How Businesses Can Mine Actionable Insights From Complex Legal Contracts

The data found in a company’s contracts can be converted from complex legal text into actionable intelligence to prevent revenue leakage and enhance the bottom line. Here, Gretchen Bakhshai, SVP, Commercial at Knowable, explains how organizations can use data modeling to derive actionable insights from vast and complex contract documents. 

Contracts are the lifeblood of large enterprises. They formalize a company’s commitments and obligations and its ability to capture revenue. They govern every aspect of every commercial relationship across the organization: the rules for buying and selling, the nature of partnerships, details of the supply chain, terms of distribution, the protection of intellectual property, relationships with employees, and much more. In essence, contracts represent the enterprise’s most valuable and powerful dataset. Yet, poor contract management practices cost businesses the equivalent of 9% of revenues Opens a new window each year. For large organizations, that translates into millions, if not billions of dollars.

At first glance, the information contained in contracts may seem largely inaccessible— “locked” within complex legal language intricacies. However, some organizations are now exploring ways to convert legal text into actionable intelligence, just as they might use numerical data to predict expenditures, analyze sales performance or determine the effectiveness of marketing campaigns. 

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Managing Workflows, but Ignoring the Data 

Companies review, negotiate and execute the terms of new contracts, and renegotiate the terms of expiring contracts every day. Not surprisingly, they invest massive amounts of resources in workflows related to the contract lifecycle, from initiation, drafting, and approval to negotiation, compliance, and renewal. As a result, most large enterprises have tens or hundreds of thousands of executed or pending contracts, as well as amendments, statements of work (SOWs), data processing agreements (DPAs), supporting agreements, and more across a myriad of geographies and business units. 

Contract lifecycle management (CLM) software systems and other tools leverage automation to help companies increase the efficiency of contract-related workflowsOpens a new window , including functions like document management, template creation, review, cycle tracking, and e-signature. But what they don’t do well is to help organizations understand how the volumes of agreements across the entire portfolio influence business governance after the contracts are signed. With visibility into their contract positions – accurate contract intelligence – organizations have the insights they need to manage risk, maximize revenue, minimize cost, and optimize the policies that are working in favor of their growth and operations. 

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Understanding a Company’s Obligations and Identifying Opportunities—at Scale

All the terms and conditions that govern your business are tucked away in dense legal prose, which is difficult to access without legal teams spending hours sorting through individual agreements and their contract families to determine your risk, obligations, and entitlements. More and more enterprises are now realizing the true value of their contracts when the millions of words buried in contract language are converted into structured data. With this digital transformation, individual stakeholders can access information that can serve as business drivers without the need for timely and expensive legal analysis. 

Contract review in M&A transactions is an example of the utility of event-driven analytics. Organizations can use analytics to access a comprehensive, portfolio-level view of an entire set of hundreds or thousands of business agreements. When that information is centralized in a single database structured for extracting and analyzing key contract provisions, you can quickly identify key risks and liabilities. You can also spot potential synergies instead of wading through the tangled, text-based output of a massive manual review project. 

These event-driven use cases for contract analytics are impressive, but I should emphasize that the most powerful applications are more proactive and enable stakeholders to ask and answer complex questions that avoid risk and maximize profit as an ongoing business practice. For example, contract data can isolate payment and pricing terms and perform analysis that enables the business to optimize those terms in future negotiations. 

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Turning Complex Legal Language into Structured Data

But to access this data and answer the critical questions that drive your business, you first must have the contracts available at your fingertips. General counsel should answer simple contract questions in minutes, not hours or weeks, and stakeholders should have the visibility to confidently inform decision making.

Even though we use sophisticated technologies to automate tedious and time-consuming components of the document creation process, we tend to ignore the enormous potential an organization’s executed contracts have as a coherent body of data that is continuously growing and changing. The absence of a clear corporate strategy for capturing and leveraging contract information points to a mindset problem among legal departments and executive leadership. 

Data can become a source of valuable business intelligence and inform strategic decision-making across the enterprise. Data analytics and AI technologies like machine learning and NLP have allowed us to make great strides in improving contract management and reduce the prohibitive costs of specific labor-intensive manual tasks like contract review. When properly organized, data generated from legal agreements can be readily searched, presented in easy-to-grasp visual formats within a dashboard interface, and analyzed to reveal trends and insights that were simply too difficult or expensive to access before. 

Of course, no AI or ML technology can deliver perfect results. Providers that add a human layer to the transformation create the accuracy and trust the organization needs to turn insights into action. This is good news for enterprises that want a more detailed and more comprehensive overview of their obligations and liabilities, the short- and long-term risks they face, and the missed opportunities and synergies they could capitalize on.

In sum, modern contract management doesn’t end with a signed agreement. Contract execution is only the beginning of an integral part your governing documents can play to derive value and potentially increase revenues. That’s why you’ll need to go beyond a CLM if you want to scale your business strategically.  

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