LEGAL
In the March issue of Corporate Counsel Connect, we discussed a few numbers and data points that should be of interest to math-phobic lawyers – primarily the thousands of dollars of savings that e-billing and automated invoice processing can provide your organization. While these tools provide significant initial savings for organizations, the recent benchmark report from Blue Hill Research demonstrated the potential for companies to find millions of dollars of long-term savings along with major efficiencies once integrated billing and matter analytics were implemented. This month David shares more on his latest report, "The Business Value of Legal Spend Management Investments," along with the savings analytical tools can provide and what your company needs in place to realize these reductions in legal spend.
Billing and matter analytics are becoming common vernacular for legal departments – but just what do they offer? Billing analytics is a software tool that automatically analyzes billing and invoice data from historical legal bills from outside counsel; the data is then used to identify trends, variances in legal providers, and the average fees for matter types. These efforts result in a clearer understanding of fees and budget overruns, ultimately resulting in a reduction of waste in legal spend. Billing analytics is also used to inform retention decisions, including information that supports the trend of convergence, where legal departments will consolidate the total number of firms and drive more work to these selected firms. Another use of data is to help negotiate alternative fee arrangements with outside counsel.
Integrated billing and matter analytics does just that – integrates matter management with the related fees, helping draw connections between costs, the type of matter and attorney performance. This provides a deeper analysis into quality and cost of company representation and provides the knowledge to improve decision making in choosing outside counsel and legal strategy in the future.
In his research, David spoke with organizations that had implemented both billing and matter analytics and found that the capabilities of these tools had an immediate first year impact at an average of a 4% reduction in legal spend. "When you think of the size of the external spend for some of these organizations, 4% is a tremendous benefit. We found an average Year 1 savings of just over $1.1 million [based on a $28 million spend]. I didn't expect to see such a pronounced impact," David explains.
But the savings go beyond that first year. "Given how analytics applied to legal billing, spend, and matter information can permit strategic assessments of the cost and value of external attorney work, I expected a significant impact resulting from improvements in decision-making. However, the most surprising aspect to me was to find that organizations were reporting recurring reductions in legal spend from the use of analytics (at a 4% average)," shared David. Extrapolating those savings, Blue Hill reports that on an annual $10 million dollar spend, an organization could realize $2.5 million in savings per year by Year 6.
As David reported, the true value of legal spend analytics come from what you do with the tool and the data coming from it. "These capabilities help extract meaningful information from the raw data provided by an organization's collection of legal invoices. These tools do provide short-cuts to analysis, helping organizations to understand trends that emerge with respect to particular timekeepers as well as across the portfolio of law firms," said David. The capabilities of the tool enable comparisons, including time spent on a matter versus how satisfied your internal clients are with the work provided by outside counsel.
As legal departments start to collect the data, they can utilize those figures to answer strategic outside counsel management questions. David suggests asking questions such as, "Which firm charges me for the most wasted effort? All other factors being equal, can we source legal work from markets with lower rates (compare the average costs of law firms based in New York City to those in Cincinnati)? Combining deeper insight with these sorts of questions helps organizations to consolidate their spend with the vendors that provide the most value, reducing overall costs and reducing the inefficiencies and complexity that results from a larger portfolio of law firms."
While these tools can help create millions of savings, they are merely one piece of the puzzle – a legal department must commit and be able to do the ongoing analysis. As David points out, "The technology is simply a tool. The most that it can provide is information. How the organization applies that information will determine the value of the investment."
David shares, "As far as what I've observed: by the time an organization is willing to spend money on analytics capabilities, they have developed at least some plan for how to take advantage of the information. Still, it's not an automatic process. As I said before, investment in developing strategy and knowledge resources for applying spend management insights is critical." Sometimes this is by adding a strategic legal department operations role; sometimes it requires more enhanced resources. Regardless, an organization must be prepared for the extra expenditure that it will take to analyze the data and realize the underlying insight in order to drive the improved decision making.
"It's not necessarily just a matter of new or changed roles as much as it is education. The law department might hold a great many experts in corporate and commercial law, but it rarely houses a large number of MBAs. Basic project management and cost analysis education will often go the longest way to helping the organization make the adjustment," David explains.
It's important to understand that not all the benefits will come immediately and there is a learning curve to both the tool and the application of the data. "Deeper procurement and spend management principles can come with time," assures David.
For more thoughts from David around law department structure and implementation of these tools, visit the Legal Solutions Blog.
This report, The Business Value of Legal Spend Management Investments. draws on the experiences of eight enterprise legal departments that have invested in legal spend management and analytics solutions. The size of the organizations varied between $600 million and $70 billion in annual revenue, and included six Fortune 500 companies. Primary industries of the participants included financial services, telecommunications, hospitality, software, and discrete manufacturing. Annual legal spend fell between $1 and $109 million, with the number of external law firms used ranging between 100 and 400 firms. The internal departments themselves ranged between 15 and 300 attorneys, with law department operations (LDO) or billing management teams ranging between three and 25 individuals.
Blue Hill Research is an enterprise technology analyst firm that studies the deployment of software and other technology in support of a variety of business functions with a focus on the investment decision-making process. They seek to understand how organizations identify the need for solutions, build business cases, and select particular vendors. They use what they learn in order to help organizations ask better questions and identify options that best fit their particular needs and that match multiple enterprise expectations of value.
David Houlihan is responsible for Blue Hill's research practices investigating technology supporting enterprise compliance, risk, and legal functions. He has eight years of experience as a business technology researcher. He is a Massachusetts attorney with experience in corporate law department, boutique law firm, and government roles. David attempts to understand how technology options can impact the efficiency and effectiveness of practice as well as draw clear connections to the resulting business value for both law department and law firm users.
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