As we examine the metrics that a corporate law department can gather about its spending on legal services, the picture of the department's real value becomes clearer
The metrics collected and analyzed by corporate law departments can provide insight to a much wider audience than that within the department itself. As that data gets presented to other departments, senior leadership, and the board of directors, the story it tells defines the value of the law department.
Unfortunately, our research shows that most legal departments are under-utilizing metrics, leaving the true value that the department delivers for the overall business hidden.
Each year, the Thomson Reuters Institute interviews about 2,000 general counsels. This year, we found that about 90% of those said their law departments are collecting formal performance metrics, up from 75% eight years ago. Further, one of the four key areas of strategic focus that general counsels mentioned in the survey is efficiency optimization — deriving more value from legal spend in order to be more efficient. To support those goals, department should establish metrics that consider the volume of work handled as well as an analysis of resources and costs.
Once these numbers have been gathered, they can help department leaders proactively identify and report on factors that can foster greater success for their team.
Legal spending metrics are among those most likely to be tracked by law departments. There are many reasons for this, among them necessity and ease. You can hardly go into a budget meeting not knowing what your department is spending. Compared with other metrics, those describing spending are readily available, and organizations tend to benefit from a shared understanding of how these metrics can be used.
However, as we noted in an earlier post, even well-trafficked spending metrics can benefit from a fresh perspective. Overall legal spending — expressed as a percentage of an organization’s revenue and compared to peer companies — is a good place to start. Peer determinations might be based on companies of a similar size, growth rate, industry sector, or headquarters location. Of course, the sheer volume of legal matters, as well as their type and jurisdictions, will also have an effect on costs. And as we’ve said, it can be enormously helpful to benchmark spending and cost analysis based on any, or all, of these factors.
By taking a closer look at metrics related to spending, GCs may find new opportunities for their teams as well. Indeed, they might start a meaningful cost analysis by considering such items as:
- Budget, whether it was established and met or missed
- Legal spending as a percentage of revenue
- Internal spending compared to spending on external firms
- Number of in-house lawyers
- Legal spending by matter type
And of course, there are myriad other metrics that can provide additional insight and guidance for those businesses looking to be more strategic about how they manage their departments and ready themselves for the future.
When reviewing these metrics, a good indication of increased efficiency is that the ratio of spending-to-revenue declines, and that the average spending-per-matter likewise decreases.
Once these numbers have been gathered, they can help department leaders proactively identify and report on factors that can foster greater success for their team. These numbers can also help departments become more efficient — once department leaders have a better handle on the scale and volume of work, they’ll have some direction as to where it makes sense to develop new processes or standardization.
These metrics could help leaders develop an effective triage system to decide which matters are handled internally and which are sent to external counsel.
Law departments may find other positive outcomes from this sort of analysis. These metrics could help leaders develop an effective triage system to decide which matters are handled internally and which are sent to external counsel. They may also be able to drive more comprehensive adoption of alternative fee arrangements through a deeper understanding of for which matters they work best (and for which matters they don’t). And of course, identifying the types of tasks or claims that take up a disproportionately large portion of resources relative to their strategic value can be a good place to start looking for more efficient solutions, some of which could be technology driven.
There may be other key questions that this process can allow department leaders or GCs to begin to answer: How regular and transparent is the billing you receive? Do your external counsel anticipate and discuss any fee overruns before they occur? Regardless of the outcomes desired or the questions asked, discussions with outside counsel about fees and other resources are likely to be much more productive when they’re based on data.
Also, staffing levels can be better managed with assistance from comprehensive spend monitoring and management. On more complex matters, these metrics can help build the case for a professional project manager, and they can also help pinpoint where technology can save time or money.
There is so much more value to be had from the spending data that many law departments are already collecting. Sometimes that value comes from benchmarking, and sometimes it comes from thinking about the numbers more strategically. The next step is to apply this same type of thinking and framework to metrics related to the other top priorities cited by GCs: providing quality legal advice, protecting the business from risk, and enabling enterprise goals.
This is the second in a series of blog posts about legal success metrics, what they are, and how they can be used by corporate law departments to better understand their own operations and performance.