracts.

Businesses without a strong contract management process expose their business to risk—and keep their stakeholders and teams locked in a frustrating, manual cycle that reinforces legal’s bad reputation, when it could be a source of power.

That’s not your fault. It’s because the traditional way of managing contracts is broken, stuck in a pre-digital era with rigid rules that force legal teams into positions of the “office of no.” What frustrated business stakeholders don’t understand is that legal teams are just as frustrated and overwhelmed by the lengthy and opaque approval process.

Contract lifecycle management can be your business’ secret weapon. Strategic CLM can:

• Centralize (repository or clause library) data, making it easier to find key information quickly between departments
• Create shared workflows that move through the contract stages more quickly, freeing up your team to do more meaningful work
• Build a sense of trust and transparency throughout the organization so you can better enable the business
• Decrease risk exposure with an easy-to-find digital record of version control that provides an audit trail and ensures compliance

All of this gets monotonous work off your desk and gives your team more time to focus on what’s interesting and impactful to the business. Less time spent on contract creation and review leaves more time for strategic analysis.

Here’s an overview of the contract stages:

Stage 1: Contract creation

At this stage, companies create contracts, whether from a template or from scratch. This stage of the contract lifecycle is also called drafting or generation. Microsoft Word documents and PDFs are the de facto standards for contract files, so software solutions designed for document generation focus on enabling custom Word and PDF generation.

Stage 2: Contract negotiation

After contracts are created, but before they are signed, they may need to be negotiated with counterparties (i.e., the companies with whom you sign contracts). During contract negotiations, legal teams on both sides need to be able to track document changes, comments, and versions.

Stage 3: Contract approval

At small companies, general counsel can review and approve every part of a contract on their own. As companies grow, however, contracts tend to require functional and regional departments to approve different parts of contracts.

The manual way to handle this would be to have someone review every contract, check to see which departments need to approve it, and route it to all parties for review. Contract lifecycle management tools automate and track review progress.

Stage 4: Contract execution

Once both parties are ready to agree to a contract, they both sign it. This step poses interesting logistical and technical challenges for contract lifecycle management because the dominant tools for this step — eSignature solutions — have tended to be sold as separate solutions.

Stage 5: Contract storage

Once a contract is signed, it needs to remain in a safe place.

With digital storage, company folders must be easy to navigate, which means that contextual history of the contract is also stored in addition to the file, and that relevant metadata is recorded in a relational database for easy reporting and filtering. For example, you should be able to filter contracts with a value over a certain monetary amount.

Contract storage is an excellent example of a contracting task that might be handled adequately by general software storage solutions (like Dropbox or Google Docs) in the early stage of a company, but not as the company scales.

Stage 6: Contract management and analytics

The final stage of the contract lifecycle is contract management and analytics, which we define here as everything from contract administration and search to renewal, analytics, and reporting. Because it requires accurate contract data from across the previous contract stages, this category of contract lifecycle management capabilities remains the least developed in the CLM space.

CLM software is any of the digital platforms built to manage contracts throughout all lifecycle stages. It shouldn’t be confused with document signing software which merely allows signatures to be collected digitally. CLM tools allow in-house legal and its business users to automate management processes while extracting business intelligence from their contracts.

Think of CLM tools as a holistic approach to the entire contract, which allows in-house legal and its business users to automate management processes while extracting business intelligence from their contracts.

Renewals are a prime example: How can companies manage and remain up-to-date on their obligations if they’re not sure when contracts are up for renewal? CLM tools add features such as automated notifications to deal with this use case. They also introduced pre-execution features, including contract generation and authoring.

“A highly effective legal team is a key part of a successful go-to-market motion. And part of becoming highly effective is looking at the relevant data to make informed decisions,” says Vincent Chuang, GC at UpGuard. “With modern CLMs like Ironclad, a treasure trove of contracting data has been made accessible and usable.”

Not every CLM tool is designed to solve the expensive and painful problem of how to get a contract made in the first place. Different tools can address different aspects of the contract management cycle, depending on your business needs. “Modern CLMs like Ironclad are a significant leap from the legacy, single-user document management systems I used more than a decade ago…there was always an inherent assumption to those systems that documents were used and owned by one person,” said Chuang. “[However,] the contract lifecycle, especially in-house, is a heavily cross-functional, multi-stakeholder effort.”

Today, there are at least 150 contract management software providers, but only one solution actually helps modern companies streamline every step of the contracting process.

The standalone term “CLM” usually refers to CLM software.

The ubiquity and variety of contracts makes them a technological challenge, since digital contracting is the Gordian knot of business software. Technology providers have approached the problem from every conceivable angle — largely unsuccessfully.

Some companies focus on a specific contract stage or function, such as document generation, while others focus on a specific type of contract. Still others have entered into contract lifecycle management from adjacent legal domains, such as matter or spend management.

Today, there are at least 150 contract management software providers, but only one solution that helps modern companies streamline every step of the contracting process.

Managing contracts, it turns out, presents more technological, operational, and legal hurdles than any other business task.

With this in mind, new CLM software acknowledges that contracts impact a business well before and after they’ve been archived.

Renewals are a prime example: How can companies manage and remain up-to-date on their obligations if they’re not sure when contracts are up for renewal?

CLM tools add features such as automated notifications to deal with this use case. They also introduced pre-execution features, including contract generation and authoring. Still, CLM tools were designed as database-first, meaning any automated workflow components they introduced were clunky and took months, if not years, to implement.

To this day, legacy contract management solutions are best used for only post-execution database management, i.e., storage.

Not every CLM tool is designed to solve the expensive and painful problem of how to get a contract made in the first place. Never mind streamlining and automating rote, repeatable work so that in-house legal professionals can spend their time negotiating deals, collaborating on terms, spotting risk and acting as strategic partners to the organization.

Taking up this challenge, the next evolution of contract management technology is marrying the power of contract process automation with agreement management. Enter the digital contracting platform.

To understand contract lifecycle management, we need to go back. Way, way back. While we think of contract lifecycle management as a technology that has existed for the past thirty years, archaeologists discovered the world’s oldest business record from more than 5,000 years ago.

For commerce to exist, you need a record of every purchase and every purchase fulfilled. Without contracts, there can be no guarantee of payment or fulfillment. In other words, ledgers and contracts are the foundational elements not just of every business, but of human cooperation and society. But recording the details of an agreement, as any businessperson will tell you, is the easiest part of any contract negotiation. It’s coming to an agreement that’s complicated.

The 1990s: How Microsoft changed business tools forever

Charles Simonyi, an early Microsoft employee and the creator of Microsoft Word, left Xerox PARC to join Microsoft in 1981 because he thought the company was poised to change the way every business operated.

There is an inevitability to Microsoft Word that makes it difficult to imagine the software ever being replaced. One might as well try to imagine a world without laptops, or without email.

Today, Microsoft Office (including Excel, Word, and Powerpoint) have a combined 43.06% market share, according to 6Sense. Although the word processor that Simonyi and Microsoft created wasn’t the first, it has endured the longest. Today, most contracts in the world pass through Microsoft Word at some point. (WordPerfect still has its place at some law firms, but that’s a more involved discussion best saved for another time.)

The average enterprise today uses more than 600 applications to manage sales, procurement, HR, and other key functions, with 28% including an element of artificial intelligence. And each one of these pieces of software required a contract to be implemented.

But if contracts and contract lifecycle management are so important, why is business software today dominated by two other categories of software: customer relationship management (CRM) and enterprise resource planning (ERP)?

The answer, in a word, is timing. Before diving into CRM and ERP, it’s helpful to contextualize enterprise software growth within an investment framework.

The three stages of enterprise software

To understand how contract lifecycle management has evolved over time, it’s useful to reference a broad investment framework on enterprise software: Greylock’s concept of systems of record, systems of engagement, and systems of intelligence. Our use of the framework won’t match Greylock’s, exactly, but the concepts will be the same.

The thesis, in a nutshell, is that every major business system first provides value as a source of truth (e.g., as a database). The difference between a paper-based business and a digital business is that the digital business can access, query, and distribute records in seconds, whereas the same tasks would take hours, if not days, with paper files.

At a certain point, however, it’s not enough to just have a database. Companies and industries look to systems of engagement to further streamline common operations. These systems sit between databases and end users, and they help automate and streamline the collection and retrieval of data, whether that data is information on prospects or information on contracts. This is where most technologies—regardless of industry or use case—stand today.

The future of software lies in systems of intelligence, or systems that don’t just record and retrieve data, but also analyze it to detect patterns, surface insights, and improve business outcomes. The track record of these types of systems is mixed and depends in large part on the domain in which they’re applied.

One way to better understand this framework is by applying it to systems for personal finance:

• System of record. Your bank’s database is a system of record, or the source of truth about your finances. This is the oldest and most developed of the systems, and is unlikely to change significantly in the future.
• System of engagement. The banking app on your smartphone is a system of engagement. It helps you view your records from anywhere, as well as conduct routine tasks like transferring funds between accounts. These systems, while relatively new, have seen widespread adoption.
• System of intelligence. Early versions of a system of intelligence for your finances might be apps that provide guidance on how to spend your money, or that predict what your retirement needs may be. If you’ve interacted with these systems, however, you know that they’re still far from perfect. As such, they can supplement, but not replace, human inputs.

What does this look like for contracts? For the past thirty years, contracting and CLM tools have sought to bring the analog process of contracting into the digital age, starting with the rise of CRMs in the early 2000s:

The 2000s: the rise of CRM

Beginning in the 1990s and continuing into the 2000s, the cost of business computers fell dramatically, the Internet gained widespread adoption, and e-mail became the de facto standard for business communication. Just as importantly, in 2000, Congress passed the ESIGN act, a law that ensured the validity of contracts signed electronically.

Together these changes revolutionized a number of business processes, none more so than contracts.

Throughout the 1990s and 2000s, most contract management systems were actually document management systems, or systems of record. As companies began to digitize their contracts and their contract records, their main priority was to make sure that their contract databases were accurate and comprehensive.

Because software tended to be hosted on-premise during this time, customers expected to spend months, if not years, implementing and configuring enterprise software systems, and they did not expect frequent software upgrades. The leading vendors for contract systems of record through the 2000s were, for example, Oracle and SAP Ariba, both of which were founded in the mid-1990s. The contract management systems of this time were glorified databases. They were where contracts went to die. Sure, businesses purchased contract management software, but few companies saw this software as a competitive necessity.

By contrast, the CRM market saw explosive growth in the 1990s, with Salesforce (founded in 1999) rising to the top. Today, Salesforce is valued at $268 billion.

Why did CRMs rise so rapidly? Because lead or prospect management—unlike contract management—didn’t depend on digitizing documents or signatures. Sales interactions differ from contracts in three key ways:

1. Sales interactions are routine. Unlike tracking contracts, which can vary greatly in scope, complexity, and risk, tracking most sales interactions is simply about keeping track of the status of the deal.
2. Sales interactions only need to be recorded by the seller. CRM could grow rapidly even before the widespread use of the internet, as only the seller needed to record the details of each interaction.
3. Sales interactions are easy to record and understand without special training. CRM differs from contract lifecycle management in that the key moments of a sales interaction do not require special training to understand, while the key clauses in a contract do require a legal background to understand.

That’s why, in the 1990s and through the 2000s, companies could rely on CRM in a way that they could never rely on CLM tools—the information in the CRM was generally accurate and up-to-date, while information couldn’t even be entered into contract systems until contracts were finalized by both sides and signed. The same was true of Enterprise Resource Planning (ERP) systems, which were (and are) the systems procurement teams use to keep track of purchases. In other words, key parts of the contract process could not live in contract management tools, while CRMs and ERPs didn’t face the same barriers.

As a result, CRMs and ERPs flourished while CLM software saw modest growth in these decades. Business stakeholders use this kind of automation every day as the primary tool in their team’s tech stack, which naturally creates friction when confronted with a rigid, traditional, or manual process that many legal teams are stuck with.

The 2010s: contract lifecycle management unbundles

In the 2010s, Software-as-a-Service (SaaS) became the norm. In this model of software delivery, companies purchased subscriptions to software rather than perpetual licenses. In return, they could expect continuous product development and product support. Perhaps no technology company benefited from this change as much as Salesforce, which climbed the Fortune 500 and saw its annual revenue grow to $17 billion.

Over the same time period, two types of new contract management tools emerged—both of them early types of systems of engagement.

1. Custom enterprise contract lifecycle management tools. These tools were highly customized and aimed at large companies. It could take months, if not years, to deploy them, using bespoke configuration and implementation. New contract lifecycle management vendors like Apttus (founded 2006) and Icertis (2009) adopted a cloud-forward approach that emphasized configurability and scalability. Notably, many of these companies, including Apttus, indexed heavily on going to market as a complement to Salesforce, rather than as a standalone solution.
2. Modular “point solutions,” or contract tools that specialized in one stage of contract management. As the cost of software development declined, a number of startups decided to enter the contract management space by focusing on one stage of contracts (e.g., document creation, signature, or storage). Unlike the comprehensive enterprise solutions, these tools could be deployed relatively quickly and inexpensively. However, there was no guarantee they would work with each other, and it was difficult to know which solutions would be best-in-class in the long-term. We’re still grappling with the effects of this rapid unbundling today.

Many specialized contract tools began to call themselves end-to-end contract lifecycle management solutions, whether or not that was true. These solutions left companies with two options:

• They could invest in a large, highly customized tool and risk losing hundreds of thousands of dollars, if the implementation was unsuccessful;
• or invest in a suite of smaller solutions and risk creating data and process silos across the company.

Unfortunately for consumers, the industry’s tendency to market specialized tools as “end-to-end” offerings led to a significant amount of confusion, especially for first-time contract lifecycle management buyers.

It also led to a disjointed contract management approach. It might have been less expensive and less risky, in the short-term, to buy several point solutions for specific contract tasks, but in the long run, it just created more work for everyone and introduced silos within the organization.

2020s: A failure of unbundling, and the rise of AI

That’s why, businesses looking for contract software had to choose between costly, highly customized contract management systems and low-cost, disjointed point solutions, or tools that only handled one part of contract management.

What changed? Now, the necessary components for a full-featured contract lifecycle management began to reach enterprise maturity. And artificial intelligence hit the mainstream a decade after IBM brought Watson to market.

Today, rapid advancements in artificial intelligence (AI) and machine learning (ML) have changed the limits of what contract lifecycle management can achieve. In our recent State of Legal AI report, we found that 69% of respondents already use AI for legal work. Of those, 93% say it’s helped improve their work. With the contract lifecycle, they specifically cite review, analytics, risk scoring, and digitization as areas AI can accelerate, with contract review cited as the most impactful use case.

Common tasks legal teams outsource to AI include:

• Tagging contract metadata. Heavily manual and time-consuming tasks like reviewing, indexing, or adding search terms to documents happens quickly with AI, allowing you to turn mountains of data into deep business insights.
• Flagging risky clauses. Training AI with examples of clauses your team won’t sign and common replacement clauses that can work in its place speeds up the review process and helps start the conversation with negotiating parties.
• Contract analysis. Process and visualize datasets to better understand risk, operations, and compliance patterns, like reviewing workloads by team or identifying heavily negotiated clauses that stall contract completion times.

Like adoption of Microsoft Word and CRMs, AI will create an inflection point where we’ll wonder when we ever did work without it. However, it’s important not to get caught up in the hype just yet. We’re still in the “clay tablet” days of AI, as it were. We recommend a steady approach to grow your skills with AI as it adapts to its role in the legal industry.

Legacy contract lifecycle management solutions have not only failed to digitize the contracting process, they have introduced a separation between companies’ contracts (which are usually DOCX or PDF files) and the information within them (e.g., a contract’s value or duration). This separation is a business liability. If your paper contracts say one thing, and your databases say another, courts will likely side with your contracts.

The contract management systems of the 1990s and 2000s were document management systems. They did not handle the contract lifecycle (from generation to approval to execution) so much as store completed contract files. These tools didn’t contract over email and incorporate eSignature capabilities, so there was no way to collect or store contract status or versions in real time.

The contract management systems of the 2010s were either costly and highly customized or inexpensive and limited in capability. The highly customized tools took months, if not years, to implement and were difficult to maintain and update. At the same time, the inexpensive, limited tools claimed to be full contract lifecycle management solutions. These point solutions were easy to implement, but struggled to handle complex contract tasks.

Into the 2020s, the noise is beginning to die down. The contract lifecycle management market has seen significant consolidation, with previous specialists like DocuSign attempting to create a general-purpose CLM by combining their eSignature expertise with the acquisitions of SpringCM and Seal, or Apttus acquiring Conga. At Ironclad, we’ve focused on building a single digital contracting platform—one that connects all the people, processes, and data involved in contract—from the ground up.

Read: Mary O’Carroll’s Ultimate Guide to CLM

Still have questions about contract lifecycle management? Take a read through our comprehensive guide, or check out these frequently asked questions below:

What are the key features to look for in a CLM platform?

Your CLM should include features like a workflow designer, clause and template libraries, version control, audit trails, e-signature integration, AI-based analytics, and reporting dashboards.

What types of contracts can be managed with CLM software?

CLM tools can manage any kind of contractual agreement, including vendor agreements, customer contracts, NDAs, employment contracts, licensing agreements, and procurement contracts across various industries.

What teams can benefit from using a CLM?

While legal teams are primary users, CLM also benefits procurement, sales, finance, HR, and operations by improving collaboration, accelerating deal cycles, and reducing manual tasks.

What role does artificial intelligence (AI) play in modern CLM systems?

AI enhances CLM by offloading high volume, repetitive tasks, like NDA standardization or approved clause replacement. From there, more advanced users can enable smart contract analysis, automated clause extraction, risk assessment and scoring, and predictive insights, making it easier to identify trends, flag anomalies or non-compliant clauses, and optimize contract performance. Ironclad’s specialized legal AI assistant, Jurist, will draft, review, edit, and analyze contracts for you.

What are the key metrics to track for effective contract lifecycle management?

Legal teams should be tracking:

• How long it takes to complete a contract: Cycle time, approval turnaround time, average days to execute
• Negotiations: Percent negotiated, Contract value leakage
• Whether or not parties renew: Contract renewal rate
• Stakeholder management: Legal involvement, Obligation fulfillment rate

Tracking these metrics helps organizations identify bottlenecks, reduce risks, and continuously improve their contract processes. In our recent contracting benchmark report, we found a 55% improvement on average across value metrics for an organization using Ironclad CLM.

If you now understand the nuts and bolts of contract lifecycle management, you may be ready to evaluate some CLM options. Read about how to choose the right contract lifecycle management solution for your company.