The Phase Zero in CLM implementation with Tom Fuchs

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

0:00Welcome to another episode of Contract Heroes, the show where our guests, and sometimes us, provide best practice recommendations on all things related to contract management. Hello, everyone, and welcome to another episode of Contract Heroes, where we're not the heroes, our guests are. Today, we've got a great one for you. Tom Fuchs is joining us. We've been trying to get this on the calendar for quite some time now. We, we finally got everything aligned. Uh, so before I flip things over to Pepe and, uh, we get a better understanding of what we're gonna be chatting about today, uh, Tom, just wanted to, uh, have you do a quick introduction for yourself and, and give us, um, an idea of what you've been working on and just this great background with, uh, with a lot of contract management knowledge in it. Sure. No problem.

0:56I'm currently a partner at BDO USA in the industry specialty service practice, and we work with clients across a number of industry spectrums with contracting matters of all different types, uh, federal government, nonprofit, higher ed, and so on. My particular area of interest is, broadly speaking, in CLM, the people, process, and technology that supports contracting, primarily on the sell side, and how organizations can best use contracts as a strategic tool to drive their business objectives, to move the contract organization from a, um, perception of kind of th- those who say no, but rather those who can leverage the contract as a tool to empower a sales organization, um, maximize the revenues, and control the way that revenue and, uh, and, and, and, and revenue leakage is, is managed through informed decision-making, and so on. So that was exactly- Yeah... a very short introduction on what we're going to cover during the whole call, Tom. Thanks for that. So- Sure...

1:59uh, so before we jump in and, and start talking about some terms that we're discussing now in, in, in other calls that we had, such as the phase hero is the one that I love. Yeah. And I think that, the, it, it, that's going to be the name of this episode. Uh, so can you tell us, why do you think contracting process of every organization needs attention? In, in my experience, from both my consulting roles and my in-house ones, is, is contracting can often be misunderstood in an organization- Right... uh, in terms of, um, y- you know, it needs attention because it's not just a process or something that needs to be done, but contracting, it's, it's both a process and a discipline. And, and by doing contracting well, you actually learn more about how an organization does what it does, whether it, you're selling a product or a service, and you make sure that that is put into the four corners of the agreement most effectively. And, and it needs attention because, um, not everyone understands really the strength of what a contract or a contracting function can bring to the sales cycle. You know? Right.

3:07Uh, empowering that sales team, making sure that each side understands what the commitments are, making the informed decisions about, "Let's go with this variation of a clause," or, "Let's go with this approach to it." But it, it needs that attention because nobody really recognizes the breadth and the value of what that team or that function can really bring to the company. Right. And, and I, and I would say that's a very common error in, around every org... well, not every org- org- organization, but I gotta say, like, a lot of, or most of- A lot of them... organizations. Yeah, a lot. In globally, that they only think contract's just, like, a very formal process whenever the sale or the procurement department or any other department wishes to formalize a commercial relationship. And then they, they spend months negotiation that agreement, and once they have it signed, they put it in the, in a file. Put it in a box. Yeah. In a box, and that's it. And that's it.

4:05And you, and, and you never see it until things go wrong, and that's where the lawyers will jump in and say, "Okay, so what was inside the contract?" When, when the contract must be seen as a manual, I would say, of every commercial relationship, even if you were in, on the sale side or in the buying side. Correct. And, and when you look at it, you know, if, if the organization doesn't fully understand how it sells what it's selling, meaning how does configure price quote work, how do, how are our salespeople calling on the customers, how are our customers interacting with us, um, you know, when they wanna place an order or get something delivered or, or whatever it is, you know, initiate a project, you need to be able to understand what those internal process guardrails are so that your contract, whether it's legal risk or operational risk or whatever it is, you've got the language in there, you've got the position staked out to manage that. And, and if that baseline template of your terms or the baseline template for how you wanna do things, if you build your agreements around that, you're not only just creating a way to, uh, have a good size, you know, highway of, you know, with good guardrails for how to conduct business, but you're doing some very proactive risk mitigation right now by just getting it into your normal commercial terms.

5:28And, and then that's usually what makes lawyers happy. When the, they are comfortable that the business is making informed decisions that take into account the anticipated and, to some extent, the potential unanticipated risks that are there, lawyers are happy, and the business goes forward, and then the partnership internally works that much better. Yeah. And, you know, and Tom, I, I think something that you mentioned at the beginning of our conversation is, is very important to what you were, you were just talking about, and that's that it's people, process, and technology. You need to have all of those, those parts and, and different departments working together so that you can utilize all of those-... the folks inside of your organization, the processes that you've, A, either put in place, or B, are going to put in place, and of course, the technology that's out there. Because if you don't have all three of those things, you know, not a single one of those i- is going to help you. You need all of them.

6:23E- exactly, and it's gotta be balanced to the size of the organization, the complexity of what you're selling, and the risks that go with what you're selling. You know, in some, in some industries, for example, intellectual property is a huge risk, and so a lot of contracting time is spent on making sure that those things are- are protected. In other industries, contracts are used as a mechanism to facilitate what I call, you know, high-volume, low-value transactions, which doesn't mean the product has no value, but the contract is a framework that people just go and order against over and over and over and over again kind of thing. There, you need to make sure that those things are efficient. So if you have very talented people who know what they need to do, but they don't have tools in order to help them execute, then contracting is gonna be seen to gum it up. If the technology is not appropriately scaled or sized for the organization, you're buying something that's much too big for what you actually need right now, and then people aren't happy with the tool.

7:23So the tool now, all of a sudden, sucks. A- and that's not true. Technology has come so far in the last five, 10, even three years- Right... on that, it's much e- you know, and so you need that balance, but technology's only gonna work regardless what you choose if you understand the process that you want to follow with that. So it's all of those things in balance. And, you know, if you try to draw a diagram, i- is it, is it a circle with equal-sized thirds? No, it's not. It- it's got to shift in scale based on the organization and what it is you're trying to get to. Yeah, exactly. And I would say that, well, before we jump in on how we can use technology to make, uh, a lot of these so automization, how you can aut- automate all these processes, let's focus first on the benefits of having everything in place and all your processes well-defined. And I, and- and I would say that there's a lot of companies that, of course, for them, it's- it's very hard to see, like, the benefits of having a good contract management in place.

8:26So, uh, Tom, can you give us, like, some examples on how can organizations use contracts to, first, maximize revenues, close sales, or, and, well, and/or facilitates recurring transactions? Yeah, so I- I would say, you know, the first thing an organization needs to think about and- and determine is whether their contracting culture, as I call it, is one that is, as I mentioned earlier, kind of used to manage or avoid risk, first and foremost. Right. Meaning, it's, your contracting culture is more legal-centric on that. Um, or whether it's one that is really more driven towards the delivery, the- the performance and so on, where they tend to be finance-driven and more, um, I'll say aligned with the sales organization. But that doesn't, y- you know, I don't want attorneys who are listening to this to go, "Oh, my gosh, you know, that's the fox watching the henhouse"- ... kind of thing. It's really not.

9:20Because in- in my world, it's kind of, you know, a good contracts function is like a good-sized dining room table, a rectangular dining room table, where, at the narrow end on one side, you have the sales organization that we want to say yes to as many deals as possible because it's how everybody gets paid, how the organization makes money, and so on. The opposite end, opposite narrow end of that table, you have the legal function that should be there to appropriately say, "Hold on a second. Think about this risk that's here." But then, on the long edges of the table is every other stakeholder in the organization, whether it's manufacturing, finance, delivery, um, w- you know, whoever that- Correct... is, right? It's the rest of the organization, and the contracts function is that table that gets everyone around it to say, "What- what do contracts mean for us?" It's the, it's the customer relationship. And if you think about it, you can't do good customer relationship management, CRM, without CLM because you have no idea how you've defined that arrangement with your clients and- and- and your customers.

10:26So when you think about how- how to use it to facilitate those things, you first have to start with, "Am I concerned about risk, or am I concerned about being able to deliver and execute on that?" And there's always a balance with that. And then from there, you're able to identify, what are the concepts or the areas? Is it because I have configurable solutions where, uh, if I'm thinking in the product world, or if I'm delivering services, I need to be able to define scope, approach, deliverable, timing, fees- Right... and then understand what the rates are that go with that. Once you have that, then you're able, what you're doing is you're identifying those elements that go into the agreement, whether they're the legal or the performance terms. Now, you have something that you're gonna be able to tag technology to, to say, "All right. What are those criteria then? This is what I need my contract solution, my contract lifecycle management platform, whatever it is, to automate and move forward and scale with that." Right.

11:24And other thing is, like, once you have all those terms in place, it's easier. Like, when all these parties are inside the same dining table, uh, if you are too legal-driven, maybe, like, the wording of the agreements, it's not understandable for the sale side. And whenever they wanna read a contract, they gotta call legal. Call the lawyer. Yeah, call the lawyer. Like, "Hey, what's going on with this clause? When, when am I getting paid?" Right. Right? And- Exactly. And- Exactly. And so if you have a technology then that can synthesize or simplify that so that the, you know, yeah, the, I think the last thing a lawyer wants is a sales rep interpreting a contract, right? So when you have technology then to do that, you're able to extract it up and create, I used to call them rules of the road. Kind of a high level summary that breaks it down and says, "Here's this very lengthy paragraph that talks about indemnification and third party rights," for example.

12:18Lawyer, y- you know, lawyers get very excited about talking about that. A sales rep, their eyes close, they're not interested. But you can use your tool to synthesize that and simplify it and say, "What this basically means is they can't do this with our product." Oh, now as a salesperson, I know how to leverage this contract better. I know how to c- if the customer is able to buy more than one way from me, now I know what that means, and, and technology can help you do that and, and that's the simplification and the automation then that can feed a CRM platform and help a sales rep become more effective by understanding what is the current relationship we have with this customer, or when a customer asks them an initial question about our basic terms of sale. 'Cause if you think about it, even a purchase order, a delivery order is a contract in the legal sense, what that language means. So it doesn't always have to be a- Right...

13:13very complex program or project level contract that's there, but it can be simple, repeatable terms and conditions. I mean, think about it. When's the last time you negotiated a lease agreement for your car other than the payment, right? It just doesn't happen. Doesn't happen, right. So why would we allow that to occur instead of being able to say, "Well, this section means you're gonna take care of the car. This section means when you give it back to us, if there's a lot of dents in the body panel, we're gonna charge you. But if the dents are reasonable and normal, we're gonna be okay with that"? That's, that technology helps you educate your customers, your, whether they're internal or external about your terms. Yeah, yeah, and I, I think that being able to do that a- and, you know, being able to do that without technology is tough, but, but y- being able to utilize, you know, maybe a CLM tool to, to leverage this and get departments to, to work better together, uh- Yes... a- and allow legal and sales to, to kind of collaborate more instead of butt heads, you know, I, I think that that's something huge that, um, up until a, a couple of years ago, most, most organizations didn't have.

14:21And, and, you know, obviously there's still organizations out there that aren't, uh, collaborating and things like that, but, but I think that that's the path and that's the way that we're moving forward is, is these departments, especially now that everybody's remote, uh, giving them the ability to, to allow the departments to collaborate better is, is something that's gonna be massive, and it's definitely, um, something that isn't really expected, I don't think, when you look at technology. But it, it's a great outcome to, to be able to achieve, uh, once you do have, you know, an application in place to, to help with these processes. I, I would definitely agree, and I think, y- you know, it brings both organizations, if you think of the, you know, legal versus sales mindset or the finance culture or the legal culture with it, it brings credibility to both sides when you're using one platform for where all the information is because everybody's looking at the same thing and then we all know this is what the contract is and here's what it means because we've or- organized ourselves around that common understanding and that common source of truth to say, you know, we're...

15:25It's not like you're forcing the collaboration, but you're really, um, doing everything you can to enable it because it's happening one way and everybody agrees that this is how the co- this is how a contract is created, this is how it's analyzed, this is how it's implemented. And, and if w- you know, when you go to my example of using a contract to facilitate recurring sales, if that is able to be extracted from a CLM tool and plugged into your configure price quote tool, you just reduced the likelihood of implementation errors that simply cost you margin at that point, you know? The contract on paper is all about the right price for the right product or service to the right customer or customers for the appropriate period of time. So you're then giving yourself these milestones and triggers that you can create alerts and flags around and even choose to do nothing with, but you're able to make an informed decision about doing nothing or, "Hey, look, in 30 days I might have to do this. In 90 days-" Right... "I've got this contract that's expiring. Do I care or do I not?" That's all information, uh, you know, those are the examples that I think about when how does CLM help a CRM initiative work better.

16:39You need that stuff for the sales team. Or even, you know, we've all heard these examples where there's a new, um, you know, a, a new change in our position on some certain terms. So I call them the, you know, general counsel's question of the day, week, month, or quarter, you know- ... where they say, "Find me all the contracts that have more than 18 months left to run, that have other than state of New York jurisdiction and a variation of last year's indemnification language, because I need to know what's there because we can't renew those anymore." So you're gonna wanna know, well, how much revenue is at stake with those contracts? What's our relationship? What's our priority? How do we wanna tell the sales team to go out and deal with these in some sort of priority order? Is it based on risk or is it based on potential lost revenue? If some of our riskiest terms are with our biggest dollar clients, you need to know that before you start to go make these changes. Right.

17:35There's a lot of really good benefits once you have everything in place, when you have all your process well, uh, defined, uh, Tom. But let's say, well, like most companies, I would say like if they have, uh, any kind of contract management process, a lot of can do like maybe not with the Ferrari of the CLM. They, maybe they can start by just like, I don't know, any repositories or such as SharePoint. Yeah. If they don't have that many agreements, maybe they can, uh, keep track, uh, doing, uh, I, I don't know, Google like, Go- Google Spreadsheets. But let's say once a company wants to jump to the next step- Yeah... what would you say could be like the, uh- The first things that they had to do before looking for the technology, and, and, and this is where, I mean, we spoke a lot about the phase zero. Yes, that's right. Yeah. But what would you say, what, what, what would you say will be, like, the, uh, the best practice in, in order to start looking for a, for a CLM, uh, pro- uh, platform? Yeah.

18:34Well, I, I call it that phase zero concept is, is even if you think you know you want brand X or brand Y, whatever it is, um, you have to start with this phase zero, which, which to me is really understanding what is it that we need to stop doing with our contracts? People like to think about, "Well, I wanna go and do all of this stuff. I want automated document creation and workflow routing and approval and automated playbooks and all that g- " That's great. Okay? A- and that technology is phenomenal, and it's, it's transformative to an organization. But you can't actually develop what that is or what you want it to be until you can figure out the stuff that you need to stop doing. So, you know, until you are able to, to your point, Pepe, is, you know, here's our, here's a repository. Okay? Let's understand what we've been doing. What is it that we're doing well? What is it that we need to stop? And when it's something that we need to stop, that is an indicator of, well, that's probably gonna be a good workflow routing and approval concept of that, but we have to figure out what are the variations that we want to allow, and who do we want to be able to approve that?

19:45Because we might think that, "Oh, yeah, we need Jessica to be the one to sign off on this." But somebody else says, "Hold up a second. I really don't think you want Jessica to do that because of X, Y, and Z." Okay. Those are the things that when you get to a technology, the, the, the software provider that owns the pl- you know, whose platform that we're implementing at that point is going to presume that all of those decisions and ha- have been done when they put together their implementation plan. Their project plan is dependent on all that pre-work being done. So a good phase zero takes into account what do we wanna do first for our, our, our, our CLM implementation, and what are the people, process, and technology, there are those three words again, changes, that digital transformation, that change management that we have to put in place to make it work, and then map that out so it works, and then you're able to use that as a foundation to move to the next phase. And so with the enhancements and just the, the quality of the software that's out there now, they're all tending towards these more scalable approaches.

20:52And I think the, the CLM solutions that f- are fundamentally premised on that approach are the ones that organizations are going to feel much better about adopting, and have a much longer and deeper relationship with that solution as they move forward because each step is built on a very solid foundation from the prior one, where they're not saying, "Oh, yes, I bought all this great stuff, but I have no idea how to get there because I'm struggling with what am I trying to get out of my repository. What are the attributes of the contract that I need to be able to analyze for?" You know, back to, uh, you, you know, one of our first questions. What are those elements that I need to track? Until you know those, you can't map any of that other stuff. And I, and I think that to get to full, full CLM automation where I describe this automated document creation, workflow routing and approval, automated playbooks, and all that great stuff where, you know, in 10 seconds on my smartphone, I can create complex contract, it's doable, but I think that's probably a three to five-year journey for an organization to get to. Because for that to work, there is an awful lot of master data, like, a- you know, information that you have to have locked down and have organizational agreement across the board for the system to rely on it.

22:13Because if people aren't r- aren't going to be able to identify data that's reliable to go into the CLM and drive those decision trees, then they're not going to use it, and now you're paying for a solution that's bigger than you need. And, and why? Why do that? So a phase zero really helps you map that journey out and get the first step to be just a home run out of the gate, which everybody feels good about. The team that was working on it, the people who approved the budget, the software provider who, who's working with it, they've got a very happy client. And again, this is an approach that I don't care what solution you've chosen, it, it makes no difference. You need to use this approach so that you're- Right... validating that the technology you've chosen works and is the right one each step of the way. Right. And, and, and if everybody knows what they're building inside that platform, the adoption will be way easier- Right... because they know what, what they're going, and, and how and why are, are, are they going to use those features, those automation workflows, reports, and everything. Exactly.

23:17'Cause if you don't do that, then they say, "Oh, well, um, if that doesn't work, let's just automate the way we've been doing things." Wait. Then why are we even spending money on a solution because, you know, that's the, that's the old garbage in, garbage out. Why, why would we do that? The last thing you wanna do is automate today's process. You need to be able to say, "What is it that we need to stop doing?" Because that's gonna tell us how to get to where we, how we want to be doing things. Yeah. Yeah. And, and I think, you know, that's, that's one of the big things is, you know, like wh- as we're talking about all these phases and, and making sure, like Pepe said, the user adoption is high. You need to be able to slowly roll this out. You, you can't just go into a dead sprint, you know. You're, you're gonna pull a muscle. Um, a- and there's- ... gonna be some pain inside the organization. So, um, you know, it's, it's definitely something that we talk with, with the, the, the folks that, um, we're working with to see if they can find, you know, the, the perfect solution.

24:13And, and we need to tell them, you know, a lot of people get in there, "We want something in place in 30 days." And I was like, "Well, you just started your search. You're, you're not gonna have something in place in 30 days. And if you do, it's probably gonna be the wrong solution." Um- Yeah... a- and it needs to be g- again, it needs to be something that you can scale with. And, and that doesn't mean that it needs to have, you need to turn all the bells and whistles on right out of the gate. But- Nope... you know, you don't wanna get a, a, a year or two down the road and realize that, okay, now we need to go find a completely different solution because what we're utilizing now, we've outgrown. Exactly. And to your point, Marc, it's, it's when people say, "I need a solution in 30 days or 60 days," what solution? What, what is the problem you're trying to solve for? 'Cause when you ask that, it's never the whole thing. Mm-hmm. Yep. It's, I, I would say better than 80% of the time, I'll throw that number out, probably closer to 90, I, I'll, I'm interested in your perspectives as well, I think when, when someone is saying, "I need something in 30, 60, 90 days," the first thing they need, what, what they're trying to get at, is a repository, quite honestly. Mm-hmm. That's usually what they want because they're trying to find their contracts to be able to answer questions. That, that's u- that's the first step in a CLM journey anyway, i- is to do that.

25:20And as you said, to scale the growth, like the old crawl, walk, run adage. It takes time to do that. And once you're comfortable crawling and what's there, everybody likes it, everybody's comfortable, the adoption is high. Now let's figure out how we're going to walk with this, and what does that mean? And, and again, because you've learned what you have been doing well, you've been, you've found those things where you say, "I can't believe we signed a contract that had this in there. Let's make sure we don't do that again," you're gonna be able to have then a framework around what those guardrails look like. Are they very high guardrails? Are they low? Are they somewhat flexible? And then that will allow you to move forward. And then other, other stakeholder groups will get the confidence around what the contracts team is trying to do with the process and the technology, so again, people across technology, what that team is trying to do to help their objectives because they're seeing evidence of how it's worked previously and they'll say, "I need to get on that party bus because I like the direction they're going. I see how it's gonna make my contribution, my piece of the contracting process," what, you know, whatever that might be, "work better." Yeah. Yeah, and, and we see that often too.

26:33And I, I would agree, Tom, usually when people are really looking for something, they, they want that repository and, you know, maybe some other functionality that everybody's always looking for is, is the reminder, uh, piece. You know, being able to, to always see when, uh, when those renewals- Expiration dates... are coming up. Yeah. And you can't do an expiration date without a repository- Yeah... until you read your contracts and know when they started and how long they were supposed to run. And then it's a simple math equation with a calendar function with a little tag on it. And- Yep... you know, not hard. But- Yeah... somebody's gotta look at the contracts and they'll say, "Wait, this contract has no start date," and we say, "It goes in perpetuity." Okay, crap. We probably don't wanna do those contracts again. Now you have some gating items here, and you, you know, when people look to review documents, you can say, "Oh look, no. Culturally, we don't wanna do evergreen contracts. Full stop." You know? Most organizations have them, they just haven't found them yet, but they're there. Yeah. Yeah. Exactly.

27:25You know, that's the, the fun part about going through your legacy information is realizing just how many things have actually slipped through the cracks. Um- Exactly. Hey, Tom, so this has, this has been fantastic. We just had one, one other quick question for you here. Sure. And I'm gonna, I'm gonna throw a little bit of a curveball at you. So l- let's talk about industry standards and- Mm-hmm... and things that maybe, is there anything out there that a lot of companies or organizations, um, that they adhere to that you think maybe is, is a bad practice that we need to get away from? That's a good question. Um, I would say, you know, I- I'll phrase it this way. We've gotta be cognizant when we're talking about CLM not to stray too much towards program management. You know, kind of the big program management, project management realm. CLM is different from project management and program management stuff. CLM informs that because a program or a project is gonna be based on a contract, but the way you manage a contract is different and it's gonna vary based on what, what industry you're in. What is it that you're selling?

28:33What is it you're using the contracts for? And that goes back to one of the things we talked about at the beginning in terms of an industry standard or practice that people are or, or need to move away from, is really identifying what is your contract culture in your organization? Are you a legal risk-focused contract culture, and you need to manage that? Or are you a more finance kind of transaction, sales-driven contract culture? Because those two paths are gonna drive a lot of the decision-making and, um, and just flavor of your implementation and, and where that automation, where the complexity or where the simplicity comes from and, and what you need to be looking for when you're doing some sort of analysis from the repository or, or something like that. Yeah. Yeah. I, I completely agree, Tom, and, and, you know, I, this has been a great conversation.

29:27I think that, uh, a lot of folks out there are, are gonna find some value in this, you know, and, and if we're, we're taking anything away, it's, it's make sure that you have those people and processes in place and, and that you understand what's important before you go out there and, and you look for a piece of technology. Yep. Absolutely. Agree. Technology's all good, just need, need the people in the process, and then it'll work even better. Okay. Yeah. No, exactly. Exactly. So, so Tom, if, if folks wanna connect with you or, or have a conversation with you to learn more about what we discussed today, where's the best place to find you? Best way to find me is I'm, I'm on LinkedIn or my email, tfuchs, T-F-U-C-H-S, @bdo.com. All right. All right, well everybody, this has been another episode of Contract Heroes. Again, if you haven't already, make sure to like, comment, subscribe, share with other folks out there in the industry that are dealing with contracts on a regular basis. We'd really appreciate it. Thanks again, Tom. Thanks so much. Appreciate it. Take care, guys. Take care. Have a good one. Bye-bye.