Given that the typical organization deals with hundreds of thousands of contracts per year, it’s surprising that more companies aren’t turning to enterprise contract management (ECM). In one study, over 70% of respondents said their contract process was not automated, with 58.6% using e-mail and 49.4% using shared drives. ECM systems can bring structure and automation to the contract management lifecycle by ensuring contracts are properly reviewed, their provisions are enforced, their intent is realized, and their weaknesses are recognized and corrected.
However, organizations face challenges when implementing ECM. Many older but still relevant contracts exist in paper form, which makes it difficult to store them in a centralized repository. Further, contracts can vary widely in terms of their source, type, format and structure. With the spike in merger and acquisition activity, these issues are only amplified, as companies need to synch their existing contract management approaches and systems.
And yet, it’s vital for businesses to improve their contract management situation. Without easy visibility into contract activity, organizations are unable to maximize the value of negotiated agreements and ensure compliance with contract terms. Even if they’ve structured and digitized the contract process with larger vendors, that’s not always the case with smaller partners, whose processes are still paper-based, which can result in increased risk, lost revenue and increased costs.
Introducing Intelligence into ECM
Two approaches can enable organizations to successfully automate the management of their paper-based and digital contract documents:
Optical character recognition (OCR): Using OCR, images of typewritten or printed text can be mechanically or electronically converted into structured text formats for further querying and action. OCR can be used both for converting the complete contract document to text, or extracting contract metadata from the documents.
Documents may be received via e-mail, fax, Web uploads or in paper format, as long as the document is scanned into a repository. The key lies in the OCR engine’s ability to produce a text version from the scanned images.
Intelligent process automation: IPAcombines elements of artificial intelligence and machine learning with automation to improve business processes. IPA is an advanced form of robotic process automation (RPA), which can be defined as a virtual software robot taught to carry out routine tasks previously handled by humans. (For more on IPA and RPA, read our white paper “The Robot & I” or watch our video series).
Key IPA applications in the contract management lifecycle include conflict checks and client billing. Organizations such as Berwin Leighton Paisner have created contract analytics robots to extract and report contract data, typically using an OCR engine, and then perform tasks dependent on the data extracted.
IPA solutions can also be applied to contract negotiations, as the robot can be taught negotiation limits to draw up a report covering all contracts that fall outside those parameters. IPA can increase the efficiency of contract management by checking and reporting all payments made and received against the contracts signed with another party.
IPA solutions can also be used to manage “dirty” interfaces, in which printed or handwritten data needs to be transferred between applications that are not integrated.
An OCR engine typically executes three stages while processing a scanned contract document.
OCR technologies and IPA are rapidly becoming mainstream solutions, with well-demonstrated benefits and return on investment within a year or two, depending on contract size and volume in the enterprise. By applying these technologies to ECM initiatives, organizations can realize multiple benefits, including:
Faster search and retrieval.
Improved contract performance.
Automated invoice generation and reconciliation.
Better relationship management.
Improved reporting and analytics.
Businesses across the globe will continue to be built and run on contracts, whether to establish new relationships or enhance existing ones with suppliers, customers, partners and employees. The capabilities now exist to conduct contract management in a more automated and intelligent way.