Company-wide demands for cost savings and efficiency are forcing corporate legal departments to do more with less. This requires general counsel to take more control over their relationships with external law firms as they look to run their departments more efficiently. The goal is to optimize these relationships so that they provide the most value for price. Doing so requires transparency into pricing and staffing practices.
General counsel can glean some insights from their own billing data, allowing them to cut costs and work more efficiently. But to find out how their legal operations and law firms compare with those of others in their industry, GCs are beginning to use large, market-wide data sets for comparison and analysis.
The magnitude of available data is growing rapidly, as are the insights that its aggregation and analysis can provide. However, the sheer volume of the information being captured makes using it a challenge. Companies must draw appropriate industry benchmarks from the data, screen out anomalies and reach valid conclusions regarding the type of work and relevant activities being delivered.
In this second of a four-part series, we will address how companies segment data in order to conduct detailed analyses of specific legal matters and relationships.
The goal of the data gathering and segmentation analysis is to be able to answer the following types of questions for each type of legal matter, putting the company in a position to decide on the most effective strategy:
1. Do I need premium service for this type of matter, or would a lower level of service provide me with the necessary results?
2. Would greater focus from a more experienced lawyer at a higher rate lead to lower total costs?
3. What are the average fees, industry-wide, for any particular matter and what is the range to either side? Knowing the range can help determine negotiating power on both sides. Smaller ranges indicate tighter markets where operational efficiency or competitive pressures have narrowed the gap. Wider ranges indicate more room for maneuvering.
4. What level of relationship-building and collaboration is required to ensure the best outcome? Collaboration is often advantageous for both sides, but it comes with raised overheads related to time and expenses.
5. How quickly do I need the matter addressed and resolved? Based on the need for speed, a premium fee structure may be appropriate.
6. Are tried and true strategies required, or can an innovative approach be taken? What is the overall risk profile of the case? Knowing this can help determine where to find the right resources.
Segmentation and analysis
Companies generally know when some part of their legal operation is operating inefficiently. It may be taking up the lion’s share of the budget, for example, or generating unsatisfactory results.
To drill into troubled areas or other areas of opportunity, the law department at a minimum should segment its data in the following ways:
- Geography. Where is the matter located or where did it originate?
- Severity. What is the risk to the business related to the matter?
- Type. What type of legal matter is it (this can be done at multiple levels)?
- Organization. What organization or business is driving this matter?
- Complexity. What is the level of complexity for managing this matter?
Using segmentation, companies can analyze like matters and mine the data to find internal and external high performers as well as newly emerging trends. They can compare and contrast the firms they work with in the target practice areas, and identify anomalies and best practices that bear investigating. They can make strides in improving those specific areas by changing their practices or relationships as appropriate.
The process does not provide companies with a wider view of how their results compare with other organizations, however. For that, general counsel can turn to industry benchmark analytics to compare their legal costs with those of other companies in their industry. GCs can then replicate the process to incorporate industry data with their own, improving their vantage point.
The length of the process depends on the extent to which the company has captured its own, relevant, data. When the data is available, or after the process of gathering it is completed, the company determines the data segmentation it needs to answer its questions and then map the data to the segments.
General counsel who have been through this process learn how to improve their data capture and, using dynamic analytical tools, better define and segment it. However, since this is a fairly new approach, many general counsel will need to make changes to their data capture processes. Once they do, they will have a powerful tool for managing their relationships with outside firms and demonstrating financial stewardship to the CEO and CFO.
The next installment of this series will walk through a case study to explore the steps one company took to implement a data analytics program within its legal department.