Customer Referrals Lead to Poor Choice in Contract Lifecycle Management (CLM)
Customer referrals are exceptionally powerful in niche markets, perhaps too powerful in the case of Contract Lifecycle Management (CLM).
CLM is a highly customized business software, which helps businesses manage contracts, both on the buy-proliferation-side and sell-service side. The market is relatively immature but is receiving a lot of interest as contracts become increasingly complex.
Buyers are currently in between a rock and a hard place in terms of their purchase decision: few suppliers are recognized as global leaders; those few multinationals that are recognized, such as IBM and SAP, are too expensive for many mid-market B2Bs. This predicament is what drives many firms to identify and trust customer referrals. Where all the real options are unknowns, the referral is the strongest signal possible.
However, customer referrals can be misguided in the CLM market. This frustrating fact is not due to any foul play; it is a natural mistake. The customer buys a product and attributes success of the product to the product brand. But because contracts and contract processes are unique, the majority of the value of CLM comes from customization services.There is a potential misunderstanding of where the value is added, and whether the most important choice is services partner or vendor.
We are not the first or only company to say this. Gartner states the issue plainly, recommending:
“Beware: User references are more likely representative of the vendor's professional services capability than the vendor's solution. Investigate references thoroughly. In most cases, customers have been supplied custom solutions, which are not representative of what you would receive without similar custom activity.” — (“Market Guide for Contract Lifecycle Management,” 2015).
Many capabilities are unlocked by the services firm, and the effectiveness of those capabilities could vary widely with a different implementation.
As with other more established technologies, such as CRM, services are implemented at the vendor’s request by a trusted referral partner, often white labeled, which can make it difficult for customers to refer the services partner. Since the vendor is often chosen first, most references are abbreviated to the vendor. The services firm, having received work from the vendor, possibly relying on more jobs to come, does not have a way to secure trust except through prior relationships.
If we accept that services are the primary generator of value, then we need to rethink our approach to the CLM market.
What Makes the CLM Market Unique?
The CLM market is immature relative to other business technologies. SAP aside, The oldest CLM vendors — Revitas Contract Manager, HotDocs, and Contiki ECM — opened in 1989. The majority were established after 1999. One persistent drag on the market has been the need for custom solutions, the need to manage quite different contract processes, the need to manage different agreements across industries and countries. The amount of change is too great for a vendor to create a one-size-fits all solution. Gartner is saying that even now, solutions are one-size-fits-one.
CLM continues to require customization services, these services building the most value (and cost) of the final product. The decisions made during discovery and implementation phases drive the CLM’s bespoke capabilities.The technology, itself, has less value than the value of the business decisions that go into it.
Envision a Contract Management Roadmap
For the same reason, Gartner also recommends making decisions before establishing connections with vendors. These decisions must come naturally from the corporate strategy to hold the greatest probability of long-term success. Engaging vendors first is not in the interest of the buyer; it is putting the cart before the horse. Before approaching a vendor, identify:
- Current process capabilities
- Short-term capability goals
- Long-term capability goals
The most important decisions and changes come later in the implementation process, when new business processes are envisioned with the goal to exploit the CLM. During this phase, best practices are established, the value of which is highly correlated with the experience of the services agent. Business process changes often rely on the capabilities of the CLM vendor, but making the right choices for business process involve high-level decisions about the nature of the contracts the business wants to prioritize, deprioritize, and behind this level: the nature of the relationships it wants with its customers, suppliers, and how it wants to conduct business. The tool itself is less important than configuration around strategic requirements.
By taking a services-first approach, a business emphasizes the real value add and increases the probability of creating strategic capabilities as opposed to features. This services-first approach is not the norm with all business software, but in the case of contract management, it is still the best way to achieve a valuable solution.
Nigel Montgomery and Deborah R Wilson. “Market Guide for Contract Life Cycle Management.” Gartner: July 16, 2015. https://public.dhe.ibm.com/common/ssi/ecm/uv/en/uvl12391usen/UVL12391USEN.HTM