The Evolving Role of Contract Lifecycle Management with Alla Valente

Made with speech-to-text software, so a few words may be off.

0:00You're listening to the Contract Heroes Podcast, your one-stop shop for all things contract management. And now here are your hosts, Marc and Pepe. Hello everyone, and welcome to another episode of Contract Heroes. Today, joining us from Forrester, Alla Valente. Alla is a senior research analyst, and today's conversation is going to center around their recent report regarding the CLM space. So without further ado, let's jump into the episode. Well, Alla, thanks so much for joining us today. And, uh, before we jump into the questions, you know, that we previously had talked about, we'd love to get a, just a better understanding around maybe your position over at Forrester, and also what goes into, into these Forrester Wave reports, and how can folks that are out there viewing them use them or leverage them to help them make decisions when it comes to looking at CLM vendors? Yeah, Marc, that's a great question, and I'm so happy you asked. So here at Forrester, I'm a senior analyst. I sit on Forrester's security and risk team, which means I cover a lot of risk and compliance.

1:12But as we think about managing risk and compliance, especially inside of organizations, understanding the risks that come with commercial transactions, with how organizations acquire, sell, deliver the goods and services that they have, we need to understand how contracts are really at the heart and at the core of those commercial transactions and interactions. And so for that reason, couple of years ago, I also started covering contract life cycle management just because of its adjacencies, not only to third-party risk and supply chain risk, but really the risk to the organization, to the business as an entity. The part two of that question was around the Forrester Wave report, and one of the reasons why I love to explain what goes into a Forrester Wave report is because there are just so many misconceptions out there.

2:17So folks are pretty familiar with the graphic, you know, the whole picture with the bubbles. And of course, everyone's eye goes to the upper right-hand, and they, you know, think that, well, as long as I look at who's the upper right-most vendor, then I've, you know, I'm likely to invest in or procure a solution that is the best in the market, and that is so not necessarily the case. So something to understand about Forrester research is this type of evaluative research is one of the things that I write about, right? We do other types of research that are more benchmark and data-driven. There's other types of thought leadership. But when we do this type of evaluative research, first of all, there is a carefully crafted Forrester methodology that guides how all Forrester Waves are delivered and, and what goes into them.

3:18The information that we use to be able to do this type of analysis, first of all, Waves typically don't have more than 15 vendors. Actually, they don't have more than 15 vendors because once you go over that amount, it's very difficult to really get as granular and deep as we do on such a large subset. In terms of what goes into it, we look at, we have vendors fill out a questionnaire, uh, quite detailed in the information that they provide, and they will do an executive briefing and a product demo for us, typically lasting a couple of hours, sometimes a little more. We also speak to customer references to make sure that they're validating the strengths and helping us understand how those products are being used. So by the time this report is created, I mean, we've left no stone unturned.

4:17We've looked at all these sources, we've allowed the vendors to fact-check and provide any evidence that perhaps we may have missed because, you know, fuck, there's always something that, uh, maybe doesn't come through in the way that it's intended, and so there's that, you know, fact-check period. But ultimately, there's a lot of analysis that goes into these reports, which is why they typically take anywhere from four to five months to, from start to publication. Right. Then, well, for the people that haven't seen it, the Forrester Wave for CLM for Q2 2023, we are going to put a link on the description of the podcast so you can go directly to the blog. It's an amazing one, right? I think, Alla, you did, like, a very good job on this report, research report. And I wanna take, like, uh, one step back right now- Right... con- considering that, that you've been involved in the CLM space for, for quite some time right now.

5:15And, like, can you elar- elaborate a little bit on the evolving role of the CLM on the digitization of commercial relationship? Like, what are companies looking at right now? So when we think about companies sort of pivoting towards this digital business, first of all, we know today that every company is a digital company, every business is a digital business, because if they don't digitalize, if they don't move towards that digital business, they're going to die, right? We saw that during the beginning of COVID, we saw that throughout the last three and a half years. We saw that as soon as there are changes and disruptions and unintended or unforeseen sort of factors that are shaping how organizations perform, how they deliver to their customers, how they make good on the promises that they've made to the market.

6:20Without being a digital business, they are pretty much setting themselves up for unnecessary disruption. Now, it's one thing when you talk about digitalization from that user experience perspective, right? We all remember digital banking. I mean, digital banking was around years ago, right? We had ATMs. That was sort of the first foray. Then we had you can go online and do your banking and, you know, that was the early 2000s. We think about e-commerce as that digital experience. But if you think about sort of the inner workings of any type of organization, whether they're a for-profit, a nonprofit, a public sector or private sector organization, they can't operate without the ability to buy, to sell, to partner, to innovate, to hire, to create intellectual property. And all of those processes require the use of a contract.

7:26And so if you are just digitalizing that customer experience, you know, like that window dressing in a department store, without also digitalizing the experience that you're gonna get inside, what ends up happening is that at some point you hit this roadblock of disruption. Something that's actually exciting that's happening today is that in the world of contract management, organizations and especially contract management professionals, wherever they sit, whether they sit in the legal department or they sit in procurement, maybe they sit in sales, maybe they're part of compliance, wherever, they understand that to be able to have the organization move as fast as its strategy dictates, they need to also then accelerate that, that transformation by digitizing contract management. And so it's a super exciting time to be in CLM. Yeah. And I think, you know, it's, I mean, I think it's an exciting time too, right?

8:29I think we, we agree that, that the space has really evolved over the past handful of years and a lot of the things that you just touched on are, are definitely trends that we're seeing as well in the industry. And I, I think one of those trends is the publishers out there and their evolution between pre- and post-signature processes. Mm-hmm. And I guess, again, I'm probably gonna ask you two questions in one here. So first off, you know, are you seeing a trend where organizations are maturing more and maybe they were focused on one or the other, but now they're focused on both from a customer perspective and vice versa? Do you see that, that most of the leaders in the space are now evolving their software to a point where they have both pre- and post-execution availability in the software to, to allow for customers to use this on both sides of the coin? Yeah, definitely two questions, maybe even three questions in one. But I'll try and tackle all of it.

9:22So all of the technologies that I evaluated for the CLM wave had some sort of pre- and post-contract, you know, management, so the creation and digitalization all the way through management and compliance, and then even using the data in the CLM to then optimize the language and the process for future contracting. W- what's happening with this sort of pre- and post, and I think that this is just a natural maturity of CLM, and maybe because CLM is going through its own digital transformation, we're seeing that more organizations are starting to follow that contract from the creation and negotiation and execution all the way to, well, what happens after we've signed? What are we getting? Are we getting what we contracted for? Is the counterparty or the contract performing as intended? Part of that is also just the collaboration that we're seeing around CLM within organizations.

10:38So mentioned before, traditionally CLM has had two primary owners. Either this was a procurement-driven contract where I need to purchase all these things, or it was a sales type, I'm selling a product or a service, and I need the, the contract to be able to deliver that. But there are so many other areas of the organization of the business that are perhaps not as directly involved in the process, but are absolutely beneficiaries of the data and that insight. So for example, finance wants to be able to forecast revenue and plan, so they wanna go in and take a look at, you know, what contracts do we have? What are we looking to get in terms of revenue, and what does the timing of that look like? Sales obviously wants to continue to build their pipeline, especially where we are economically.

11:36Technology and the CIO, they wanna know what technology should they be investing in and what does their current tech stack look like. Are there some areas that there's redundancy and overlap that perhaps need to get consolidated? Are there new areas and trends that perhaps they need to start investing in? So there's information to be had there I would even go as far as to say that security and risk management professionals wanna understand what's in the contract. They wanna understand what the entity is contracted for delivering, but they also wanna know how they need to service customers, right? Especially with so many changing regulations. Are the terms still compliant as, as compliance regulations change? Are there any new clauses or new language that need to be added as we start to see cybersecurity trends going in different directions?

12:39And so the folks that are negotiating the contract are very rarely the same people that then have to service that contract once it's signed. But because there is more collaboration around what's in the contract, now we're seeing, okay, well, the contract is a full fluid story, right? There are different chapters. So we don't only just wanna read the beginning and, and see the setup and, you know, that arc. We wanna see how this works out and, you know, what happens at the end of the story. And so CLM is offering you that narrative, that whole beginning, middle, and end, and it goes, it repeats itself over and over. And that's why contract intelligence and that information that's not just in a single contract, but in portfolios of contracts, right? Contracts for different product lines I have, contracts for different geographies I operate in, contracts for different, you know, business units, what have you.

13:42There's so many different lenses of viewing this information, and all of them offer so much, like, richness to be able to build a business strategy and to be able to continue to monitor for changes and pivot when events make us. Right. And also when you think about on different verticals, right? There are- Mm... completely different requirements for a, you know, financial company. Maybe- Yeah... they- their intake form will be more important because, like, the posting actually is just like, you know, getting paid for a loan that they granted, right? I remember we had a good friend of ours, Jerry Pesa, who works at Fluor Cor- Corporation- Mm... and they pay a lot of attention on the post signature because when you're talking about couple billion dollar construction projects- Yeah... like, the claim management is, like, a huge deal, right, in, in order to have, like, a profitable business. And maybe for that other type of, of verticals, the post signature will be more important.

14:41Or another example, right now we are focusing a lot, like, in biotech, right? In the biotech, there's a lot of compliance. Once a startup gets, uh, FDA approved, then they just- Right... wanna go to the market, they gotta have a lot of compliance work, right, from the intake form. Because if you wanna fix it afterwards, that's gonna take a lot of work. And you gotta understand the business of the different types of company to know, well, of course, you need to know what are, like, the features and the capabilities of the vendors that are out there in the market. And then by understanding what are their strengths, then you can decide which one will be the better fit for your organization, right? Oh, absolutely. There are definitely very industry-specific regulations. Everything from specific privacy and information security to operational and quality metrics that have to be maintained. There are also regional differences as well, right?

15:47In certain parts of the world, they have different regulations that would require more or less or different. I love your analogy of construction, right? So this is how I think about the post... well, the pre and post-execution. Think of it this way. You just bought a house, and you're going through this kitchen remodel. You're going to build the kitchen of your dreams. So you hire a contractor, you negotiate over every detail, right? What type of appliances and what type of countertops and what types of materials and whether the doors are going to, you know, have that soft close, and the doors, uh, the back doors are going to slide or swing. Now imagine you've signed this contract, you feel good, you're getting everything you want, and you don't set foot in that house as the construction is taking place.

16:45You have no idea whether or not the workers are showing up, supplies are getting delivered on time, installation is going to specifications. You wouldn't do that. I mean, that seems silly, right? That you're just going to walk in when it's ready and, and see this big reveal like they have on the, the reality home improvement shows. That doesn't happen that way. You're going to wanna make sure that the specific performance indicators are showing you that this is going to be executed or that they're complying with the, the terms of this contract. That's what the post-execution stage is. That is you walking in and speaking with that general contractor and asking the right questions and getting some sort of assurance that, yes, the supplies are in, and the workers are here, and we're, you know, on timeline, and if there are any issues, then we have a way of dealing with them. Right. And so, Ella, there were, of course, some leaders on the Forrester Waves, and if you wanna know, you gotta check it- ... on the, on the link.

17:52But what were the specific factors that contributed to the recognition as leaders? And, like, what sets them apart from other vendors? That's a great question. A- and, and I want to say, oh, goodness, there were so many different things to consider, but here's what I'll say. We looked at 26 different criteria for every single vendor. Everything from how they digitize contracts to what their contract creation and authoring process look like. We looked under the hood to understand how they integrate with other technologies and what type of reporting they have and, you know, what their roadmap looks like a- and their partner strategy. And here are some of the things that really stood out among the vendors that performed well. One is that they leverage AI meaningfully.

18:48Meaning that, yes, they're using AI in the digitalization process, in how they scan through existing contracts, how they are picking out the different pieces, and then being able to normalize them. We looked at things that information in the contract repository was easy to find, you know? It's one thing to digitize all these contracts, but you have to remember, these are hundreds of pages each, which can give you a lot of data. And big data when you're trying to find something and sort through something isn't fun unless you have sensitivity in that search capability that will help you pull certain things up. The process for creating contracts was easy to use. It seemed intuitive. It had-- It was customizable as well because we understand that different organizations have a different way of working.

19:47And so the customization and the ease by which those changes could be make, made was something that stood out. They integrate. They integrate with technologies, both the upstream and the downstream. So that means the technologies that they're getting information from to put into the contract, so perhaps this is like a CRM system or a, a sourcing or procurement system where they have all this information now it funnels into the contract, as well as downstream applications. So linking your CLM to, like, maybe an invoicing or a payment or a financial transaction system to say, "Yep, this invoice matches what we have in the contract. Uh, the, the amounts match up, you know. This is good to go," right? Make sure that it's not creating overpayments or underpayments or other types of discrepancies. And then finally, the visualization. I mean, you can put all the data in the world into any system, but if you can't see it, if you can't visualize it, does it really exist?

20:52You know, I, I, I think this might be bordering a philosophical question, but to me, the value is what kind of story will this data tell me? And those vendors that had reporting, dashboards, visualizations where I can get that type of analysis, I can run different types of queries, but also I can then get the types of metrics and KPIs and KRIs that I can then send up to the different areas of the business and share it with them. Those were the things that were really valuable, and these are the areas where those, you know, vendors really shined. Yeah, I think that's a, a great list of, of requirements there, especially for folks if, you know, you're just starting your search. I, I think that that's a really good place to start is kind of that list that you just put together.

21:44And Alla, you know, I'm curious, you know, as far as the advancements that have been made this year with AI, have you seen less of a gap when it comes to the AI technology that's, that's included with, with the vendors that the team was taking a look at? Have things kind of tightened i- in that area? I know probably, I would say maybe eight months ago, there was a lot of different ways that organizations were using AI or, or they were capable of using AI. Mm-hmm. But, I mean, with the advancements that have been made with, with everything that we're seeing, do you see less of a gap and more organizations doing things more similarly or not being able to differentiate that, that way anymore? Here's what I'll say about AI. It's one of those capabilities that shows up in just about every single RFP for CLM that I've, that I've seen, right? We want-- Do you do AI? Tell us about your AI. What can I do with it? And when, you know, the rubber hits the road, how many organizations are actually using those ca- AI capabilities that they pretty much predicated their search on? Not as many as you might think.

22:48Now, this is for a few reasons. One, I think that in this market, there are still a lot of vendors that make those AI capabilities sort of an add-on, right? That those are considered the more sophisticated capabilities. And so if you want them, obviously, you know, they come at a cost. When you're trying to get mass adoption of AI, charging extra is something that would actually slow it down, not the other way around. So of course, I would love to see at least some aspects of AI that are embedded in even, like, the baseline product, just to give users a taste of what AI is and what it can do. Because I think there's still-- Look, there are some organizations that are nervous about the AI in contract management. They, either there's reluctance to use it because it's new and they don't have experience with it.

23:46Maybe they think that it might replace them and threaten perhaps what they do. None of which were-- Both of those are not true. With using AI, you can do what you do better and faster, so you can get onto, you know, providing more value. The other thing with AI is that- I saw a lot of it being used to extract information and maybe even search for information. The gap that I saw in this market still, and I, I do think even since the report's been published, you know, I've already seen some new releases that are taking advantage of this, using AI to do your work for the workflow. So rather than just using it to help me search, help me write better clauses, help me find the most appropriate template, help me find some precedent in the contract repository. Maybe it's finding similar contracts from other vendors for this particular product, or maybe it's what are the clauses that we agreed upon with this vendor or with this counterparty previously.

25:01And when it starts to support how you work and not just the information that you're, you're presented, that's when AI is really going to start adding exponential value to the CLM process. Right. Then I will say that right now, I think that people know what you can do with AI. I think maybe because of, of ChatGPT and now that everybody is using it- ... because, you know, like bef- I think like before it was just like a buzzword because we got some leads- Yeah... right? That they were looking, "Yeah, we, we, we want a CLM, but with artificial intelligence." Okay, Corinne- And what does that mean? What? We're not sure what that means. But, but it sounds good. We want that artificial intelligence because ChatGPT. "So what are you looking for it to do?" "Well, we're not sure, but we want it." Exactly. I mean- Yeah... it was, it was like maybe six years ago with blockchain, right?

25:55It's like, "I want so- a software with blockchain because it's, it will make it more secure." It's like, no you won't. Yeah. It's gonna be more expensive. I mean, you gotta know what are your requirements, why you need it, what are your- Yes... what are those pain points in order to know which kind of futures, uh, you wanna ask for the vendors. And this takes me- Right... to one last question, Ella. Mm-hmm. And I loved the, on the article some, of some considerations to when choosing CLM provider. Like, can you highlight like few of the most important consideration and explain like why organizations should prioritize them in their selection process of, uh, of their new CLM? Oh, goodness. I mean, there are so many great capabilities that I think should be prioritized, but i- if you're really making me choose, you know, it, it's, it's like a mother has, having to choose between her children, but I'll give it a try.

26:55I think that workflow, because, again, that's what's going to make the process easier, whether this includes workflow that's already tailored to how you work, maybe it's based on your industry, maybe it's based on your sector, maybe it's been, you know, customized to fit your needs, but also has a lot of flexibility where changes could be made that mirror changes that are happening in your business. I think you cannot underestimate workflow. I think dashboards and reports, right? That whole visualization, which I spoke about a couple of minutes ago. Sure, you have stuff, but if you can't visualize it and tell a story around it, did it really happen? 'Cause no one can prove that it did. Here's one that not a lot of people think about. I would call it product security and assurance, right? So we have to understand that CLM is technology.

27:53Yes, this is technology for contract management, but this is still technology, and increasingly this technology is being delivered via SaaS, right? You know, via software as a service. And there's a lot of confidential information that goes in there. There's a lot of proprietary information that goes there. And it's also vulnerable to not only cyber attacks, but just vulnerabilities that are found in, in, you know, common, you know, source code in other areas. I think thinking about how the vendor secures this product, what type of steps they take to communicate vulnerabilities, because look, every technology has some sort of v- vulnerability, and as we say on the security and risk side, right, there are two types of companies, those that have been breached, those that don't know they've been breached. So understanding how you can protect this information that's now digital, that tells the entire history and your, all the parts of the organization that you want to protect, it has all of that data.

29:00Making sure that you're really thinking about the security of that technology is also really important. And everything else I think is, again, super important, but it could be relevant to your organization or less relevant depending on what you're looking for. Yeah. I mean, I, I think that's a great point, right? And you need to, to figure out what's going to be relevant to your organization to make sure that you're evaluating the correct set of solutions. Well, Ella, this has been a, a great conversation. Thanks so much for joining us. Yeah, it's been my pleasure. Thank you, guys. And thanks everybody else for listening to another episode of Contract Heroes.