Leveraging Your ITInvestments: Thinking Like An Executive

Monday, May 1, 2006 - 01:00

Legal departments now have the ability to implement systems that deliver real-time information. These new tools, combined with existing legal data repositories, are a rich source of actionable information. The enhanced capabilities of these systems will enable General Counsel to proactively use information to more effectively manage the legal department, maximize the use of scarce resources, and detect risk management issues before they escalate.

The Issue

Technology has dramatically improved efficiency in legal departments during the last 20 years. The old perception that the Office of the General Counsel was averse to information technology (IT) has been largely overcome. Today, these systems generate a mountain of data on outside counsel costs, departmental activities, and inside/outside resource requirements across almost any matter. However, despite spending millions of dollars on IT, few departments have been able to take the steps to mine the data available in these systems in order to unleash its value and power. The net result is that legal departments have become data rich and information poor. The General Counsel has a wealth of valuable data from a multitude of sources, but they are not leveraging this data to practice fact-based decision-making.

More and more C-level Executives are requiring that recommendations for cost reduction, investments or settlements be supported by data analysis. The law department's reputation as a "Business Partner" will increase considerably if it adapts to this change in culture and begins to practice fact-based decision-making.

Historical Perspective

Law departments are often one of the last places in a corporation to adopt enterprise-wide initiatives, and the strategic use of technology is no different. Law Departments were excluded from the wave of enterprise resource planning of the 1990s and had to turn to custom applications to keep up with the demand for information from the rest of the company. Over time, these custom systems evolved. The amount of data being captured grew exponentially, without a commensurate increase in the ability to manipulate or analyze this data.

A significant milestone in the struggle to manage activities and costs of running a corporate legal department was the development of matter management systems. This first wave of matter management technology enabled corporate counsel to track specific matters and detailed activities. It was now possible to identify issues, outside counsel, parties involved, jurisdiction, and budgets. Specialized tools began to replace manual tracking which enabled better operational management of the legal department. This generated massive amounts of data that could be used to track and monitor costs and activities.

The next technology movement to impact corporate legal departments was the development of electronic invoicing systems. These tools streamlined the laborious manual invoice review process. In addition to improving efficiency, these systems captured thousands of data points based on a standard set of activities and codes that law firms and law departments agreed to use for their billing systems. These systems have been a major boon to those seeking to perform sophisticated data analysis due to their widespread adoption. Currently, over 2,000 law firms and other legal service providers now submit data electronically to hundreds of corporate law departments. This data is rich with potential, giving legal departments the ability to track timekeepers, look at the mix of attorneys working on their matters, and the ability to track expenses at a very granular level.

The convergence of these tools in recent years, with the integration of both the matter activity and the cost and expense data, has meant an even greater source of information to be explored. The combination of matter management, electronic invoicing, and other data, such as surveys and benchmarks, presents a wealth of valuable legal management information that was not available in the past.

Current Situation

Collectively, corporations have spent billions of dollars implementing matter management systems and electronic invoicing tools in an effort to facilitate the analysis of matter information. Voluminous amounts of electronic invoicing data, matter budgets and task based billing information are routinely submitted by outside counsel firms at the request of corporate law departments. Tremendous amounts of data come in, but where does it go and how is it used? We see law departments stratified into three levels:

At its most basic level, legal departments have plenty of meaningful data coming out of their management systems. The primary use of the information is comparative, i.e. "How much did we spend this year versus last year?" or "Which firms got the most labor and employment matters?" Most law departments operate at this level. There is value being derived from the data available, but a tremendous opportunity to do more.

At the second level, more sophisticated legal departments are able to focus on outcomes, looking beyond cost per activity to a broader value proposition. For example, "Which law firms, regardless of their rates, were able to drive down overall costs most effectively by getting us out of litigation earlier in the process?"

Finally, at the highest level, are those departments that have the ability to synthesize all of this objective data with more subjective information that is driven by perception, such as client satisfaction surveys or risk assessments. This approach puts them in the position of being able to make decisions based on a holistic view that aligns the activities of the legal department with the objectives of the corporation and the board. This decreases the risk of focusing on reducing rate per hour but exposing the firm to reputational risks that may have an extraordinary impact on market value. Departments at this level have been early adopters of technology and have continued to push the department to employ the systems to improve efficiency, data integrity and reporting.

Having the skills to harvest this data and turn it into meaningful information is often the greatest hurdle for law departments at the first two levels. Just like other areas of any corporation, many legal departments have devoted staff to do "legal" number crunching using a basic report writer or a spreadsheet populated with data from one or more legal department or enterprise systems. This process often means printing summary reports out and keying in data manually. This manual assembly of information to generate reports and do analysis may be sufficient to meet the Chief Legal Officers' minimum requirement for reporting on a quarterly or annual basis, but it falls woefully short in terms of high-level analytical data analysis to support management decisions.

Even the best of corporate legal department analysts can only monitor a handful of metrics using these tools. Maintaining version control, verifying data integrity, assuring that apples-to-apples comparisons are made between different spreadsheets, and replicating calculations can be difficult, making some conclusions suspect and unreliable. But there is a better way ...

The Solution

The first step is the recognition of the need for change. The Chief Legal Officer should drive the process and want to make decisions based on facts. There needs to be an acknowledgement of the need for fact-based decision-making and its value to the organization. Without this buy-in, having the tools and skills are a necessary but not sufficient step in the process. It must also be the expectation that others in the department will begin to consume the data and use it to make more informed decisions.

Tactically, the solution is to implement a process and a supporting technology tool that delivers insight to empower informed decision-making. The systems can also perform ad hoc data analysis in real time, and can be utilized with minimal training by attorneys.

Designing and implementing a new process begins with understanding the investments already in place (matter management, e-billing, etc.) and identifying the quality and accuracy of the available data. The next step is understanding the information delivered by the current tools (spreadsheets, personal databases). The final step is defining desired capabilities and insights that have been out of reach due to the constraints of the current systems. It is at this point that the law department defines the decision-making framework and then develops the metrics and processes that measure and monitor performance.

Legal business intelligence is a concept used to describe the sophisticated marriage of data and decision-making capabilities. This term means going beyond simple data collections and the reporting tools embedded in matter management or e-billing systems. The focus here is on the final step of the process: the identification of key metrics and benchmarks that can help define law department performance, facilitate decision-making and identify data anomalies. This approach generates a multitude of capabilities including real-time exception reporting, benchmarking, "what-if" modeling, employing sophisticated algorithms, and dynamic data analysis pulling in data from all sources to provide the user a holistic view.

New capabilities in information technology have allowed corporate law departments to answer questions that have been difficult and cost-prohibitive to answer in the past. Decision support systems have enabled a practically unlimited data analytic view into large pools of legal data. We have evolved from being able to answer basic questions in the 1970s and 1980s (How much did we spend on outside counsel last year? How many matters did we have?), to more granular data in the early 1990s (What did we spend on litigation last year?), to even more sophisticated historical questions (How much did we spend on asbestos litigation last year? How much of that was in Texas?) that requires multidimensional databases and on-line analytic process ("OLAP") technology.

What we have been lacking until now is the ability to develop real-time information systems that allow us to model and predict the impact of events. (What is the likely budgetary impact of a group of new product litigation cases coming in? How would switching from one outside counsel to another impact our total spend on a group of cases? How would changing our settlement strategy impact our costs and risk profile?) From a risk management perspective, these enhanced capabilities would allow corporations to use the data to monitor the risk environment and proactively detect problems before they escalate.

Conclusion

Existing legal data repositories can become a gold mine of information. This allows a Chief Legal Officer to better predict costs, more effectively allocate resources, standardize matter management processes, and have deeper visibility into the risk environment of the company. Matter management and electronic invoicing have been very successful in helping with the collection of legal information. Incorporating the concept of legal business intelligence will enable you to identify previously hidden opportunities. Given the need for law departments to do more with less, more effective leverage of your IT investments is imperative.

Robert "Bob" Kirtley is a Managing Director in the Chicago office of Duff & Phelps LLC. Bob leads Duff & Phelps' Legal Business Solutions practice.

Please email the author at robert.kirtley@duffandphelps.com with questions about this article.