Why you should go data-first (and what happens if you don’t)

Contracts are fundamental to business, serving as the initial foundation and ongoing operational framework, dictating everything from hiring and sales to legal obligations and financial terms. However, once signed, these crucial documents are often neglected, stored away without leveraging the valuable data they contain, leading to missed opportunities and increased risks due to decentralized storage and poor tracking across departments. This highlights the need for modern contract management practices that prioritize data utilization, otherwise known as a data-first approach. But what are the benefits of putting your data first? 

The benefits of a data-first mindset

Eric Laughlin, Agiloft CEO, explains the following benefits:

Tracking business value

Contracts contain hidden costs and risks beyond basic profit and loss. Improved contract visibility allows businesses to find those hidden factors, proactively address potential disruptions, and make informed strategic decisions. 

Negotiating better contract terms

Treating contract clauses as data allows organizations to analyze them for patterns, revealing advantageous terms and sources of contention, which in turn informs future contract negotiations and language choices. 

Gaining a competitive advantage

Analyzing contract data reveals hidden risks and litigation patterns, enabling organizations to proactively adjust clauses, reduce potential legal costs, protect their reputation, and gain a competitive edge. 

Mitigating risk

Real-time contract insights enable agile responses to supply chain disruptions, allowing organizations to maintain inventory and meet customer demand, gaining a competitive advantage over slower rivals. 

Agility

Analyzing contract data for renewal dates and payment terms prevents financial losses from missed deadlines and penalties, freeing up capital for strategic investments. This data-driven approach allows organizations to extract maximum value from their contracts, turning potential losses into opportunities for growth and innovation. 

Making data work for you

Contract data, encompassing everything from supplier demographics to legal obligations, provides a rich, readily available resource for all departments, enabling them to make informed decisions and optimize operations without the need for costly external data acquisition.  

While readily- available contract data is valuable, its true power lies in its analysis and application to inform strategic decisions, moving beyond gut feelings and outdated processes. Data-driven organizations significantly improve decision-making by using data as a benchmark to measure impact and continuously refine strategies. 

Worried the process of gathering all that data sounds cumbersome? Think again! With the right technology for contract data centralization and gathering, pulling up the records you need only takes a few seconds. (Check out how this financial software company did it here.) 

Why aren’t all organizations data-first?

If being data-driven provides so many benefits, why isn’t everyone doing business this way? Brent Dykes points out several reasons: 

1. Lack of strategic alignment

Effective data collection and analysis require alignment with business strategy, ensuring that measured metrics directly reflect desired outcomes. Without top-down and bottom-up buy-in and clear Key Performance Indicators (KPIs), establishing a data-driven culture can be difficult. 

2. No single version of the truth

Conflicting perceptions exist across departments regarding contract ownership, with Legal, Contracting, and Business Development all claiming primary responsibility. This results in siloed data, which hinders the establishment of a single source of truth and leads to inconsistent information and conflicting answers across departments. (Find out how others have overcome this difficult hurdle here.) 

3. Difficult-to-use tools

Any piece of technology can be difficult to use without the right skillset. Integrating contract data with everyday departmental applications through bi-directional integrations democratizes data access, making it less intimidating and more actionable for all departments regardless of technical expertise. 

What happens if you don’t become data-first?

On the flip side of benefits, not adopting a data-centric approach might result in: 

Risks

Financial risks stemming from missed deadlines, penalties, and unwanted renewals, exacerbated by siloed contract data, can severely damage a company’s bottom line and reputation. CEOs recognize that centralizing contract data through digital platforms is crucial for mitigating these risks, yet many organizations struggle with locating contracts, monitoring deviations, and tracking obligations due to inadequate technology and processes. This widespread lack of effective contract management leaves companies vulnerable to significant and avoidable risks. 

Inefficiencies

Decentralized contract management, where departments use disparate systems, leads to inefficiencies, increased costs, and inconsistent data analysis, hindering organizational transparency and risk management. This siloed approach can even compromise risk and transparency for the entire organization, highlighting the necessity of a centralized, data-centric strategy. 

Missed opportunities

Siloed customer data across departments prevents a comprehensive view of the contract lifecycle, hindering opportunities to increase sales and enhance customer loyalty. A single source of truth is essential for leveraging a data-first mindset and maximizing customer-related opportunities. 

Competitive disadvantages

Organizations relying on outdated contract management methods, like spreadsheets and email, face a significant competitive disadvantage against those leveraging technology and Artificial Intelligence (AI). Centralized data enables competitors to respond faster, identify inefficiencies, and minimize risks, potentially leading to lost business and increased investment capacity.  

Despite widespread recognition of the advantages of contracting transformation, and many organizations attempting it, the majority lack the necessary data and technology to effectively execute their strategies, highlighting a critical gap between ambition and implementation. 

How to become a data-driven organization

Now that you’re familiar with why you should transition your business toward becoming data-first, you might want to know how to begin the process. Forbes outlines three general steps: 

1. Clearly define data’s importance to your organization 

To effectively utilize data, organizations must establish well-defined objectives and eliminate departmental data silos. While these silos naturally emerge during growth, a unified, accessible data environment is crucial for driving business progress and enabling meaningful data analysis across all departments. 

2. Take stock of your current data infrastructure 

A company’s digital transformation hinges on its existing data infrastructure, making a thorough assessment essential. 72% of global executives prioritize improving data infrastructure to enhance data-driven decision-making. 

3. Bring your team along for the ride

The journey to a data-first organization can start with building a strong business case for a Contract Lifecycle Management (CLM) system, which highlights the need and impact of centralized contract data. While various frameworks exist from sources like Gartner and Harvard Business Review, selecting the most suitable approach for your organization is crucial to effectively implementing a data-driven strategy and gaining a competitive edge. 

It’s time to take the leap

A data-driven approach is essential for all organizations, with CLM acting as a crucial centralizing force. However, it’s vital to choose CLM platforms that prioritize data over mere document management, shifting from a “document-first, data-maybe” mindset to an “enterprise-wide, continuous, real-time, data-focused system.”  

Ready to become a truly data-first organization? Dive in to our data-first guide now.