This article was originally published in Legaltech News.
Whether you want to think of it as comparing scorecards, scouting the competition, or simply using data to improve your own operations, benchmarking should be common practice in corporate legal departments.
Take, for example, the 2019 Global Legal Department Benchmarking Report, which surveyed over 500 legal departments. It found that, on average, corporate legal departments spend $9.7 million on outside legal services, which represents about half of their overall spend. Data points like these can help legal departments assess how they stack up against peers.
Of course, you can only benchmark against external data points if you know your own numbers. To make that a reality, legal departments must develop a data strategy—a topic we’ll explore in more depth in the future. A data strategy looks at the goals you want to accomplish, figures out what metrics are tied to those goals, and lays out a plan to ensure that data gets captured systematically.
But for now, let’s stick to demonstrating why a data strategy is worth the work by delving into three benefits of benchmarking.
1. Defend your budget. I recently spoke with a lawyer who said the CFO of her company believed their legal budget should be “zero.” The CFO didn’t trust that the legal department was really adding value and furthermore didn’t even trust the concept of a legal department adding value. This basically put the burden of proof on legal to show that it was not a leaky bucket into which dollars are poured but no value emerges. By having data points to demonstrate your performance and how it ranks against peers, you can demonstrate that you are meeting expectations and managing funds wisely.
For instance, if your CFO is truly that skeptical, every penny paid to outside counsel may be put under a microscope. Benchmarking allows you to look good under that microscope, reducing skepticism. Perhaps your median outside timekeeper rate increase last year was 5% vs. 8% for the industry. When a skeptical CFO complains about spending, this is a great data point to have in your back pocket.
2. Advocate for change. If you suspect your legal department or outside counsel is performing below average, you can use objective data to prove it through benchmarking, then fix it. Without data, you can spend a lot of time and effort arguing your case but have no way to know if the solution you implemented paid off—or even made things worse.
Diving into your legal department’s matter mix is one area where you can start. Your matter mix is simply the volume and type of legal matters you handle, broken down by the risk or magnitude of importance associated with them. This is crucial to understanding and tailoring the department’s work. Perhaps you spend a lot more on outside counsel than similarly-sized organizations in your industry, but the difference is driven by high case volume, rather than case magnitude or type. Knowing this in and of itself is not a solution to anything. However, it is a good jumping off point to the crucial question of “why?”
The answer may lie, for instance, in your company’s approach to insourcing vs. outsourcing. Is your organization outsourcing a lot of small matters (“process work”) that may be better handled internally, where it is easier to implement standardized processes?3. Block a questionable idea. On the flip side, if you hear about something that you don’t think will work, or that will cause more disruption than benefit, you can also gather data to prove it. In the absence of objective data, you’re relying on anecdotes and intuition. Benchmarking adds substance to any claim.
Too often, things get prioritized just because an influential person came along and was particularly persuasive about what should be done. With benchmarking, you can prove that a particular area is actually functioning fine and point to other things that may have a higher ROI if changed. If you use benchmarking to show where the opportunity lies, you’ll divert resources away from wasteful or harmful initiatives and toward ones that add more value.
The bottom line
Benchmarking is a worthwhile investment. While common sense is valuable, an armchair philosopher’s viewpoint of how things ought to be can’t compete against evidence-based suggestions. E-billing and matter management data can offer a treasure trove of information about performance. In turn, it can help you CFO-proof your department and make sure the right initiatives are the ones that gain steam.