Do You Measure Up? Proving That Legal Departments Are More Than a Cost Center
General Counsel (GC) across most industries remain under pressure to operate efficiently, cut costs and maximize existing resources. In order to properly measure just how successful a legal department is operating today under these mandates, it is vital that in-house legal teams have a system of metrics and measurements in place. By measuring efficiencies, GCs can demonstrate their value to the organization and can provide proof points that help their legal department gain the trust and respect of company executives.
Are GCs on board?
In a recent survey, GCs were asked, “Do Metrics Provide a Useful and Accurate Measure of the Legal Department’s Value to the Business?” In response, 66% of General Counsel (GC) said that metrics do not provide a good measure of the legal department’s value. Additionally, most GCs reported that they do not use metrics to assess the legal department’s performance (58%), and they do not believe that metrics assist in analyzing the legal department’s value (66%).
Measuring cost vs. value
Why? When considering legal department metrics generally, they are most often designed to measure only the legal department’s cost to the organization, rather than the department’s value. For example, the most common metrics in legal departments are:
- * Legal expenses as a percentage of corporate revenue
- * The cost of outside counsel
- * Internal Legal Process Outsourcing department costs
- * Cost per matter
- * Average billing rate
It’s easy to see that these metrics are more about cost than value. To accurately capture value, a legal department needs to tell a complete and balanced story and show not simply the dollars being spent by a legal department, but how much that department has saved the organization from spending or losing. There are a number of methods to measure both the tangible and intangible value of a legal department. Here are a few:
- * Feedback from client surveys that focus on quality of service, efficiency, commerciality and communication
- * Assessing matter success rates
- * Calculating dollars saved by negotiating better rates or AFAs with outside counsel
- * Documentation of the where the LPO team added commercial value in a matter
- * Tracking of the actual risks that were avoided
- * Tracking the cost of internal legal resource against external hourly spend
- * Regular reports to the business and/or board of directors
Going back to the aforementioned survey, most GCs believed their in-house legal teams were viewed as both legal counsel and strategic business partner. In fact only 19% reported that their in-house teams were seen purely as legal counsel. This demonstrates that GCs are being asked to play a greater strategic role in their organizations. It also reinforces the need for GCs to use metrics to prove value. As we approach mid-year, GCs will likely continue to search for new ways to heighten the efficiency of their departments, while working steadily to provide more value to their organizations as strategic partners