As it transitions from a fledgling startup to a formidable enterprise, a growing company undergoes significant transformation. Among these critical changes is the way it handles contracts and agreements, which serve as the lifeblood of any business relationship. Depending on how mature and organized a company is, the level of contract management maturity can look like anything from storing hard copies of legacy contracts in big boxes under your desk to having an AI-powered contract lifecycle management (CLM) platform running the entire show with users only needing to pop in to review auto generated redlines or download a lifetime contract value report.
A well-designed CLM—functionally robust, flexible, cost-effective, and AI-powered—will meet the company’s changing needs. Still, it’s often difficult for the companies to evaluate where their contract processes should be at a given point in time and what to do next. So we’ve put together a guide that walks through the contract management maturity journey for a hypothetical mid-sized company into four stages to demonstrate what to look for at each one.
At the seed stage, the company is starting its contract management workflows from scratch. Although it’s a 100-person organization, it still doesn’t have a fully fledged legal team established yet, and it struggles with a lack of both money and time. For this company, the person handling all the contract management – be it creating an NDA for interview candidates, signing a beta customer up, or collecting contracts for due diligence during an acquisition – is probably the CEO or the one legal operator, and they manage it all in a spreadsheet or a single desktop folder.
Even so, there are a few upsides at this stage. The contract volume is still low and unvaried, and there aren’t too many cooks in the proverbial kitchen yet, so the team is agile enough to move quickly, experiment with different tools and processes, and find what works.
What to look for:
- Basic repository. It should have uploading, searching, labeling, and sharing functionality so the team can easily locate executed contracts.
- Status tracking. Keep track of what stage a given contract is in.
- Free trial. Take the CLM for a spin to see if it meets the needs you currently have and the ones that will come up as you scale.
- Self-serve implementation. Your team doesn’t have the time or money to go through a costly onboarding process. CLMs offering self-serve onboarding get you up and running as fast as possible, preferably with $0 in implementation costs.
The company in the sprout stage has some level of contract management maturity, but there’s a lot of room for improvement. It’s still the same size, and the legal “department” still flies solo. Contract volume is moderate and not hugely varied, but its management might be spread across human resources, finance, and legal, with each department keeping track of contracts differently. For example, the finance team might store its executed contracts on a shared Google drive, while sales will save them on their computers as word docs, email them to legal as PDFs, and call it a day. The teams have no cohesive way of collaborating, commenting on, or keeping track of statuses for contracts, nor can they easily search for data contained within them.
It’s still a bit of the wild, wild west, and rogue contracting runs amok.
What to look for:
- Repository. At this stage, you’ll want all the repository basics, plus the ability to bulk upload, support multiple file types, and maintain an activity audit trail.
- Status tracking. As the volume of contracts rises, it’ll become increasingly important to quickly see where in the life cycle the contract is. And the more detailed the status options are, the better.
- Collaborative editor. Now that there are more than one or two people creating and looking at the contracts, look for a CLM that has collaborative editing capabilities so you can go back and forth without having to leave the CLM.
- Version control. With multiple collaborators, keeping track of different versions of the same document can quickly get out of hand. A CLM with smart version merging helps make sure the document always reflects everyone’s changes.
- Approval automation. As contract generation starts spreading across departments, setting up automated review and approval routing will mitigate handoff friction.
- Free trial. A free stab at testing CLM functionality is always useful!
- Workflow templates. As you start to see more and more of the same contract type with the same terms pop up, get a CLM that can templatize the documents and the approval routes they require.
- Self-serve implementation. You’re still small and agile enough to make use of a self-service implementation program, so why not?
The sapling stage is where the company’s contract management should begin its transformation into a well-oiled machine. The size of the company has grown only slightly, and its contract management processes are fairly built out. Perhaps the company has added a few legal operations managers, and the legal department, now a full team, has set and documented guidelines around standard language and contract approval processes. It also has up to date templates for each of its commonly used contracts, and all the contracts across the organization are stored in a single repository with one person from legal who manages permissions. However, there’s still some amount of manual redlining, and problems like low bandwidth, messy version control, and sales contract bottlenecking still occur. On the business side, the company might be expanding its horizons, eyeing international markets or perhaps an IPO in the near future, so it has a vested interest in maintaining strict compliance and extracting whatever business insights that live in executed contract metadata.
What to look for:
- Robust Repository. Not only do you need the basics, you also need to look for functionality that removes manual steps in a standardized way, like automatically tagging and labeling contract metadata as it gets uploaded against a set of standardized contract properties.
- Optical character recognition (OCR). OCR tech reads the documents you upload and makes their text searchable, so you don’t have to spend hours combing through the repository to find a specific term or clause.
- Status tracking. Look for a CLM that offers a variety of options for status tracking. Bonus points if the statuses work themselves into automated workflows.
- Automated workflow builder. Automation should be a given at this stage, but not just for approval! Build workflows to automate as many tasks as you can, from populating standard language into a certain contract type to routing signatures to the right three people in the right order.
- Embedded workflow editor. A collaborative document editor that is embedded into your broader workflow builder consolidates and streamlines the contract creation, negotiation, and approval process. Keep a lookout for CLMs that offer one with a drag-and-drop interface.
- Playbooks. A great CLM will make the standards and guidelines you’ve put together readily available in its workflow editor.
- AI-powered redlining. This functionality is some of the newest to hit the CLM space, but it’s already a game changer. Relying on your playbooks and the wealth of information that large language models (LLMs) sit atop, the CLM will ingest your contracts and automatically suggest redlines and flag potential issues like a non-standard clause or risky language.
- Software integrations. Your company relies on popular tools like Salesforce, Slack, OneTrust, and Microsoft Office. Look for a CLM that integrates deeply with them so that you can continue working in the tools you already use.
- Reporting and analytics. Contracts at this stage are filled with loads of contract metadata that can uncover trends across the business. You need a CLM that ingests all that contract metadata living in your repository and visualizes the insights via easy-to-digest reports and dashboards.
At the tree stage, the company’s contract management processes are running decently thanks to the adoption of a CLM. Most departments that touch contracts – procurement, finance, legal, sales, IT – have standard guidelines for contract creation, negotiation, execution, storage, and reporting that they adhere to. Leadership looks to the legal team to help make strategic decisions based on trends and learnings the legal team has exacted from analyzing contract metadata. Contract volume is high and extremely varied in type, and because the company now operates internationally, agreements are under heavy regulatory scrutiny.
However, despite having a CLM, the company still has room to improve in the contract management maturity department, so it’s looking to migrate to a different CLM with more robust, AI-powered functionality and better support. How does it do so while ensuring that as it matures, its processes continue running smoothly?
To migrate, it should look for:
- Robust Importing. This goes hand in hand with a robust repository. Porting historical data, including executed contracts and audit trails, should be seamless and unlimited.
- API<. A CLM with a public API will make it easy for your developers to build pathways between your current systems and that of the new CLM’s.
- Smart version merge. As the migration process unfolds, different versions of documents can get pulled in and out of the mix. Version merging functionality that uses AI to reconcile and update to the newest version helps.
- Customer Support. Having a strong team of implementation specialists to support your efforts will be the difference between a successful migration and a failed one.
Meeting You Where You Are
The categories above follow the contract management maturity journey of a mid-sized company. Of course, real-world scenarios run the gamut, and the level of contract management process maturity might not necessarily correspond to the size or growth stage of the company.
Nevertheless, the characteristics of each of the maturity levels endure. They demonstrate that for a company of any size, it’s important to keep the future in mind, even as it preoccupies itself with fixing today’s problems. Implementing flexible solutions that keep building upon themselves, learning from their own data, and layering in better and better functionality will always be smoother and more cost-effective than trying to wrangle, rip, and replace disparate tools every time a new challenge presents itself.
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.