Thanks to ongoing technological improvements to enterprise legal management software, in-house operations are more efficient than ever. Dan Ruderman of LexisNexis CounselLink has worked in this space for decades and has seen the ways the broad implementation of legal spend management systems have helped attorneys become more focused – and helped law departments bring down their overall costs. His remarks have been edited for length and style.
You’ve been working with clients to develop highly efficient operations for over 20 years. What changes have you seen in law department operations recently?
Dan Ruderman: One of the biggest changes I’ve seen in the last 20 years is the respectability and credibility that operations now has in the law department. I can still remember meeting my first MBA legal department office manager, who was not a lawyer. I appreciated how much easier the conversations about technology were with that individual than they had been in departments that didn’t have anybody focused on it.
Contrast that with a conversation I had recently with an attorney who was the head of a corporate litigation group and had de facto ended up handling the technology issues: He was in the process of hiring a Vice President of Legal Operations, and his comment to me was that he couldn’t wait to get back to the practice of law. That’s what he was good at and enjoyed. That’s what the company wanted him to do. Worrying about operations and technology was eating up way too much of his time and attention.
Even in small law departments, there is a recognition that paying attention to operations and technology is a valuable use of time, and as the department gets bigger the appropriate resources will get allocated to it.
What are some of the key factors that allow law departments to successfully achieve their highest performance and efficiency, and what are some of the key performance indicators within the industry?
Ruderman: The most important thing a law department can do is recognize the value of having good operations and technology – and budget for it. Historically, there’s been a Jekyll and Hyde aspect to what the law department does. On one hand, there’s a perception that lawyers can be obstacles to parts of the business, and on the other hand they are viewed as strategic partners. What the law department can do is focus on key metrics around how they deliver value. They’re not only going to get the company out of trouble when something goes wrong, they can also help the company avoid trouble. They also deliver many services that help the company meet its overall business objectives.
When there’s litigation against the company, or the company aggressively pursues litigation to protect its assets and wins, those are the traditional metrics that the law department has always been measured by. And they’ve been largely tracked anecdotally rather than by specific reports. But today it’s much broader than that. The law department can demonstrate value with metrics around case flow per attorney, metrics around how it’s keeping costs under control by using outside counsel, and total cost of case by practice area. Once you get into measuring total cost per case, it makes it easier to measure the value of alternative providers and alternative fee arrangements.
One of the things I’ve seen happen over time is the movement toward alternative fee arrangements. But what happens is people come back and say, “Well, how do I measure the success of this alternative fee agreement when I don’t know what the lawyers are doing anymore?” This is an interesting question because it implies a loss of focus on why the law firm was hired in the first place.
Let’s assume a law firm is hired to solve a problem or complete a project. There are three ways to measure success: (1) Whether the project was completed successfully, (2) whether the client was happy with the outcome, and (3) whether it was done efficiently. If we take those three key performance indicators, we have the most important metrics, which can be applied to anything. But recognize that there are going to be different outcomes for different things – complex litigation versus a filing being completed, etc. There are going to be different time and cost values. But the same three metrics can be used: overall outcome, client satisfaction and efficiency.
Let’s talk about the changes you’ve seen recently in the various skill sets law departments are bringing in – the increased contributions from people with other technical or analytical skills than the ones law departments have traditionally employed.
Ruderman: There was a time when law departments had to almost beg for IT resources. Today, it’s common to have operations folks, technology people and analysts in the law department to help the company understand and better manage the law department’s programs and initiatives.
Some law departments have even started doing satisfaction surveys internally with their clients. The LexisNexis law department has put together service-level agreements for customers, for instance. Their log and turnaround time are tracked and reported back to a business unit. So we’re seeing all of these different folks coming into the law department and bringing focus to new areas.
We’re also seeing alternative service providers and direct agreements – corporations are going to direct agreements with e-discovery vendors, or contract life-cycle management vendors, instead of just throwing that work over the fence to law firms. When law firms need this kind of work, they’ll hire their own service providers. But law departments are bringing these kinds of specialists in-house, especially for things like brief libraries or contract management systems.
Can you give our readers some insight into how they can gain buy-in around some of these new tools and processes, both internally in their own company and from the outside counsel they’re working with?
Ruderman: This might be an unfair oversimplification, but in the past, law departments were often the lowest rung on the corporate ladder in terms of being able to get a budget for equipment, technology or anything other than resolving cases and hiring counsel. Many law departments were facing a bootstrap budget, and some still are to this day. But what’s changed is that law departments are learning how to make a business case for why they should get new technology. A lot of companies have enterprise legal management systems or even just legal spend management systems that they can use to demonstrate their ability to reduce the cost of outside counsel by getting the right management and some compliance rules in place so that their internal lawyers can focus on the strategic legal aspects of a matter.
Historically, it’s been a challenge for lawyers to do their job and also look at the details of the bill. When most lawyers complete their time sheets, they think about how much effort they put into the matter and try and capture that. It gets put into a system and sent to a client who will then decide if it’s about what they expected for that month, and they’ll say yes and pay it – or if it’s not, they may have a conversation and think about it some more. But once you bring in electronic billing systems, the managing attorney is able to look at a bill that has already been previewed and make sure the rate didn’t change arbitrarily in the middle of the month – that a $150 rate didn’t suddenly become $475 without a conversation about it. That’s the kind of thing that can be easy to miss when you’re looking at a bill more holistically. When you look at a whole law department, those little misses add up to quite a bit of money.
Most of the spend management systems out there that are just focused on electronic billing will tell you that they’re finding anywhere from 3 to 7 percent savings, so that’s a pretty simple business case for law departments to put them into place. Say we spend X amount of dollars on a legal management system in the cloud, and it reduces our outside counsel expenditures from last year by 5 percent, that’s probably somewhere between 7 and 14 times return on investment. These systems also allow the general counsel to analyze their spend and offer practical business cases for additional savings. For example, they could show the value of hiring additional practicing lawyers in-house, and thus reduce their outside counsel spend.
What do you think will be the biggest trend in law department operations going into the next year?
Ruderman: The biggest trend I see is an increased reliance on information and data analysis – and it doesn’t matter whether it is people doing the analysis or machines. The real change will be a focus on the questions that matter and a move toward acknowledging the inherent biases implicit in doing things the way they’ve always been done. This will lead law departments to hire more professionals beyond practicing attorneys that can bring analytical and other business skills. We will also see increased adoption of cloud-based software, outsourced legal processing, alternative fees and dedicated legal sector procurement managers. As the law department acts more and more like the other business units in terms of efficiency and client satisfaction, it will also partner better with IT, sourcing and external vendors to gain a better picture of operations and a firmer grip on spend.