Global Law Technology: The Growing Global Demand For Electronic Invoicing And Legal Spend Management

Monday, May 1, 2006 - 01:00

In January 2005, DataCert, Inc. expanded its operations to target the global legal business community by establishing its first international office in London. Jeff Hodge, vice president and director of EMEA Business Development, discusses how DataCert's European initiative has evolved in the past year and how DataCert's international strategy is a direct response to international demand.

The European Demand To Expand

DataCert, an electronic invoicing and legal spend management company, entered the U.S. market in 1998 and came face-to-face with law firms and law departments that were reluctant to switch to electronic invoicing.

According to Jeff Hodge, "When the U.S. market began to move to legal electronic invoicing and spend management in the early and mid-1990s, standards such as LEDES [Legal Electronic Data Exchange Standard] and UTBMS [Uniform Task-Based Management System] were not in place. There was simply no basis upon which to build a viable market for electronic invoicing, let alone what we now know as legal spend management. The U.S. market was all about 'business as usual.'"

With the introduction of LEDES 1998B, the legal industry began to take note of electronic invoicing. Time and billing vendors modified their systems to create LEDES files embedded with UTBMS data. Y2K worries led law firms to upgrade their computer systems and these upgrades often included LEDES submission capability. As a result, legal departments requested LEDES and UTBMS data and legal electronic invoicing and spend management took off.

The adoption of this template for uniform invoices, and the ability to submit and process them electronically, brought distinct changes in how legal departments manage themselves and their outside counsel.

"By some estimates," said Hodge, "e-invoicing reduces processing costs from $20 per invoice to 90 cents per invoice. For many companies this amounts to significant savings that can and are being reinvested by legal departments into increasing head count, allocating new resources and funding new projects."

The benefits of a life without paper invoices add up financially. Many corporations have documented a substantial ROI within a short amount of time, while law firms have enjoyed a shorter turnaround time on invoice processing and fulfillment.

DataCert's three-year revenue growth of 317 percent is indicative of the strong market demand for legal spend management solutions by globally focused corporate legal departments. In 2005 alone, DataCert processed more than $6 billion in invoices - up 120 percent from the previous year.

These strong figures, coupled with the requests from Fortune Global 500 clients and prospects, prompted DataCert to examine its strategic business goals abroad. Led by CEO and President Eric M. Elfman, DataCert ascertained that there was a real need overseas for its products.

"DataCert chose to enter the legal electronic invoicing and spend management market outside of the U.S. for two reasons," explained Hodge. "First, our clients began to request that we extend implementations to include their non-U.S. entities. Second, the markets outside of the U.S. saw the benefits their U.S. counterparts reaped and naturally began to explore applying those tools themselves."

Doing The Legwork

"Electronic invoicing has been on corporate Europe's agenda for some time now. In fact, companies have been using electronic data interchange (EDI) since the 1980s to send bills and payments directly to suppliers and other businesses in digital format." (CFO Europe Magazine, April 2002).

Before DataCert launched their expansion operations in 2005, the groundwork was already forming in Europe. In sharp contrast to America in the 1990s, Europe - led by key law firms and their corporate clients - adopted LEDES at a brisk pace. DataCert discovered that the legal business community in Europe was not only open to the idea of electronic invoicing, it was embracing it.

"The differences between introducing DataCert's Advanced Invoice Management System (AIMS) to the U.S. and then to Europe have been night and day. In my experience, the law firms in Europe view electronic invoicing as a competitive differentiator in an increasingly tight market. Moreover, corporate legal departments can see the positive advantages in these technologies from real world examples in the U.S.," shared Hodge.

While Europe has traditionally been forward-thinking in terms of electronic invoicing and payment, European inter-country governmental mandates - primarily driven by VAT (value-added tax) issues - throw a few wrenches into the works. Europe-based corporate legal departments face a maze of regulations and compliance issues when contracting with law firms outside of their country. Despite attempts by the European Union to lay down unified guidelines, VAT-related obstacles arise in country-to-country transactions. This process can result in submission requirements that are nothing short of tricky.

Hodge sees this as an advantage for DataCert's products. "These complexities speak to the tremendous advantage of entrusting electronic invoicing to providers who know the legal landscape and have the technologies already in place to support legal compliance. Data-Cert helps shoulder the responsibility for meeting the laws and regulations in each individual jurisdiction. Without that type of help, companies would be left to their own devices to comply with the often complex regulatory requirements for cross-border electronic invoicing."

Education Is Key

Demand for any technology or product cannot be created without a recognized need. Education is key. DataCert introduced a biannual series of European seminars - with panelists from respected companies such as Lear Corp., Hildebrandt and AOL - to discuss legal spend management best practices. In the seminars, panelists address the benefits of legal electronic invoicing and spend management and present how they have used AIMS to enhance their legal department's operations.

The seminars continue in 2006 with events in London, Paris, Frankfurt and Zurich. The seminars focus on:

Common problems . European corporate legal departments face the same problems as their U.S. counterparts: a lack of control over the department's spend and an inability to manage their legal businesses as part of the corporate whole. All of these indicators factored into widespread adoption of legal spend management in the U.S.

Corporate structure . In the past, legal departments have had the luxury of being classified as a unique unit, immune from corporations' management like other core business units. This environment of increasing visibility, increasing responsibility and low accountability is changing. Legal department managers are finding themselves at the mercy of procurement departments and corporate management, without a means to display their department's value.

Solutions. Technology is a strategic component to fuel changes in how a legal department manages outside counsel and how it organizes and manages itself as a business unit inside of the company.

ROI . The return on a technology investment becomes tangible for management when it can be measured, displayed and communicated.

Can this education initiative abroad backfire? Absolutely.

"A high tide raises all ships," observed Hodge. "It may be that companies attending our seminars will buy a competitor's products. Being the market leader, however, implies a responsibility to lead the marketplace. Education is one of the key components inherent in such responsibility. Each time an attendee opts to use any electronic invoicing and legal spend management system it can only help the legal industry as a whole and prove that these technologies are fundamentally changing management behavior."

Making A Size 35 Shoe Fit A Size 44 Foot

Having a technology solution is one matter. Having a technology solution that fits the needs of a Fortune Global 500 company is another. Customization - making the solution fit the need - plays a large role in the legal spend management arena. Legal systems must be designed and built for lawyers and legal managers.

According to Hodge, "Enterprise resource planning systems and procurement platforms - while viewed as useful for commodity buying to corporate management - can actually undermine the corporate legal department's ability to manage themselves and outside legal spend. General Counsel should expect that their spend management systems are tailor-made to view the overall global function and spending without the need to depend on corporate tools and resources unaligned with the specific needs of the legal department."

Translation: Even though a corporation's procurement department might be enthusiastic about its electronic invoicing and procurement system, you can't make a size 35 shoe fit a size 44 foot.

The Globe Is The Limit

With increasing attention from Asia, South America, Australia and the Middle East, DataCert's work has only just begun. DataCert's applications and services continue to undergo internationalization and localization changes to meet the diverse needs of a growing global client and prospect base.

Buoyed by this dynamic variety of initiatives, Hodge is understandably optimistic about DataCert's international mission.

"My personal prediction is that legal electronic invoicing and spend management in Europe will outpace the adoption rates in the U.S. Every indicator is that this uptake will occur over a period of three to five years. This is a rather remarkable progression, since it took the U.S. more than 10 years to gain confidence and develop a true mass market for these technologies."

Is there an end in sight? Hodge suggests that the question is best posed to those general counsel without these technologies. "How many legal managers would view word processing or spreadsheet software as 'nice to have' technology? As management pressure, peer pressure and the increasing need for transparency and accountability evolve, someone will have to service that demand. It is a very good time to be closely aligned with this growing demand and to be able to offer a solution to these problems."

Jeff Hodge is vice president and director of EMEA Business Development for DataCert Europe LTD. With 15-plus years' experience in business and technology, he led the development of the Legal Electronic Data Exchange Standard (LEDES) and was the founder of the LEDES Oversight Committee (LOC). He currently serves as a liaison for the LOC to the United Nations and champions European e-business and standards initiatives. Jeff also founded the UTBMS Initiative aimed at updating, supplementing and internationalizing legal task based billing.

Please email the author at jeff.hodge@datacert.com with questions about this article.