In my last article, I talked about the importance of setting the “North Star” for your CLM project and working backwards from there. If you spend time upfront thinking this through, your business case will be tight, with clear objectives and realistic ROI projections.
I always turn to Unilever as a shining example of how to get this and the whole legal tech transformation journey right. They have the budget to invest in their CLM tool each year, and there’s no plan for it to stop. To follow their lead, your business case needs to include not only the initial investment but also the cost of maintaining the system over time.
A STORY FROM THE CLM COALFACE
When I arrived at ASDA in 2010, the average contract cycle was 70 days. Unsurprisingly, there were complaints that the process was too slow, and the legal team was seen as a blocker.
My boss, the Group GC, wanted to improve the company’s perception of us. Other teams were embarking on digital programmes, and he didn’t want to be left behind. So, in 2012, I digitised the process to give colleagues access to basic contract services 24/7. It slashed the contract cycle to 17 days.
Then, after much Googling, I decided to combine Ariba, Contract Express and DocuSign to create a fully self-service contracting platform, Delphi. It cut the contract cycle further, to just five days.
LOOKING BEYOND LEGAL FOR RETURN ON INVESTMENT
But – and this is a big but – when we needed more investment to expand the programme, we ran into a bureaucratic brick wall. Our intangible benefits didn’t fit on the ROI spreadsheet, and when I said they were obvious, I got a “spreadsheet says no”. It was very frustrating.
Eventually I agreed to work on establishing the impact on P&L of reducing the contract cycle. It was easier than I thought; 90% of the contracts we entered into delivered sales or savings, sometimes both. The figures were astonishing. In Year 1 alone, we delivered an impact of £6m on an investment of around £200k.
CAPEX OR OPEX, THAT IS THE QUESTION
Before we dig a bit deeper into ROI, a quick note on where your budget could come from.
For every business I have ever worked with, day-to-day operational spend (OpEx) has been limited. For configuring and customising software as a service (SaaS), long-term capital budget (CapEx) has been more freely available, especially towards the end of a financial year or quarter.
To get my ASDA projects off the ground I toured the building with a begging bowl. And I found that IT and logistics in particular were happy to contribute some spare CapEx to improve their contracts process and reduce cycle times,
CLM CAN CUT COSTS BY 30%-50%
Back to ROI, of which the easiest and most obvious kind is lower resource costs. Resource is expensive: London law firms charge a weighted average of £323 per hour for contract advisory services. And an exercise we ran for a major corporate found a blended internal and external rate of £260 per hour.
SYKE’s customer benchmarking also indicates that legal teams deal with 1,000 contracts per year and spend 32 hours on each. This equates to a total spend on contract-related activity of £8,320,000. By digitising the contract process, our data shows you can reduce demand for contract-related advisory services by 30%-50%. Which means saving between £2,496,000 and £4,160,000 a year.
What ROI spreadsheet would say no to that?
Next time: selecting your tech. If you have a question before then, get in touch.