Small business law departments: Better metrics, better performance
As we move through 2021 and the darkest periods of the global pandemic fade from sight, the challenge for many law departments in startups and growing businesses is to remember the lessons they experienced during the crisis. The pandemic and ensuing economic crisis exposed the gaps in the legal industry’s modernity.
Now, law department leaders are in a unique position to drive more fundamental change across the legal industry in many ways, adopting an agile mindset that integrates new technology, creates innovative work processes, and leverages data and metrics to gain insight into how the department is functioning.
It is perhaps the latter — using metrics to measure performance — that holds the most promise for law departments in startups and growing businesses that want to improve their efficiency, lower their cost, and clearly demonstrate the value of the department.
Yet, given the critical nature of this issue, the questions of what to measure, how, and what will be done with the analysis become paramount. It’s not as simple as just picking a handful of metrics, buying a legal ops system to track them, and then pulling a bunch of reports.
Rather, before any purchase is made, it is vital to first understand the business needs of your law department and your business. This requires some thoughtful planning and insight — based closely on the needs of your department, company, and industry — to craft a set of metrics that would be most beneficial.
Selecting the metrics
While most law department leaders can articulate a range of compelling strategic goals for their department — such as effectively supporting the business in all legal matters, assessing risk and safeguarding the organization, and even driving efficiency and innovation — most of the metrics that law departments utilize are related, not surprisingly, to their legal spend.
In fact, according to the most recent Thomson Reuters Legal Department Operations Index, the top five metrics used by law departments were all legal spend related, as well as a little obvious, with metrics such as total spend by law firm (with 92% of departments tracking this metric) and total spend by matter type (62%) heading the list.
And while these spend metrics are vitally important, they alone cannot create a picture of the department that clearly shows where performance improvements could be made, or where efficiencies could be found. Instead, law departments need to find measures that demonstrate to the business how the department creates value or, just as importantly, avoids losses. Then, department leaders can use this data to fend off attacks on their budget, or even to advocate for budget increases in areas that metrics have identified for improvement or investment.
That’s why it’s critical for law departments to select and utilize the right metrics to tell their story to the company; it really may just be a case of going beyond the obvious measurements in order to find those that are most pertinent to your department’s particular situation, given its size, location, and industry.
A company that licenses IP may want to track the number of deals supported by each attorney at any given time, or time to deal completion, or similar metrics. Companies with extensive dispute and litigation concerns will likely want to track outcomes, projected versus actual budgets, and other related metrics. Start from the impacts your department has on the business and it will lead you to clearer metrics.
There are also standard metrics relevant to most law departments that are not commonly tracked. For example, another popular metric cited by law departments is the number of legal matters that are both opened and closed. Again, this data on its own doesn’t evaluate the quality of work and value created, but it does provide a deeper look at volume of work and how that work moves through the department. Using this metric and even comparing it to the department’s industry peers could allow a department to determine whether efficiency initiatives or new technology tools might improve workflow.
Again, armed with these metrics, a law department will stand a much better chance in making the case that an investment in tools or personnel might pay dividends.
Yet, less than half of law departments track this particular metric. In fact, key metrics that might be of great value to company chief financial officers — such as litigation exposure, which is tracked by only about a third of law departments, or quality of legal outcomes, tracked by just 11% of departments — are often seldom measured.
This points to the need to engage other parts of the company when assessing which metrics your law department should track. What is most important to other parts of the business? What does your C-suite want to know about your law department’s performance? Indeed, failure to engage company management in this way or not digging deep enough to find the metrics that matter most to your department really represents a lost opportunity — both for the department and for the company.
Also, consider which metrics are common for your industry, region, and market segment. Outside advisors may be able to help benchmark these common metrics, and resources such as the Practical Law Using Metrics to Measure Law Department Performance Checklist can give valuable guidance.
Even if you decide to stick initially to metrics around your legal spend budget, there are ways to do that which would offer more insight and value than simply skimming the surface with baseline measurements.
Seeking outside data & expertise
It would be easy for a law department to assess its legal spend as a percentage of overall company revenue or its percentage of legal spend that it allocates to its outside law firm, for example. Alone, however, these numbers may be next to meaningless without comparison to industry peers — and these benchmarks, collected from budget and revenue information from thousands of companies, are readily available.
This information can open a whole host of new questions that can provide the department with data to demonstrate its value to the company or, conversely, make the case that further investment in the legal function is needed. Is your department spending more on legal matters than your peers? Or, is the portion of your company’s overall revenue that your legal spend represents larger or smaller than peer departments?
Clearly, assessing which metrics could be most important to your law department and how to interpret them once you get them is not an off-the-shelf solution. Leaders from your company, its law department, and outside experts may need to come together to decide not just the metrics, but how to address challenges or gaps the metrics may point out.
Overall, it is important for law departments to keep metrics at the forefront of operations, establishing mechanisms that not only provide insight but keep the department on track toward improvement. In this way, law department leaders can readily remind company management — especially those who hold the purse strings — of the value the department provides.