No one went to law school because of their math abilities. But whether in-house lawyers like it or not, numbers and analytics have become a big part of your job when it comes to managing your legal department and its limited resources and budget. Whether you like math or not, here are a few significant data points all corporate counsel should be aware of:
- 90% – reduction in paper waste alone
- 4.5% – the reduction in legal spend by implementing an automated invoice processing system
- $1.1 million – the average first-year savings impact for implementing a spend analytics system
Corporate Counsel Connect spoke with David Houlihan of Blue Hill Research regarding their recent Benchmark Report, "The Business Value of Legal Spend Management Investments," to dig deeper into these numbers and how these numbers (and others) can help you make the case for tools to manage legal spend for your organization.
There are many factors driving the need for legal department spend management, as David reports, including, "executive demand for transparency and reduction in legal spend, increasing retention of legal work by internal departments, and rising attention to law department operations." The research looked into four key solution investments: electronic billing, automated invoice processing, billing analytics, and integrated billing and matter analytics. As the report points out, electronic billing management and processing platforms offer tactical sources of value, different from the ongoing savings analytics can offer. As such, in this first interview we will be focusing on these tactical sources, and take an in-depth look at the added value an analytical system brings in the April issue of Corporate Counsel Connect.
Where do most legal departments start? The need for these types of platforms surfaces in different ways in different organizations. "Most organizations started from either a top-down or bottom-up perspective. On one hand, they recognized that [someone in the law department] could no longer keep pace with the volume of invoices they received with manual processes. On the other hand, I found organizations that were driven by the need to understand, forecast, and reduce legal spend," explains David. Regardless if you are finding a push for these software platforms from above or below, it appears that both perspectives tended to lead to similar investments. "However," adds David, "it is worth noting that the latter tended to follow a change in law department leadership."
E-billing and automated invoice processing are often the first (and crucial) steps organizations can take to become more efficient, according to David. E-billing electronically delivers legal bills securely from law firms and other vendors directly to the electronic "desktops" of in-house counsel. For the law department that is currently performing in a manual (although perhaps time-tested and comforting) process, the move to e-billing can result in substantial efficiencies. "Basic electronic billing capabilities help to reduce manual processes and create a centralized, exploitable billing data resource," shares David. The impact of e-billing platforms primarily results in major reductions on manual processes, along with a reduction in paper waste. Companies recognized an average 21% reduction in time required for billing management and a staggering 90% reduction in paper usage. The average total savings from e-billing equaled around $46,500 according to the Blue Hill Research report.
The first steps when undertaking automated invoice processing is for a legal department to have a set of billing policies and rules for outside counsel, upon which the system can automatically audit against. "Automated processing capabilities are about the value of that policy enforcement. They help organizations to monitor and prevent disparities between agreed-upon billing terms and invoiced items. Ultimately, this reduces cost by removing the scope bleed that happens in the course of a legal project," explains David. The reduction in external spend due to the automated rejecting of those invoices that did not conform to contract resulted in median savings of 4.5%, an estimated average financial value of $1.2 million according to the report. In addition, improvement in internal efficiencies, like eliminating the manual effort to review bills, were starting to be realized.
Investments in e-billing and automated invoicing have the added benefit of pleasing financial stakeholders. These systems simplify the process, resulting in prompter payments and the realization of payment incentives from your law firms; benefits your finance department will certainly appreciate. While both of the e-billing and automated processing platforms created undeniable savings, it typically was only for the initial year of implementation and not ongoing.
Recognize the opportunity
"The business case for e-billing and legal spend management is clear," states David. A 4.5% reduction in total legal spend due to automated invoice management, along with the average $46,000 savings from e-billing, is little in comparison with the investment into that type of software. While your IT department might be concerned about the software’s redundancy with other enterprise programs, often the legal department’s unique needs with workflows, requirements, and billing standards justify the dedicated software solutions.
David is more concerned that legal departments aren’t aware of the benefits and opportunities of this type of software. "I think the challenge more often lies in opportunity recognition. Simply making the connection that there is an opportunity for improvement from changes in technology tools and standard operating procedure." David adds, "Unlike other technology deployments supporting legal or risk management, the benefits of spend management investment are both tangible. You spend less money."
Just the beginning?
"The move to electronic billing is a foundational step that opens the door to automated assessment of invoices as well as deeper data analysis," shares David. Once your organization understands the importance of those dreaded numbers, you will want to see how much more you can save. Watch for the April issue of Corporate Counsel Connect to hear more from David about how investing in spend analytics can result in 750% ROI in the first year alone.
About the report
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.
About Blue Hill Research
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.