“Managers tend to pick a strategy that is least likely to fail rather than pick a strategy that is most efficient.  The pain of looking bad is worse than the gain of making the best move.”

-  Michael Lewis, Moneyball

No One Ever Got Fired for Buying IBM

Our biases often cause us to see what we want, which means that we may not always make the best decision.  Although controlling and forecasting costs are top priorities for corporate legal departments, human biases often obscure decision-making, and can end up costing the company millions in lost savings opportunities.  

Today’s legal departments are now held to the standards of other business units in terms of budget predictability and cost control. According to a recent survey[1], 94% of law departments feel pressure to demonstrate value to the organization beyond providing legal expertise.  The survey also found that 78% of law departments are experiencing demands by CEOs and CFOs to reduce spending on outside counsel.[2] “The message to today’s GC is clear: it’s no longer sufficient to be a great corporate lawyer.  It’s now a job requirement to be an effective business manager who can also communicate the value of his or her legal department to the company.”[3]

Unfortunately for most general counsel, this is easier said than done.  For years, it has been widely believed by in-house and outside counsel that legal services belong in a separate category of corporate spend - one that is impossible to predict.  Clients were successfully convinced that every case merited a custom-tailored approach, that every matter could be characterized as high risk / high complexity, and that legal services are so relationship-driven that efforts to predict or reduce costs would undermine the quality of representation.   Legal spend was so unquestionable that it was common for clients to receive a one-page bill containing one line and a lump sum: “Fee for services rendered.”

In the same way that baseball teams made the mistake of focusing on the number of runs batted in, instead of how often players got on base, legal departments rarely venture beyond the old school, gut-based decision criteria for outside counsel selection and management.  Without considering the data, clients and law firms are at a loss when it comes to negotiating fees, structuring alternative fee agreements, and evaluating staffing profiles.

Analytics: Data That Answers Questions

“It’s about making uncertainty a little less uncertain.”[4]

In the wake of difficult economic times and corporate mandates to do more with less, companies are discovering that the key to competitive advantage is in the numbers.  Technological advances have made available vast amounts of electronically stored data, giving “business intelligence” the center stage.  Now, computer systems can “chew through billions of bits of data, analyze them via self-learning algorithms, and package the insights for immediate use”[5] to inform our day-to-day business decisions. 

Legal departments can now finally follow suit.  With large amounts of potentially valuable information aggregated and mined from e-billing and matter management systems, in-house lawyers can evaluate that data in order to answer questions and see trends.  Relying on data that goes beyond simple rate comparisons, GCs can operate on fewer hunches and more facts. 

For example, legal analytics can reveal the following:

• Cost and rate variances among firms performing the same type of work
• Misalignment of cost based on matter type, significance or complexity
• Suboptimal internal and external staffing mixes and models
• Opportunities for AFAs or consolidation of work among firms
• Excessive associate turnover and decentralized knowledge management
• Misallocation of timekeeper resources based on task or type of matter
• Heavy front or back loading of timekeeper hours
• Overall law firm performance based on prioritized selection criteria
• Potential matter cost ranges based on type of work or duration of matter

Impact on Legal Services Procurement

“Your goal shouldn't be to buy players. Your goal should be to buy wins. In order buy wins, you need to buy runs.”[6] 

Analytics-based decision making is not only about reducing costs and gaining budgetary predictability; the end game is to optimize the value of the legal services investment.

For purposes of law firm consolidation and “share shifting” (transferring work to equally capable firms with lower rates), analytics is the starting point in the legal services procurement process.  Armed with historical data, market intelligence, target staffing profiles, and risk/complexity assessments, legal departments can strategically source legal work with the confidence of an information advantage.

Additionally, analytics are becoming more of a critical component to legal services procurement as legal departments and law firms become more comfortable with competitive RFPs for outside counsel selection.  Competition among prospective legal service providers has historically been viewed with disdain by both law firms and clients.  This is largely the result of each party’s relative lack of understanding on how to structure engagements based on criteria other than price.  Analytics provide the missing information to support non-price driven selection criteria in the competitive legal engagement process.

With better information, law departments can analyze historical data or benchmark based on industry comparison.  Analytical data also provides law firms the necessary basis on which to make value-driven proposals that are more aligned with clients’ prioritized business needs or selection criteria.  

Strengthening Relationships and Building Credibility

Analytics not only make it possible to predict with some certainty how much a particular matter or portfolio of legal work should cost, but also help determine, based on business priorities, how and where to approach cost alignment opportunities.

In the case of outside counsel selection and management, objective data enables clients to better assess and structure alternative fee arrangements, and it also makes fee negotiations and legal services procurement processes easier and more transparent.  

A Director of Pricing at an AmLaw 50 firm encourages law departments to consider historical billing data or market comparisons prior to putting preferred firms in competition or requesting discounts.  “We are frequently approached by law departments asking for AFAs or rate reductions without evaluating the cost basis or the reason for particular staffing requirements.  As a result, such pie-in-the-sky requests can sometimes be difficult to accommodate.  Our firm’s number one goal is to provide quality legal services to our clients. For that reason, we welcome and encourage data-driven conversations about fees, and we work with our clients to implement staffing and pricing models that are aligned with their business needs.”

Inside the corporate walls, transparency and empirical data builds credibility for the legal department. No longer must the general counsel “hide behind the uniqueness of every matter,”[7] and hope for budgetary compliance.  With analytics-based decision making, the legal department can demonstrate greater value to the organization.

CONCLUSION

“We often fail to allow for the possibility that evidence that should be critical to our judgment is missing.  What we see is all there is.”[8]

We should take some comfort – however difficult it may feel – that technology can eliminate our worst human tendencies. Implementing analytical-based decision making can enable your legal department or law firm to realize cost savings, budget predictability and greater value from your legal services investment.

One thing is certain in an uncertain time: the legal market is transforming into an industry that focuses heavily on intelligence-based decision making.  Those who can effectively leverage information to drive strategy will be the fittest of the fit.

ABOUT RFx LEGAL 

RFx Legal delivers the first suite of legal spend management, analytics and sourcing tools created by lawyers for legal services.  Solving the top challenge for legal departments, RFx Legal helps reduce outside legal spend by better aligning cost and value and builds stronger relationships between clients and service providers. As the category leader for legal analytics, market intelligence, procurement, sourcing and engagement solutions, RFx Legal helps organizations make more informed and transparent decisions on how to save and spend valuable resources. For more information, visit www.RFxLegal.com or call us at 888-739-5345.

Courtney B. Sapire is a Founder of RFx Legal and serves as its President and Chief Marketing Officer.  With two decades of experience in the legal industry as a practicing attorney, consultant, and business owner, Ms. Sapire also has experience in the legal services and supply chain technology industries.  Based in the Austin, Texas office, she can be reached at Courtney@RFxLegal.com or at 888.739.5345 x 701.

Pratik K. Patel is Vice President, Business Development and Client Services at RFx Legal.  In this role, Mr. Patel leads client development for RFx Legal products and services as well as oversees the execution and delivery of professional services.  Prior to joining RFx Legal, Mr. Patel served as a senior consulting manager at Huron Legal, where he advised General Counsel and Chief Legal Officers on the business of law, including legal operations, spend, technology and strategy. Also based in the Austin office, Mr. Patel can be reached at Pratik@RFxLegal.com or at 888.739.5345 x 703.