TL; DR.
A REIT / colocation company experiencing exponential growth was saddled with a slow, inefficient legacy contracting and compliance function.
A revamped strategy and operating model, supported by digital transformation helped address productivity, client churn, efficiency, and commercial contact velocity, enabling accelerated growth and client satisfaction.
Ever wonder to do with that huge stack of contracts?
We ran across this exact situation at a leading colocation company that provides data center solutions to leading tech companies. Here’s how we worked with the client to transform, digitally, their contracting and commercial ecosystem.
Imagine a world where every contract is different…
Probably not too hard to imagine – which was the reality for this client. Although well-intentioned, natural evolution of the company without an overarching commercial vision produced a wildly inefficient contracting environment – kind of like building your golf swing by layering one weekly golf tip on top of another – for 10 years. For this client, this is how contracts ecosystem evolved:
- Historically, the legal team used a boilerplate contract as a starting point – great in theory, but over time, the boilerplate evolved – which happens in most companies,
- Certain customers, through negotiation, inserted or removed clauses or terms based on their specifics and/or risk tolerance,
- Each customer also could negotiate unique terms and specifications for the colo – temperature, power, humidity, expiration, monitoring, notification, penalties, cotermination – the list goes on,
- For any given customer contract, they may have multiple corresponding supply contracts to provide the full solution – one for servers, monitoring, carrier, service levels, etc.
- The internal contract operating model and governance was nonexistent – different client-facing functions had autonomy to negotiate a variety of nonstandard terms – independently.
Accordingly – the client found themselves saddled with a stack of thousands of paper and electronic contracts with different clauses and terms, and a contracting process that was slow and inefficient.
Managing contracting capability this way wouldn’t work – for long.
The birdsnest of inaccessible contracts was a commercial nightmare, felt every day. The business costs were immense – unnecessary payments for services never used, lost revenue, customer churn due to client dissatisfaction with compliance, and corporate / legal exposure due to simple lack of visibility to what had been committed to customers. Customer commitments were missed. Contracts contained terms and service levels that could not be honored. Commercial opportunities for cross sell and upsell lay by the wayside.
In addition, the human costs were beginning to mount – it wasn’t uncommon for legal staff to log 80+ hour weeks. Frustration began to set in at executive levels due to slow commercial processes and lack of executive alignment. Operational teams were often blindsided by commitments in the contract they weren’t aware of. Finance continued to be frustrated by poor contract profitability. Customers became weary of the disjointed performance, commercially and operationally.
Let’s digitize the contract ecosystem.
Technology, processes, and operating model. The company’s growth trajectory was steep and showed no signs of slowing down. It was obvious that continuing with the manual, unrationalized contract ecosystem was a non-starter – it wouldn’t scale in any sense – so the decision was made to transform the ecosystem, digitally. We collaborated to build a digital strategy consisting of four steps, underpinned by the implementation of a contract intelligence / AI package:
- Strategy / Digital Roadmap Development. Key stakeholders engaged, transformation outcomes were identified, and a multi-phase roadmap was developed – including quick wins, foundational elements, systems and development roadmaps, and key change elements, time phased, with business case.
- Gain existing contract visibility. The most time consuming of the activities, it formed the basis for digitization. OCR was used to digitize the contracts, placed in a common repository, followed by a simple, keyword-driven search of contracts for terms that would expose contracts that needed human analysis. A temporary team of legal analysts was employed to interpret contract terms and create metadata / labels so core contract provisions, links, dates, etc. were readily accessible.
- Improve the contracting process. A critical element of any digital transformation, two steps help redefine the contracting operating model and reduce contracting variability:
- Simplify new contract development. The company, for the first time, established a governance framework for commercial agreements – Sales, Operations, Service, Finance, and Legal collaborated to establish contract standards: Clauses that were mandatory vs. those that could be negotiated, standard terms with boundaries (e.g., temperature, humidity, etc), and a list of items that could be negotiated by the sales and service teams. This resulted in simpler contracts, as well as contracts that the entire enterprise could honor.
- Standardize the contracts themselves. Standardization of the now simplified contracts involved rationalizing clauses, updating language, and establishing a standardized clause library. In addition, the structure of the contracts themselves was standardized – paving the way for automation to know where to ‘look’ in the document to get the necessary data to drive operational (e.g., monitoring) and commercial (e.g., renewals) workflows.
- Drive process improvements using workflow / AI. With access to key data elements to drive automation, the developed a roadmap of improvements to drive efficiency and value. Several examples include:
- Customer operations improvement: Workflows, when certain contractual parameters were reached / breached, automatically trigger alerts, automated messaging, and tickets. One example is when there was an outage of greater than a certain length, a client would be automatically contacted in via their preferred channel.
- Facility operations improvement: Previously, if there was a power outage in a given data center, there was a scramble behind the scenes to understand what customers were housed in the data center, what their performance clauses were, what the penalties / remedies were, and what notification each required. With the new, digitized contracts, workflows were planned for sales, service, operations, legal, and finance to automate the response.
- Commercial operations improvement: Automated contract analysis is planned to power an action dashboard, identifying upcoming cotermination risks, identification of terms that needed to be renegotiated or removed from future agreements, and reduced churn as contract terms could be honored operationally.
- Legal team productivity: Free from manually scouring contracts for terms, commitments, and risks, the legal team is able to shift from maintaining contracts to proactively working new contracts and renewals. In addition, contracts can be generated and approved electronically, with highlights / notes automatically generated to help the legal team understand clauses and terms that need review or operational approval, supported by workflow.
So…how’d it turn out?
This particular company, at it’s core, competes on the ability to generate customer confidence in the stability of their products (data centers) and operations (service, support) – no one wants to collocate in data center where there’s uncertainty around the data center performance, or the people and processes in the data center.
This digital transformation resulted in a huge variety of operational improvements, in aggregate reducing cost, accelerating the business, relieving the operational and human pressure, and stabilizing elements of operational performance. As importantly – it serves as the platform and operating model to continue to drive improvements, and scale with the business.
Endnote
For readability, this summary refers solely to ‘contracts’ – but the effort also included other legal documents, including MSAs, NDAs, purchase orders, and others. The processes, systems, data model, and governance was built to enable rapid assimilation of these documents as well as being extensible to other types of commercial documents.
Solera Strategies 