Legal Spending Metrics: Get on the Bus

Recently, my cousin described her approach to dealing with a family crisis: Chase the bus, get on the bus or drive the bus. Being an action-oriented person, her preference was to learn everything she could about the issue, gather expert advice, and then make decisions and address the situation head-on. In other words, she chose to drive the bus.

General counsel, chief legal officers and other law department leaders confront similar choices, as the legal profession is in the midst of an industrial revolution in legal services.

The Merriam-Webster online dictionary defines an industrial revolution as "a rapid major change in an economy (as in England in the late 18th century) marked by the general introduction of power-driven machinery or by an important change in the prevailing types and methods of use of such machines."

Other commentators point to a confluence of socioeconomic changes characterized by a mechanization of manufacturing — moving away from hand-crafted and guild-oriented practices — and new power sources. At the same time, new sources of capital, increased global trading opportunities, and more knowledgeable and demanding consumers play a key role in creating structural changes and upheaval in economies and societies that undergo their own versions of England's experience in the 1800s. (Gavin Weightman's recent book "The Industrial Revolutionaries: The Making of the Modern World 1776-1914" covers these topics in a very readable fashion.)

Doesn't this sound a lot like events in the legal services industry? Consider these examples:

• the rise of the types of automated tools that an Oct. 11, 2011, article in The Wall Street Journal dubbed "robo-lawyers";

• lower-cost lawyers in lower-cost locations or — in what will likely be the next phase of outsourcing — nontraditional legal-services suppliers that are high quality, technologically innovative, and able to scale up or down as needed;

• the United Kingdom's legislation permitting the injection of outside investment capital into firms; and

• the host of metrics and process-oriented acronyms featured in the legal trade press, including legal process outsourcing (LPO), legal project management (LPM), knowledge management (KM), key performance indicators (KPIs) and so forth.

Of course, lawyers and firms are, in general, not at the leading edge of any adoption curve (technology or otherwise). They are more likely to be chasing the bus. In a piece for Law360, Dave Dolkas wrote about a firm sending lawyers to Six Sigma training, which is a technique for increasing quality and decreasing costs popularized several decades ago. He argued that the attention the firm received for using this long-established approach shows just how far behind lawyers are in adopting quality improvement and cost-control measures.

Despite this, a GC or CLO might be wary of moving away from a traditional legal services sourcing strategy — business speak for "hiring the firms we've always used." But as boards of directors and executives demand more value from the legal department — without necessarily having much of a concept of how to measure the value of legal services — the risk of doing little or nothing far exceeds the risk of implementing a plan to measure and increase the value of every dollar the company spends on lawyers.

In other words, it's time to get on the bus. No GC wants the board to measure success in managing legal costs solely on a procurement-oriented model, which typically asks, "How much less did we spend this year than last year?" But failing to implement at least a few simple but meaningful metrics can lead to that outcome.
Driving the Bus

So, how can in-house counsel get in the driver's seat? It's time to draft a new set of operating principles. Counsel should consider these five steps as one possible template for taking action.

1. Define five key performance indicators for each major outside firm . These should be easily measurable. The GC should review the results each quarter and then spend 30 minutes with each firm, reviewing their improvement opportunities.

2. Identify where project management responsibility lies for significant M&A, litigation and other projects. Does the in-house or outside lawyer or other professional responsible for project management have the training and tools necessary to bring the project in on-time, on-budget and on-targeted outcome?

Measuring the effectiveness of project management requires first defining what constitutes a successful project. Clear standards are necessary for improved performance.

If the requisite training and tools are not in place, consider hiring specialized project managers to guide major projects.

3. Adopt a process orientation . Process mapping can identify chronic problems: work that needs to be re-done, inefficiencies, and inappropriate staffing, such as having senior lawyers do work that could be automated or completed by lower-paid associates or paralegals. These routine tasks probably aren't going away, but they often can be resourced and completed more efficiently.

4 . Document, evaluate and continuously improve the sourcing strategy or outside legal services. Using a portfolio approach — segmenting legal needs into substantive areas, with an assessment of risk and value, and then sourcing legal services for each segment accordingly — can help demonstrate how legal spending aligns with the company's opportunities to get more for less and mitigate risks.

Use technology to measure the costs and outcomes against the strategy's success criteria. Show the board of directors and C-suite colleagues metrics that align with the reports they already receive from other parts of the company. One example would be to show the total cost of ownership (TCO) of key types of legal projects.

5. Make collaboration a key word among the team, and put it into action every day. Use technology to improve oversight of major matters and to interact more effectively with outside counsel (and I don't mean "send more emails," by the way).

Institutionalize a protocol for every matter sent to outside counsel: The responsible in-house lawyer must engage in a dialogue with the lead outside lawyer to create clear, yet flexible, metrics by which to measure value and success. Some outside firms may resist. But staying clear and firm about the company's requirements will result in the best firms accepting that the legal department is serious about defining value.

It's time to get started — jump on the bus, take the wheel and drive on down the road.

Jim Boeckman, president of Right-Tasking Consulting, helps general counsel get the best legal services for their money. He consults with in-house leaders on projects that optimize the sourcing, cost and management of their legal resources. For more than 20 years, he practiced at major firms in Austin and Dallas and as in-house counsel at high-tech companies in Austin, Dallas and Australia. His blog, Boosting Legal Value, is at www.Right-Tasking.com/blog.