One of the most memorable contract management slip-ups of all time is recorded between 20th Century Fox and Hollywood film director George Lucas (Star Wars, Indiana Jones). In a bid to minimize the potential losses, 20th Century Fox signed over licensing and merchandising rights of the famous Star Wars movies to its director Lucas.
At the time, they were bidding on Lucas’ potential and of Star Wars, so they reduced his director’s fee in exchange for licensing and merchandising rights. Both the parties overlooked the contract management challenges or outcomes at the moment. None had worked out alternatives or had thought about contract management risks.
Of course, Star Wars’ first installment became one of the highest-grossing films of all time during the 1980s before E.T., so the company did earn considerable revenues from the ticket sales. However, the success of the film made Lucas a multi-billionaire while slashing the chance of the company’s share in the merchandising revenues.
A 2018 Gartner report made some important observations:
- Most document management systems and shared drives that companies use do not support contract reporting and analytics. This affects both performance and compliance.
- Several business implement a contract management solution to just a handful of business functions, not all. This affects both efficiency and finances.
A slight misjudgment or overlooking can absolutely alter the course of a contract. The question is – Can we leave a legal contract to a future chance (or mischance)?
In today’s world, the mistake that Fox made should be absolutely unthinkable. In the presence of AI-powered contract management software, future contingencies can be analyzed and possibilities worked out.
What are the main contract management pain points?
What are the contract management challenges and possible solutions?
Let us find out in this brief discussion.
Top Contract Management Challenges
#Visibility Of The Contract
It doesn’t have to be, but a lack of contract visibility continues to cost companies dearly even today. Thanks to contract management software, contracts are no longer saved in hard copies. However, reviewing becomes one of the biggest contract management challenges simply because locating it and getting easy access is still a problem. Gartner admitted in its 2018 study that many of its clients did not know where their contracts were located.
An AI-powered cloud-based contract management software can instantly solve this problem as such software provides global visibility and access. These can be easily searched using names or keywords within the system without much hassle. The AI enables analytics that help in contract negotiation in the future.
#Keeping Up With Deadlines
A related challenge to the one above is failure to renew contracts within deadlines, a factor that affects a business’ bottom line. Imagine an online retail company such as Amazon or Alibaba that deals with hundreds of vendor contracts annually, misses just 10% of its renewals. The financial impacts will be immense. For small and mid-size businesses, the financial impact of missed renewals can be the difference between surviving and dying.
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This specific contract management challenge has been doubled as most companies are managing day-to-day tasks in the pandemic-stricken world, with more than 80% of the staff working from home. In such a scenario, the most logical way to keep up with the deadlines would be to shift to a complete contract lifecycle management solution that not only sends renewal reminders but also suggests ways to adapt to the new challenges based on the existing system’s data.
#Slow Contract Turnaround Time
There are many reasons why a contract takes time to turn around. One of them, as we discussed earlier, could be just a lack of easy access. Monitoring the period of a pre-signature contract sitting at each stage of approval becomes crucial. There may also be unforeseen bottlenecks that may have delayed the process. The faster a contract gets approved, the sooner it starts applying, and the work begins.
Contract management software solves this problem by providing data for identifying the bottlenecks and providing tools to accelerate contract turnaround through automated nudges to people concerned. There are template libraries that help contract authors to draft contracts faster, collaboration dashboards eliminate the use of emails so all communication is stored and accessible in one place, and the business rules route the contracts to the person concerned or at the touchpoint where it is stuck.
Globally, businesses operate in complex regulatory environments that include country-wise, area-wise, or industry-wise compliances. There are unique compliance challenges for manufacturing, retail, media, oil and gas, medical, Information Technology, or other non-government industries. Poorly managed contracts often result in legal actions against the company due to non-compliance.
For instance, a legal act that baffled several online businesses around the world recently was the European Union’s General Data Protection Regulation (GDPR). It required companies to follow strict data-privacy rules down to their subcontractors. For several online retail companies, suddenly, the consumer data they already had collected and categorized on their system dashboards was illegal.
However, once the compliance details are uploaded, categorized, and fed into contract management software, it becomes easier to comply with the rules. A good contract management solution can automate the inclusion of some clauses in all contracts, access any contracts that may fall under new compliance easily on the dashboard, and execute bulk actions for them.
#Supply Chain Risk
Most businesses today are global in nature in terms of their contracts with different people in the supply chain cycle. Maintaining steady, fruitful supplier relationships while managing all their contracts at the same time is a crucial contract management challenge. There are several issues arising in the supply chain, such as quality, security, maintenance, compliances, and so on.
A good contract management solution provides a 360-degree view of the supply chain. The contract repository becomes a single source of facts about suppliers and their contributions and it helps monitor sourcing strategy compliance and supplier risk. Automated notifications further boost a smooth flow of supply, while visualization tools may provide intuitive insights into the entire supply chain cycle.
In a prediction, Gartner had stated that AI would bring 30% efficiency to the contract negotiation and document completion process for businesses that deploy an AI-based contract management solution. AI is here because the complexity of contracts is a challenge that only an AI-powered tool can handle and manage today. If you wish to visualize how such a tool may benefit your business, do talk to Team Revnue.