Keeping Pace With Corporate Innovation

Tuesday, February 19, 2013 - 10:50

If your company promotes innovation as a core value – as Kennametal, Inc. does – then you would expect that focus to serve as a catalyst for new product development. Your expectations will be met if the company backs up that intent with tangible metrics and then tracks results to lead the market and ensure 40 percent of annual sales will come from “new” products. When that happens, there’s one more reasonable expectation: your corporate legal department will have a lot of work … someone needs to safeguard all the new intellectual property (IP) that innovation creates.

Welcome to the very busy world managed by Larry R. Meenan, the company’s chief counsel for intellectual property.

Even without Kennametal’s focus on innovation, the statistical highlights for the Pennsylvania-based company suggest solid IP activity would be the norm: 13,000 employees doing business in more than 60 countries and a diversified portfolio of engineered components, tooling and advanced materials science that serves diverse aerospace, earthworks, energy, industrial production, transportation and infrastructure sectors.

Constant innovations added to those considerations keep the portfolio refreshed and the legal workload high. “For a global company approaching annual revenues of $3 billion, we run a very lean legal department,” said Meenan. “All of the company’s IP activity is handled out of the Pennsylvania headquarters, where we have three patent attorneys – myself included – and two administrative supports. That’s it for the in-house IP team. There’s a great deal of activity to keep track of for a small group.”

Time For Change

Toward the end of 2011, it became apparent that something needed to change. Legal costs were continuing to increase, which is a common scenario for most companies. On top of that, the group’s reliance on outside legal firms was also growing. Kennametal’s global reach made outside support a necessity, especially for IP matters beyond U.S. borders. However, the list of outside counsel was reaching 200 firms.

“We had another consideration on top of costs and firm counts,” stated Meenan. “It sounds preachy, but we wanted to align more closely with company expectations. Everything in our department was still in control, but the scenario was getting a bit unwieldy. We needed to manage the operation better and see if we could return more value to the corporation.”

While preparing for 2012, the group applied some of the company’s “lean management” techniques to assess their situation. Using value stream mapping to look at departmental processes and workflows, they started to identify ways to eliminate waste, work smarter and save money.

Their efforts quickly honed in on the whole invoice and billing cycle part of the equation. Workload volumes, multiple firms and an ongoing stream of invoices combined to make that paperwork-intensive activity a logical target to address. If the group could “follow the money” better, they’d gain increased visibility into their legal spending, know how costs and values were aligning and identify process elements to simplify operations.

With those goals, the Kennametal IP team knew technology would be a big part of the solution. Capabilities for electronic billing and invoice processing started the requirements list, but other parameters were added to match department needs:

  • A cloud-based solution to minimize reliance on IT support;
  • Automation features to reduce manual processing;
  • Integration capabilities to tie into the department’s docketing system; and,
  • Security features to safeguard handling sensitive legal and financial details.
Putting The Decision To Work

After evaluating several alternatives, the group selected the LexisNexis CounselLink solution as the best match for current and future needs. That decision became an important project milestone since product capabilities clarified some of the next steps, including changes the department was already considering that would affect its outside firms.

According to Meenan, “the technology piece became a credible reason to reexamine and improve the whole process model. We made a conscious effort to work with our valued suppliers to outline the rationale behind the changes and highlight the anticipated benefits for all parties. Some of the new arrangements were more contentious than others, and we compromised and made adjustments where we could. Fundamentally, however, we were committed to this project and willing to make tough decisions to reach a successful conclusion.”

Three key elements became the foundation for Kennametal’s new way of doing business.

  1. Embrace CounselLink: This matter management and e-billing solution became the default way for invoices to be accepted, reviewed, processed and paid. Outside firms were strongly encouraged to support electronic processing and to minimize paperwork.
  2. Conform to Billing Guidelines: In collaboration with the outside firms, the IP group established new rules covering standard billing terms and arrangements. For example, how is compensation handled for meals or travel in different cases? When do hourly rates apply versus alternative billing methods? Compiling the guidelines involved considerable give and take before adoption.
  3. Clarify Fixed-Fee Offerings: Because a significant portion of IP legal work falls into typical service categories (file a patent application in country “x,” or conduct a trademark inquiry for countries “b” and “c”), the IP team asked for standardized rates to make comparisons easier and gain more predictability on costs. Although the subject was a point of concern for many firms, most were convinced to support the program with reassurances that decisions were not always based on price alone, and that the primary intent was directed at commodity-type legal activities.

With a comprehensive new software capability and revised rules of engagement, Meenan’s team was ready to write a new chapter in the legal IP handbook at Kennametal. The group began phasing in the CounselLink solution and operational changes during the second quarter of 2012. Now, after six months of activity covering the second half of the year, the preliminary results of their efforts are surfacing.

Progress And Proof Points

Although simplifying department operations was part of the overall project plan, in one regard, that result occurred indirectly.

“Culling through our firms was not a primary objective,” affirmed Meenan, “but it happened as a byproduct of technology change, new billing rules and natural attrition. We anticipated some losses, treated everyone fairly and worked hard to retain the strongest relationships with the highest value. We’re very pleased with the 30 firms we have now; admittedly, the smaller group is simpler to manage.”

As expected, the biggest improvements came from the technology, automation and process changes applied to invoice and billing cycle activities. Every step in the workflow is more streamlined and simplified, starting with the interface link between the group’s docketing system and CounselLink:

  • As the docketing system creates a unique matter file – number, title, cost center, and in-house and outside counsel – a corresponding unique billing matter is created in CounselLink. 
  • Security features restrict billing activity so that only designated counsel can submit, review and approve invoices.
  • As invoices are submitted and retained in electronic form, CounselLink conducts automatic reviews to ensure compliance with billing guidelines. Based on predetermined rules, if discrepancies are noted, items are either flagged for review or automatically deducted.
  • Every month, an automatic report is generated and emailed to Accounts Payable for uploading into AP processing systems for vendor payment.
  • Additional attorney reports are immediately sent to offer a more complete picture of matters, costs and value based on legal spending.

According to Meenan, the reaction from internal teams has been quite positive. “The learning curve was very brief, and the results have impressed everyone. Our administrative people are delighted to get away from coding, scanning, printing and paperwork handling; keeping everything electronic saves us four and a half days every month. Our AP group also estimates they’re saving on every invoice we submit that they don’t have to process with keystrokes.”

Meenan and the other patent attorneys are pleased with the positive changes to their day-to-day operations. Before the changeover, Meenan reviewed every invoice coming through the department … a monthly paperwork trail numbering 300 to 400 invoices. Now, the workflow assigns primary review responsibilities to the designated attorney working the matter and closest to the details. When invoices exceed an established dollar amount, Meenan handles a secondary review.

Kennametal’s outside firms have also found benefits from the change. Less paperwork means fewer opportunities for errors, and firms realize they’re getting paid faster and more accurately. If there’s an invoice problem or question, firms can find their own answer in the system. As Meenan puts it, “the IP group no longer has to be the customer service organization for our outside law firms.”

Looking at the hard numbers tied to the new solution involves a broader viewpoint than just Meenan’s IP group. As his team made plans and changes, the general legal department joined the effort to take advantage of the improvements, too. Although the general staff is a little bigger – four attorneys in the U.S. and three others covering regional interests from Germany, Singapore and India – the invoices and outside costs generated by the group are only a fraction of the total. For the final six months of 2012, they represented just over 15 percent of the invoices and less than four percent of outside firm costs.

In that six-month span, three key metrics reported by CounselLink indicate some of the tangible returns:

  • 2,426 – invoices processed
  • $32.3K – reductions/adjustments automatically captured by the system

On an annualized basis, Meenan estimates hard and soft savings will exceed $93K. More than $70K of hard savings is expected from the system’s automated invoice review that captures and corrects “violations” of billing guidelines and fee arrangements that would normally slip through unchallenged. The balance will come from soft savings in reduced administrative and AP costs tied to process changes and eliminating paperwork.

If Kennametal values innovation, then the IP legal team is proving that this attribute exists outside of product development activities. In setting out to follow the money and find better ways to deliver value for their company, they managed to adopt a more disciplined process to receive, review and process invoices; incorporate new technology tools that simplify, automate and improve operations; and deliver measurable cost savings and efficiencies that affect more than just the IP team.

“Upper management has taken note of the changes and cost savings,” concluded Meenan, “largely because we’re managing to handle an increase in IP matters and maintain quality while operating with a flat budget. Being able to ‘do more with less’ is the kind of innovation that everyone can appreciate.”

Jonah Paransky is Vice President and Managing Director of LexisNexis CounselLink, a matter management, e-billing and legal hold solution for corporate legal departments.

Please email the author at jonah.paransky@lexisnexis.com with questions about this article.