The evolution of CLM: From ‘document-first’ to ‘data-first’

Contract management has witnessed remarkable transformations over the centuries. From ancient scrolls to cutting-edge AI, the evolution of contract management reflects the dynamic interplay between tradition and innovation. 
 
Contracts, in decades past, were lost in forgotten filing cabinets somewhere, only accessed when something inevitably went wrong. 
 
But that’s not today’s reality. With the advent and evolution of contract lifecycle management (CLM) solutions, contracts have become incredible sources of valuable contract data that can be extracted and used for different purposes across the organization. 
 
Leveraging this contract data was the topic of discussion in a recent webinar hosted by Agiloft, featuring CLM industry experts Andrew Daley and Igor Stenmark from MGI Research. 

The webinar shed light on the evolution of CLM in the marketplace, discusses what is and isn’t a “data-first” approach to CLM, and explains how a truly data-first approach is key to extracting value out of the generative AI capabilities emerging on the marketplace today. 

The evolution of CLM

Daley and Stenmark outlined three distinct waves in the evolution of CLM: 

• First Wave (1980s-1990s): In the 1980s and 1990s, companies embraced digitization. Contracts, once confined to paper, found new life in electronic form. Optical Character Recognition (OCR) technology allowed organizations to convert physical contracts into digital files. The primary goal? Eliminate paper clutter and streamline basic document management. The familiar 8.5 by 11-inch format persisted, but the medium shifted from paper to pixels. 
• Second Wave (2000s): Around 15 to 20 years ago, the second wave of Contract Lifecycle Management (CLM) emerged. Companies sought efficiency through automation. Key developments included: Contract drafting automation, approval workflows, and clause libraries. 
• Third Wave (Recent Years): In the last five to seven years, the third wave of CLM has surged. This wave transcends mere automation—it revolves around data. Functionalities include AI-powered chatbots, smart contract creation, and automated review. 

So which wave does your CLM fall under? 
 
“Most companies today are still in the second wave,” Stenmark said. “That’s a majority. There [are] a few pioneers that are braving the deep waters of CLM and going into a third wave. But for the most part, companies are still in wave one and wave two.” 

The power of contract data

In the 21st century, data reigns supreme. General counsels, practitioners, and operating executives hunger for contract data. Here’s why: 

• Data-Driven Decision-Making: In today’s fast-paced business environment, data informs negotiation strategies, risk mitigation, and compliance efforts. By analyzing historical contract performance, legal professionals gain insights into successful tactics and areas for improvement. Data-driven decisions align contract outcomes with organizational goals. 
• Streamlining Legal Operations: Efficient contract management demands streamlined legal operations. Tracking data points—such as contract cycle time, deviation rates, and compliance metrics—optimizes resource allocation and workflow efficiency. Vendor management also benefits from data insights, enabling better risk assessment and negotiation. 

By extracting and analyzing data from contracts, organizations can gain valuable insights into their legal obligations, entitlements, and risks. This data can be integrated with other business functions, such as sales, operations, and HR, to align legal constraints with operational performance.  

A ‘data-first’ approach

A data-first approach to CLM involves shifting the focus from traditional document-centric processes to treating contracts as data objects. This approach enables organizations to leverage contract data for advanced analytics, reporting, and automation. By adopting a data-first mindset, legal teams can maintain efficiency, produce measurable business metrics, and collaborate effectively with other departments.  

“With a data-first approach, you build your data structured, build your formulas and build the pricing if it’s a sales contract or if it’s a purchase contract. And then you layer contract clauses digitally around that,” Stenmark said. “What you get in the end is really a persistent system of record, a single source of truth of your contractual relationship. So that’s the difference between just data orientation and data first.” 

The role of generative AI

Generative AI, a rapidly emerging technology, holds great promise for the future of CLM. While Stenmark and Daley acknowledged that fully autonomous contract writing may still be a few years away, they highlighted the potential of AI-powered solutions to enhance contract redlining and accelerate negotiation processes.  

“We’re not saying that you’re going to go and buy this off the shelf tomorrow from most suppliers. You’re going to see significant movement in this direction in the even next year and a half, two years because this is an idea whose time has come, especially with Generative AI tools, catalyzing some of the interest in data management and data extraction, not just text management,” Stenmark said. 

Opportunities and challenges

The adoption of a data-first approach in CLM offers several benefits and opportunities, including improved risk management, enhanced compliance, and increased operational efficiency.  

“All we are trying to do right now with this data-first approach is try to stimulate people’s creative juices and thinking about what’s really possible with today’s technology plus Gen AI and make them think about possibilities, but go well beyond just having an electronic repository,” Stenmark said. “I think Gen AI has tremendous potential in pretty much every area of technology.” 

But organizations must also address challenges such as data quality, data governance, and change management to fully realize the potential of contract data. 

Conclusion

By treating contracts as valuable sources of data, organizations can unlock insights, improve decision-making, and drive operational excellence.  

“We believe there’s a tremendous opportunity to unlock the power of what’s contained within contracts and helping organizations really get more insight and be able to take operational actions based off what’s contained within contracts,” Daley said. 

While the journey towards a data-first CLM may require time and effort, the potential benefits make it a worthwhile endeavor.  

As technology continues to advance, the integration of Generative AI and contract data analytics will further revolutionize the way organizations manage their contracts, paving the way for a more efficient and strategic approach to CLM. 

Interested in learning more? Watch the on-demand webinar to learn more about data-first CLM.