Feeling the squeeze? Corporate legal departments are under increasing pressure from multiple directions. Teams are facing exposure to greater legal risks and more complex matters while budgets remain stagnant. Meanwhile, the landscape in the companies they serve — as well as in the outside firms they work with — is changing fast. Cultural shifts around work-life balance and the growth of consulting and fractional work are changing the way companies find and manage talent. Rates for outside counsel are skyrocketing. All this makes spend management a higher priority than ever.
Legal departments must become more effective managers of their budget and staff time, which requires robust data, useful metrics, and effective analysis. Technology enables legal departments to maximize their budget by providing data that extends beyond hourly rates. This informs decision-making, ultimately creating a competitive advantage. With the right tools, these teams can practice at the top of their license, offering the highest value possible to their companies.
Best-in-class spending management technology gives these departments complete control over their spending, compares them to other companies, and evaluates their processes. This helps them assess and reduce legal fees while providing better service. Explore the challenges legal departments face in spend management, the benefits of adopting modern technologies, and the characteristics of premium spend management tools.
Sidebar: The pressure is rising — the numbers prove it
Nearly 80% of legal departments reported an increase in workload over the past year, while almost 58% reported flat or declining budgets, according to the most recent Thomson Reuters Legal Department Operations Index report.
The state of technology in legal departments
Over the past decade, Legal Operations (Legal Ops) and spend management have evolved as legal departments. Legal ops is now a cornerstone function. Legal departments rely on it heavily as they embrace technology across the board.
The need for efficiency and keeping costs down is vital, as legal departments are almost universally being asked to do more with less. Year after year, finance departments are demanding better transparency into legal spending and more accountability from outside law firms. As a result, the top priority for legal departments is controlling outside counsel costs, according to the most recent Thomson Reuters Legal Department Operations Index report (LDO Index).
Finance and C-suite professionals want to save, and Legal Ops is tasked with seeking the best way to do so. Legal department leaders are asking their Legal Ops teams questions like:
- How much can we save by using tools and technology?
- Are there ways to introduce technology to solve specific problems and get better results in particular ways?
- How can we reduce or better predict our spend with outside counsel?
- Can we take a broader approach, examining how the department does things in all ways, and engineering new processes across the board?
Technology is at the heart of all of these questions. In-house legal departments are often resistant to data and technology tools, but according to Gartner, that's beginning to change. Legal departments are beginning to adopt technology to improve workflows and better manage costs.
Yet this adoption is slower than it needs to be. Not all companies adhere to the standard industry baseline of spend management and reporting on legal work. Smaller companies often engage in reactive spend management, while larger ones, despite formal processes, rely on less-than-ideal data.
Regardless of size, legal departments require spend management technology that offers end-to-end visibility and comprehensive benchmarking, allowing more accurate assessments of fees and an enhanced return on investment (ROI) on spend. A good spending management solution sorts and analyzes legal work. This makes sure the right legal resources are chosen for each project. For example, a high-risk case may require hiring a top-tier law firm, while routine matters could be handled by smaller firms or alternative legal service providers (ALSPs). Insights from spend management tools can also guide decisions to in-source work to reduce costs even further.
Problems and challenges for legal departments
To fully integrate technology and maximize its benefits, legal departments must overcome existing barriers. Properly tracking and controlling spend is challenging when dealing with complex legacy approaches. Some of these conditions include:
Lack of transparency into legal spending. Without proper technology in place, legal departments are unable to accurately track current spending, predict future spending, or make data-driven decisions. This makes it difficult to enforce billing guidelines and hold outside law firms accountable for their work. A critical component that's missing for many legal departments is internal performance benchmarking and external benchmarking for negotiations. Without benchmarking, it’s difficult to prove consistency internally, with others in the industry, and across law firms.
Insufficient visibility into total risks associated with legal matters. Legal matters often involve complex risks. Basing spending decisions on the most apparent risks, rather than the overall risk profile, can lead to an inefficient allocation of resources. Predicting the effects of regulatory changes is also challenging, as legal risks can change quickly. Legal Ops teams typically lack reporting and analytics functions that can help make sense of new information and changes in the legal landscape.
Unchecked and unrationalized spending. The focus on legal cost control highlights the need to save and optimize in this area. Legal departments need to manage rate increases effectively. Traditionally, this can take a lot of manual work, which can be reduced with technology and tools. Technology can streamline comparisons and optimize the use of external law firms based on relevant factors, which can often yield more savings than negotiating discounts on rates.
Difficulty hiring and retaining staff. Workers are actively changing what they want from their work lives. They are thinking about remote and flexible work options that may not have been available before. With workers’ priorities in flux, legal departments may face staffing challenges, increasing the burden on existing employees. Legal teams are taking on more than their typical workload to make the department function effectively.
The growth of Legal Ops tech offerings. Legal tech is a fast-growing field, presenting both opportunities and challenges, with more solutions always coming online. Past negative experiences with low-quality vendors may cause resistance to adoption in legal departments.
Sidebar: Turning to technology
The LDO Index found that 75% of legal departments surveyed place a high priority on using technology to simplify workflow and manual processes.
What defines best-in-class spend management solutions?
As a powerful business tool, a premium spend management solution addresses the top priorities of legal departments as found in the LDO Index. These priorities include:
- Controlling outside counsel costs
- Making workflows more efficient
- Increasing internal efficiency in delivering legal services
- Enabling data security
A legal spend management solution is more complex than typical accounts payable tools. It should be designed to work in tandem with finance systems while also addressing the complicated nature of legal matters. As these matters evolve, so must the solutions. Best-in-class spend management tools should:
Provide data-driven insights. Premium tools use robust data capabilities to help legal departments achieve better results in a trackable, verifiable manner. A data-driven spend management solution equips departments to control, predict, and responsibly reduce costs. For example, it can help legal teams create a designated preferred counsel program with selections based on a rigorous data-driven process.
Take advantage of the cloud. Cloud-based software-as-a-service (SaaS) solutions offer configurable workflows and real-time reporting, allowing Legal Ops to provide timely data for informed decision-making. Cloud-based solutions that integrate with other departments enable legal teams to connect their internal information with external data to improve decision quality.
The legal team at Netflix improved their efficiency with a spend management system. According to John Elliot, Manager of Legal Operations, “Now we have a single workflow, one process, one route to get timekeeper rates approved and data captured. With very little impact on people’s day to day lives, we get amazing results!”
Facilitate better decision-making. Spend management solutions help legal departments evaluate requests for proposals (RFPs) and select suitable outside counsel. Technology can provide insight into the scope of work requirements, reasonable fees, and pricing structures. With these insights, legal teams can run their departments more like a business and better demonstrate the effectiveness of their spending to company leadership.
The legal department at Columbia Sportswear uses the spend management solution from Thomson Reuters and recognizes the impact. “It makes you wonder how things were done previous to this. I can’t imagine how you evaluated law firms before you had a tool like this,” said Katie Maksym, a Patent Administrator at Columbia
Provide metrics. Spend management tools excel at providing merit and cost structure analysis for discounting, rates, alternative fee arrangements (AFAs), budgets, and other key metrics. For example, departments might use the tool to understand how much work is billed using hourly rates versus AFAs. Most fees paid by companies are based on an hourly rate basis, so analyzing hourly rate spend offers the most immediate opportunity to reduce costs.
Some tools synthesize hourly rate information and alert companies that they might be paying rates that are too high. However, many algorithms that do this provide conclusions at a level that aren’t useful in rate negotiations. Legal teams need tools that can provide insights at a level comparable to the data that law firms use, which is largely based on years of experience.
Offer benchmarking. Best-in-class tools provide internal and external benchmarks to ensure consistency and guide negotiations. Benchmarking allows law departments to compare legal spend and risk data against similar law departments.
Track costs and benefits. Spend management tools should enable legal teams to categorize and analyze legal work, allowing them to clearly track both costs and benefits. The ability to track benefits that go beyond financials is a key element of these solutions. Benefits of legal matters can be monetary, such as settlements. They can also be intangible, such as risk avoidance or advantageous market results for company products. Technology helps legal teams break out of looking at costs in a vacuum, helping them look at the results as a corollary to those costs. Accounting for how legal matters affect the whole business allows the legal department to better analyze and communicate the value it is creating while justifying spend.
Use advanced capabilities. Premium spend management tools enable streamlining, digitization, and automation, and offer built-in AI and machine learning (ML) capabilities. AI helps lawyers automate repetitive tasks, thereby streamlining processes, saving time, and reducing errors. For example, AI can be used to help execute low-liability agreements like nondisclosure agreements (NDAs). ML can help with legal research, contract review, and document analysis.
Sidebar: Legal department use case: Using legal tech for single-plaintiff employment litigation
Applying technology tools to a process that typically takes a lot of manual intervention can introduce incredible efficiencies for legal departments. Negotiating alternative fee arrangements for single-plaintiff employment litigation is one example of how a spend management tool can benefit a legal department.
It can take up to three months for a Legal Ops team to review historical spend to make a data-informed decision about the appropriateness of the agreed-upon rate structure. This analysis is particularly crucial with today’s skyrocketing rate increases. It’s a task that becomes unwieldy when a team is managing outside law firms with negotiations required roughly every two years and fees increasing at different rates for each. Doing this work manually can be a full-time workload, taking one legal advisor away from providing better value to the company. A best-in-class spend management solution provides data-based, rapid, and accurate spend forecasting and analysis while eliminating the manual workload.
Benefits and opportunities for legal departments
These tools help legal teams become more effective, cost-efficient, and valuable. With the right solution, legal departments can:
Accurately capture and report critical data. Data on hourly rates, matter resolution, RFPs, AFAs, and other factors is critical to effectively managing legal departments and proving their value to the larger organization. Spend management tools enable accurate capture and reporting of such data. When the spend system is integrated with the matter management system, the team further benefits as the self-service portal automatically creates matters and feeds accurate data into the spend system.
Reduce costs. Spend management tools enable legal departments to reduce costs by providing better forecasting for legal spend and enabling informed decision-making. In fact, corporate legal departments using the spend management solution from Thomson Reuters save an average of 2.5% to 15% on outside counsel spend in the first year with the system.
Get more bargaining power. Spend management provides legal departments with the ability to come to the negotiating table with more bargaining power. A premium system uses real, benchmarked data that can inform rates and rate increases, replacing the more subjective way in which negotiations are often done.
Keep spend aligned with a changing market. The market is always changing, and legal spend can be a casualty of these shifts. Spend management tools can help keep spend aligned with the changing market by using benchmarking.
Move beyond spend management. Spend management is an essential piece of broader project management and optimization. Historical spend data can give insights into the benefits of working with a certain law firm, renegotiating terms, or deciding if aspects of a matter need to be adjusted.
Become a strategic enabler. With data-backed, benchmarked insights into legal operations and spending, the legal department can play a more confident role at the center of organizational discussions. By using data to anticipate future costs and needs, legal professionals can proactively collaborate with the C-suite on cost management. Connecting spend management to other systems in the department can make this data even more powerful as it can build a more complete picture of the department’s impact.
Sidebar: Customer spotlight: Amazon
As Amazon expanded globally, the legal department faced challenges in managing paper bills and tax information from international business units and law firms. The company needed a cloud-based tool to help the Seattle-based legal team centrally manage billing, budgeting, and spend reporting. By implementing a spend management tool, Amazon has streamlined its internal processes. This tool automates the routing of internal tax and entry information for each invoice to local business units for review. Amazon now uses this technology to collect invoices, budgets, and unbilled time from 100% of its firms in more than 90 countries.
Get the best-in-class spend management tool
Thomson Reuters offers a comprehensive spend management tool that provides actionable insights, enabling legal departments to make informed decisions, and deliver optimal legal services at a reduced cost.
This system stands as the leading software for spend management, matter management, and performance analytics in corporate legal departments. With over $260 billion in historical global legal spend data, it provides detailed insights into current expenditures, advises on optimal spending strategies, and outlines actionable steps toward decision-making.
Thomson Reuters provides law departments with reliable projections and data so they can better manage expenses, including helping determine whether matters should be scoped out or handled in-house. Legal departments can better understand proposed rate increases, make informed decisions based on industry insights, and gain deeper insights into the spend of their departments compared to their peers. Advanced workflow tools help legal departments and Legal Ops be more proactive and advise the company. This changes them from being a cost center to a value center, and even a profit center, for the company.
Learn more about how implementing spend management can enhance your legal department, streamlining processes, increasing efficiency, and giving you powerful data to show how you create value for your organization.
