While many corporate law departments routinely collect the necessary metrics to measure their performance, most only report metrics on spending, missing an opportunity to demonstrate their full value further
Every year, the Thomson Reuters Institute interviews about 2,000 general counsels; and no matter the country or industry they’re in or the size of the business they support, one theme from those interviews comes through loud and clear: Legal leaders want their internal law departments to be seen as more than cost centers. Indeed, they want to be acknowledged for their roles in protecting the business from risk, enabling business goals, and providing quality legal advice — and yes, they want to be recognized for doing all that on-budget.
Those are admirable goals. From those interviews, however, we know that many corporate law departments do not routinely collect the necessary metrics to show how they are making progress toward those goals. About 90% of departments are collecting and analyzing metrics related to their performance, up from 75% eight years ago, according to our surveys; but most only report metrics on spending. Only about one-quarter of the legal teams we survey said they are measuring the quality of the advice they provide.
You can’t manage what you don’t measure. Similarly, the metrics you gather and report are the story you’re telling about your team to your senior leadership, board of directors, and stakeholders. How can you show that your law department is protecting the business from risk, enabling enterprise goals, and providing quality legal advice if you don’t have data to show you’re supporting the business in those ways? If the only story your metrics tell is about spending, it is difficult to be seen as anything other than a cost center.
It is imperative for law department leaders to build stronger, more comprehensive metrics programs, optimizing the metrics that are already being collected — generally, those around legal spend — and then applying that same mindset to generating new metrics that show the impact of the department’s work in other areas.
Building a better metrics program
Given the time that it takes to build a credible and useful metrics program, it’s worth taking a step back to decide which metrics are most important and the best way to gather them.
First, consider these four strategic focus areas:
- protecting the business from risk;
- enabling enterprise goals;
- providing quality legal advice; and
- meeting budgets.
Department leaders should ask themselves, Where am I focused now? and Where will I be focused over the next few years?
Then, use that focus to identify metrics that show value and results. Be careful not to focus solely on inputs — such as how much work your teams did or how busy your teams were. Those numbers don’t give a sense of the value your department is bringing to the business. Instead, focus on outputs, such as client satisfaction or the percentage of disputes in which the desired outcome was achieved.
It’s important to remember, however, that metrics programs can’t be set-it-and-forget-it. Your business will change, and your department will change in response to the changing needs of that new business. It’s important to review and adjust your metrics regularly, to ensure they’re still aligned with business needs and priorities.
The power of benchmarking
Once the desired set of metrics is identified, benchmarking against other similar organizations becomes the next important step. For example, legal spending may vary according to a multitude of factors even beyond the sheer volume of matters which your department handles, such as the size of your organization (in revenue), the number of jurisdictions in which you operate, the location of your headquarters, and your industry sector. To help account for some of these factors, you’ll want to analyze your spend as a ratio of your company’s revenue, compared to that of other similar organizations.
To see why benchmarking is so powerful, consider the case of a growing online retailer whose general counsel needed help understanding their legal spending. The company was evolving from a retail company to a technology company, so as a starting point, they looked at the average legal spend in both industries as a proportion of revenue. This company’s spend was high compared to other retailers, but low compared to technology companies.
This realization helped the general counsel show their board that legal spend was in line with the expected evolution of the company. It also raised some questions: Why were technology companies spending more? What risks might the company be overlooking? Would there be regulations or other factors that would begin to have a bigger impact on the company? and would the company need more legal resources to address those factors in the future?
As part of the company’s strategic planning, the general counsel wanted to understand what level of legal spend would likely be necessary to support the company’s future growth. This involved looking at the benchmark for legal spend for larger tech companies which matched the aspirational revenue of the online retailer. This data helped the general counsel prepare for discussions with the board, and formed the foundation of a business case for further investment in legal. It also positioned the general counsel as a strategic ally to other business leaders within the company.
While this example focuses on spend metrics, the same benchmarking approach can be applied to nearly any metric that a department wants to examine, and it can yield similarly insightful results. As this example also clearly shows, the data that legal leaders collect can do much more than provide guidance for the department itself: It can become the lens through which others see the department as well as an important tool for shaping and managing that perception.
This is the first 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.