The Future of Contracting: Embracing Automation and Driving Business Outcomes

The Future of Contracting: Embracing Automation and Driving Business Outcomes

Introduction:
In today's rapidly evolving business landscape, the role of technology, specifically artificial intelligence (AI), is becoming increasingly significant. From streamlining processes to enhancing productivity, AI has the potential to revolutionize various industries. One area where AI is making a substantial impact is in contracting. In this article, we will explore how automation is reshaping the contracting workflow and discuss its long-term implications for businesses.

The Power of Automation in Contracting:
Imagine a corporate contracting workflow that operates near Level 3 automation. Here, the business user interacts with a chatbot to request and generate a contract for a counterparty. If the user lacks full authority, the contract is forwarded for proper approvals. Instead of reviewing the entire contract, the approvers evaluate an automated summary provided alongside the contract. This automated summary, generated by AI-powered tools like Tome, allows for quick and efficient decision-making, saving time and resources.

The Role of AI Tools in Contract Review:
Upon authorization, the contract is sent to the counterparty, where it is automatically reviewed against their playbook and the market using tools like Blackboiler, LexCheck, and TermScout. Any necessary edits are swiftly returned, further streamlining the negotiation process. Additionally, the original party's own AI-powered comparison tool ensures alignment with their playbook. This iterative process continues until both parties reach an agreement, with AI facilitating efficient communication and reducing the need for human intervention.

Driving Better Business Outcomes through Automation:
One of the key benefits of automated contracting workflows is the ability to extract valuable data throughout the process. Tools like Cognizer enable the extraction of contract data for tracking, reporting, analytics, and queries. This data not only provides insights into the contracting process but also fuels better business outcomes. Metrics such as status, backlog, velocity, volume, number of turns, frequency of fallbacks, and triggers for human intervention can be analyzed to refine the process and drive continuous improvement.

The Year to Be Great: Financial Considerations:
While automation presents numerous advantages, businesses must also consider financial factors. Operating leverage, or the growth of operating expenses in relation to revenue, should ideally be lower than the growth of revenue for businesses with over $100M in revenue. This trend indicates healthy financial management and sustainable growth. Evaluating a company's total enterprise value (TEV) to its next twelve months' gross profit (NTM GP) ratio provides insights into investor willingness to pay for a dollar of gross profit. Comparing this ratio to valuations and factors like NTM growth and free cash flow margin (FCF margin) allows for a comprehensive financial assessment.

Actionable Advice:

1. Embrace automation: Assess your current contracting workflow and identify areas where automation can be incorporated. Implement AI-powered tools that streamline processes, reduce manual errors, and improve efficiency.
2. Leverage data for business insights: Make use of contract data extracted during the automation process to gain valuable insights into your contracting operations. Continuously analyze metrics and refine the process to drive better business outcomes.
3. Prioritize financial sustainability: Regularly evaluate your operating leverage and ensure it is moving in the right direction. Consider the TEV to NTM GP ratio and its alignment with valuations, NTM growth, and FCF margin. Strive for financial stability and sustainable growth.

Conclusion:
The future of contracting lies in embracing automation and leveraging AI-powered tools to streamline processes, enhance efficiency, and drive better business outcomes. By incorporating automation into contracting workflows, businesses can save time, reduce costs, and improve decision-making. Furthermore, extracting and analyzing contract data provides valuable insights that can be used to refine processes and optimize performance. To thrive in the evolving business landscape, it is crucial for organizations to adopt automation and harness the power of AI in their contracting practices.