3 Contracting Trends in 2023: Insights from Industry Leaders at CLOC
CLOC is one of the premier annual legal conferences. Legal industry leaders, as well as general counsels, heads of legal departments, and other legal ops professionals, gather each year to discuss recent developments in Legal.
Inspired partly by last year’s launch of ChatGPT and the importance of becoming profitable in the face of rising interest rates and budget cuts, CLOC 2023 conference attendees focused on topics such as:
Contract Lifecycle Management (CLM)
Diversity, Equity, & Inclusion (DE&I)
Environmental, Social, & Governance (ESG)
Legal spend reduction
Law firm relationship management
ContractWorks – as part of the Onit family – was one of the many who participated in CLOC 2023, and we wanted to share some of the key trends that have emerged this year.
So if you’re a legal expert who wants to keep your finger on the pulse, learn how smart legal tech catalyzes smarter decisions, or fine-tune your workflows to amplify Legal’s material impact on the bottom line, you’ll want to keep reading.
Growth as Legal’s New Mindset
In 2023, departments can no longer afford to operate in disconnected silos. To outlast stormy economic waters, departments must band together and work towards a common goal of ensuring the company’s survival.
For Legal, this means searching for opportunities to break down internal barriers that prevent legal teams from building trust, driving collaboration, and leaving a material impact within the company. In other words, Legal will have to pull away from focusing purely on legal matters and shift towards a business partner and leader who knows the good, the bad, and the ugly of their organization.
Legal must also pivot into generating growth not just for the company, but also within the company. While the former is about adding value to the company’s bottom line, the latter is about giving people a conducive and supportive environment to develop.
It also means that Legal should know when to pass the torch so that others have a chance to become successful. In other words, at some point, Legal will have to step away from leading and step towards mentoring others to lead.
Trend #1: Generative AI
It’s been almost seven months since OpenAI released ChatGPT and sparked discussions about how generative artificial intelligence would reshape the professional landscape. Considering this is the first CLOC conference since the global launch of ChatGPT, it stands to reason that the use of generative AI in Legal was one of the hottest topics.
It’s impossible to explore the potential impact of AI on Legal without first mentioning the elephant in the room – namely the concerns that generative AI will steal the jobs of lawyers, and that there’s no clear confirmation that AI will ensure data privacy.
Compared to other industries, Legal tech has taken a leading role in integrating AI into their software. But with that comes the fear some have that up to 44% of legal jobs could be replaced by AI, especially considering the fact corporate leadership is hyper-focused on maintaining the bottom line, even at the expense of efficiency.
At the same time, the constantly changing nature and evolution of generative AI require legal specialists to evolve alongside legal tech AI. The use of AI in legal also has the potential to help Legal get ahead of the curve in maximizing the value gained by leveraging new technologies.
It’s expected that soon the question will shift from whether or not to adopt AI to whether you let AI propel you into a new paradigm of legal work or you allow yourself to be left behind (similar to Kodak and the digital camera or Blackberry and the smartphone).
Use cases of generative AI in Legal
Most legal departments are already exploring ways to use generative AI, or they’re already in the process of using it in some form. A common use case is delegating menial tasks like reviewing invoices to AI so that legal teams are free to focus on higher-impact high-priority work as GCs and CLOs would rather their teams spend precious time on critical projects.
Teams are looking into AI as a solution to facilitating data-driven conversations with both internal and external teams. This will prove helpful not only in fostering better communication, but also in keeping contracting costs under control.
Other pain points where AI may be trialed include contract template management, risk management, onboarding, consistency within agreements, contract review, and negotiations. But for this to happen, a generative AI must be precise, specific, and trustworthy.
Another benefit to employing generative AI in contracting is that it can enable teams to become more efficient in an environment where leadership is razor-sharp focused on the bottom line. The data and reports that demonstrate the impact of CLM help craft a value narrative in understandable terms for leadership.
This effected is compounded when dealing with large volumes of contracts. Any amount of time saved is important, and over longer periods, a little bit of time saved here or there really starts to add up.
Trend #2: A Smarter Case for Smart CLM
As interest rates rose and profits took a major hit, companies embarked on a painful series of budget cuts, layoffs, and office closures. To control spend and yield savings, this has put Finance in the driver’s seat in approving software purchases.
With budgets frozen (if not slashed), increased expectations, and an evolving role, Legal needs a trustworthy and reliable “legal assistant” who can help avoid risk and power data-driven decision-making. Given the circumstances, the most cost-efficient solution is a CLM system.
As the economy continues to stall and the threat of recession looms, the cost of inefficient contract operations is higher than ever. To meet expectations while facilitating business growth and capitalizing on Legal’s material impact, Legal must build a compelling case for smart CLM software and get early buy-in from stakeholders.
This means Legal must balance various concerns and requirements. Legal needs an affordable, no-risk CLM solution that fits into the current landscape of minimal budgets and high urgency. Teams also need CLM software that gives a 360-degree view into contracts so they can spot quick wins and provide shortcuts that allow other business units to achieve their goals.
Pitching the need for CLM to stakeholders
Inefficient contract management carries with it several risks: lack of scalability, more manual work for teams with precious little time, lack of visibility for cross-functional teams, and greater risk of portraying Legal as a financial black hole.
CLM software is one leading solution to addressing the challenges of inefficient contracting. Some of the benefits of using CLM to manage contracts include:
More accountability for Legal
Better communication about milestones and progress
Greater transparency as information is stored in a single contract repository and can be pulled and found without going to teams
Scalability of contracting to mirror business growth
But to really hammer home the idea of leveraging CLM for more efficient and collaborative contract management, a case must show data that proves CLM’s material impact. Assessments into the current cost of contracting should be done so that it’s easier to project the ROI of CLM.
In addition to recognizing all challenges and opportunities, a case ought to map out several immediate and long-term hypothetical scenarios. These can be presented in the form “If X happens, then Y.” A really well-built case will also specify the team’s priorities regarding which features are must-haves and which are nice-to-have, and the case should indicate any potential investment risks.
Flexibility and willingness to compromise are essential for getting initial approval. It’s always possible to revisit the “nice-to-haves” half a year down the road and decide if they’re still nice to have or if they should be upped to must-haves.
An added bonus of figuring out your must-haves in advance is that it gives you a chance to align with your stakeholders. If you discuss their needs and requests, you can understand what they really need and want to accomplish. As a result, it’ll be much simpler to get what you want if you can make the pitch about how certain features will help them (instead of how they will help you).
Furthermore, the pitch should incorporate data on returns, risks, and reality. Aside from setting your investment objectives, you can survey the market for any returns made on similar investments by other companies. This demands a degree of due diligence, reality tests for potential investments, and pinpointing your investment risks.
Trend #3: Scoring a Quick Win with CLM
Taking into account all the challenges of 2023, companies can no longer afford long and costly implementations. The quicker a company can improve and accelerate contracting, the stronger its position in weathering any future turmoil.
Some companies have reported being stuck in the software implementation phase for over two years. When money was flowing freely, this wasn’t a problem. But now that budget constraints are ubiquitous, companies are searching for simpler solutions that can fix contracting issues faster, even if it doesn’t include a high degree of customization.
This is where Legal can take a page out of software development’s book. Instead of aiming for perfection from Day 1, using the “Minimum Viable Product” approach for digitizing contracting allows legal teams to get up and running faster. Then if there are any issues, they can be analyzed and fixed.
However, you can get a jumpstart on CLM implementation by taking note of common CLM implementation best practices and pitfalls.
Getting your CLM up and running
According to research by Gartner, 68% of legal departments view the digitization of manual processes as a top priority. At the same time, 70% of technology adoption projects have failed at some point.
Here are a few things you should keep in mind when it comes to getting your CLM software off the ground:
A centralized contract repository is essential for efficiently storing, tracking, and managing contracts. You can also ensure data isn’t siloed by integrating with accounting, sales, and other company systems.
You should establish a process for drafting, storing, and tracking contracts. The biggest challenge here is to stick to your process. Don’t be tempted to accept requests via email. Keep everything in the CLM.
Setting up self-service contracting frees Legal from high-volume, low-value contracts. Legal can then focus on bigger contracts while delegating simple contracting to other teams.
Working with a customer service-oriented vendor to clean up your contract data will make sure that your contracts won’t suffer from “trash in, trash out.”
Find people who are ready to work with and support your CLM implementation efforts. Aside from helping promote the benefits of CLM, the more people onboarded and who understand the value of CLM software, the less friction there will be. If you expand your outreach beyond Legal and find people from Sales, Marketing, and other teams, it will drastically decrease the amount of friction between teams.
The best way to achieve these is to find people to push for CLM adoption while getting teams to buy in. The more people who are in line with your goals, the less friction you’ll have to deal with.
While CLM software is relatively fast and easy to roll out, many companies make mistakes during the implementation phase that throws off their CLM adoption. Here are a few of the most common:
Lack of CLM readiness – CLM is not a miracle pill to bad contracting. It’s meant to help you optimize and scale your contracting. To ensure a smooth implementation, you should define roles, responsibilities, templates, and data requirements.
Lack of planning – Setting up a CLM takes time. To make sure the implementation is done right, you can’t just throw everything at the CLM vendor. Start by hashing out the first phase of implementation. This could be focusing on which contracts you want to migrate first.
Lack of understanding about CLM capabilities – Not all CLMs are created equal. Some have GPT-3 features while others don’t. Some have a native document editor, while others might have automated contract generation. Since the CLM price depends on the features included, don’t purchase a CLM software without knowing what you’re getting. You can even speak to the CLM vendor and ask for a test run for your contracts.
Lack of change management – The last thing you want to do is get everything set up only to learn no one wants to use it. Make sure to get teams and stakeholders to buy in as early as possible. Effective change management gives you more of an opportunity to address their concerns and find a solution that makes everyone happy. You can then foster communication by giving milestone updates.
It’s easy to underestimate the amount of effort required to lay the foundation for CLM. A good analogy to CLM implementation would be a marathon. In order to run a marathon, not only do you need to train for it, you also need to make sure you have the right clothing and shoes. Without that basic foundation, your marathon could transform from a moment of triumph into an arduous slog.
Generative AI, justifying CLM adoption, and scoring quick wins with CLM were just a few of the hottest topics discussed at CLOC 2023. But all three reveal that the underlying theme of 2023 is using technology to power more efficient contracting. There are still plenty of economic headwinds, which is why ensuring a positive return on investment that adds to the company’s bottom line is essential.
At the moment, all eyes are on the economy. That being said, companies are proactively taking steps to make sure they’re in a good position to navigate an economic recession. Companies are expected to continue exploring opportunities to control costs through AI and all-in-one, end-to-end software systems.