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LegalApril 09, 2021

How to build a smarter sourcing strategy

This article was originally published in Legaltech News.

In today’s cost-constrained environment, corporate legal departments (CLDs) must focus on delivering both savings and value—no easy feat. CLDs are simultaneously managing several matters, both exotic and mundane. Buried in mountains of legal work, many inside counsel teams immediately default to choosing tier one law firms as their “pressure release valve.” But is that always the appropriate response?

No. Because while tier one firms may be the best at what they do and can provide significant wins and peace of mind, their expertise, and the price that comes with it, may not be required for certain matters. They may get the work done but potentially at a cost that’s too high for CLDs that are trying to balance their budgets and gain value.

In truth, it may not be necessary to outsource all of the time. You may have a full bench of strong internal resources right down the hall and may not even realize it. Or, you may truly need to use the power and resources that an outside firm provides.

How do you know? By taking a smarter approach to sourcing.

A smart sourcing framework

I learned about one such approach through one of my company’s clients, UBS. Rather than immediately enlist a tier one or tier two law firm to assist with legal matters, UBS has developed a unique system that balances quality with cost. They have created what they call a “smart sourcing framework,” a system for triaging work to the right tier of provider using a sort of decision tree. The smart sourcing framework helps inside counsel determine whether it makes sense to select inside or outside resources for each matter and, if outside counsel is necessary, which counsel to use.

Here’s how it works. When a new matter arrives, in-house counsel investigates whether or not they have the appropriate resources to handle the matter internally. This sets off a flurry of initial activity and questions: who’s available, who has the relevant expertise, and so forth. If no appropriate internal resource is available, the smart sourcing framework guides counsel to an appropriate external resource.

That’s when things get really interesting.

Branches of the decision tree

Prior to implementing its smart sourcing framework, UBS leadership had noticed that some legal matters could be capably supported by less expensive providers, rather than being automatically sourced to some of the largest, most expensive law firms in the world.

UBS is probably not alone in this pattern. Research from the Wolters Kluwer’s ELM Solutions LegalVIEW Data Warehouse shows a large percentage of CLD spend goes through the top 100 global law firms, and about 32 percent of CLDs are putting more than 50 percent of their spend through those firms. About 7 percent of CLDs put over 70 percent of their spend through those firms. This sort of extreme case suggests one of two possibilities: Either those 7 percent of CLDs have a very high and consistent amount of “bet the company” work, or they are sending a lot of ordinary work to “bet the company” firms when that level of expertise probably isn’t necessary.

UBS is putting the brakes on sending ordinary work to “bet the company” firms. Instead, the decision to use an external counsel evolves into a question of which external counsel is right for a particular matter. It might not be a tier one firm.

UBS approaches this challenge by first looking at the risk associated with the matter. Inside counsel is required to document risk levels for each matter in the smart sourcing system before proceeding to the firm selection phase. If a matter poses a high level of risk, they send it to a top-tier provider. But there are more affordable tiers. If a matter cannot be insourced and is lower risk, the system guides counsel to select a provider from one of those tiers, which include secondees, alternative legal service providers, and lower-cost firms.

UBS also created a unique commercial repository database that provides in-house counsel with a single source for all negotiated terms with outside firms. The database includes insights into timekeeper rates and other at-a-glance information so in-house teams can quickly assess potential costs.

Sharpening internal skills

In addition to saving money and driving value, the framework allows the organization to illuminate the skills of its internal team. By asking questions upfront, UBS can identify internal expertise in certain matters and leverage those resources. This allows the company to continue to insource more matters and build up its team.

Every organization can replicate this model, but only those with a certain amount of technological and operational maturity will be able to experience the full potential of this kind of framework. For example, creating a repository database replete with tools for recommending counsel based on costs, discounts, and other factors requires an investment in technology. Meanwhile, gaining even greater efficiencies through cost negotiations may require training so CLD members can hone these skills.

But for those companies willing to make these investments, there is the chance for a significant upside. UBS has laid the groundwork and shown the way. Others can take advantage of this and forge their own path toward greater value and better cost management.

Nathan Cemenska
Director of Legal Operations and Industry Insights

Nathan Cemenska, JD/MBA, is the Director of Legal Operations and Industry Insights at Wolters Kluwer's ELM Solutions.

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