April 19, 2024

 Devdeep Ghosh

 Erica White

general counsel Consulting law department consulting legal operations law department

To further explore the topic we introduced in last month’s Part I post on six steps for general counsels to add business value, this second post (with one more to come – stay tuned!) delves into the third and fourth critical actions for general counsels, whether new or veteran, to optimise a law department.

Part I explained the importance and value of Actions One and Two: learning what your business partners want and need, finding internal efficiencies, and (re-)allocating work (as appropriate). Here, we turn to spend analysis and benchmarking.

Action Three: Know Your External Spend

Probably every GC knows the pressure to reduce external department spend – and do so without negatively impacting legal service delivery or matter outcomes. A pivotal action to solve this conundrum is a targeted legal spend analysis to uncover opportunities for external spend reductions that do not diminish service quality and may even improve outcomes.

Targeted legal spend analysis provides a strategic, systematic way to determine the value of the work, how much you are willing to pay, which provider is best suited for the work, and who provides the best value.  The process begins with collecting external spend data for a designated period and then digging into the details of spend (both per vendor and individual timekeepers), billing practices, outside counsel guidelines, and more. As with an internal workload assessment, the goal is to ensure that the right resources (partners, associates, and paralegals) are doing the right task (i.e., appropriate to their expertise level) at the right cost (via value-based pricing that corresponds to the type of task, not to the resource level performing it).

Elevate recommends a two-pronged holistic approach to spend management to generate high ROI. Our customers frequently find that this approach not only pays for itself but also generates additional savings that can fund other improvement initiatives (such as implementing productivity-enhancing technologies). The two components focus on cutting external costs to generate savings immediately, then laying the foundation for sustained savings for years to come.

This approach allows a law department to develop targeted, data-driven initiatives that generate savings and enable more precise and active spend management. Among the possible initiatives are:

• Identifying opportunities to leverage and right-source staffing (within your outside firms, among vendors, and by right-sourcing work to ALSPs as appropriate).
• Obtaining guidance and support for initiating (or expanding) the use of AFAs.
• Reducing the long “tail” of engaging numerous firms (e.g., the administrative burdens of managing them and spend for each) by establishing a preferred panel program (“PPP”) for outside counsel.
• Implementing (or optimising) outside counsel billing guidelines that define and refine criteria and guidelines for, e.g., outside counsel selection, DEI performance, and staffing.
• Creating an outside counsel management program that includes an actionable roadmap.

Action Four: Benchmark Yourself

Law department leaders often come to us wanting to find out how their departments stack up compared to their peers as far as organisational and operational maturity. But standard industry benchmarks only go so far. Even if you focus on comparing your department to those of companies in the same industry, the standard benchmarks do not enable you to take into account considerations like department size, business priorities, department goals, the extent and capabilities of internal resources, budget (whether department-wide, for outside counsel, or something else), and more.

The limitations of standard benchmarks mean that before you proceed, ask yourself why you want to benchmark your law department. What is driving you to conduct benchmarking? What are you hoping to achieve? How do those goals relate to the goals of your department and your company?

Benchmarking is not a single event where you compare yourself to others in your industry once and then are done. You need to document your current state and then demonstrate progress. We recommend a customised benchmarking approach tailored to your law department whereby you:

• Confirm your goals, objectives, and reasons for benchmarking.
• Specify how the benchmarking will be used to help you achieve your goals.
• Document your current people, processes, and technology.
• Define your ideal future state and compare your current state to your ideal future state.
• Develop a strategic plan and timeline for moving from your current state towards your ideal future state.
• Regularly track your progress against your strategic plan.
• Maintain and update your strategic plan at set intervals to ensure you achieve continuous improvement.

Four Actions Down, Two More to Go

Spend analysis and benchmarking are crucial actions for several distinct reasons. They help identify opportunities for cost savings and efficiency improvements and provide the data needed to track and measure success, calculate ROI, and enable continuous improvement. In our third and final article of this series, we will cover two more crucial actions: harnessing the power of technology and reporting on the right measures. Stay tuned!