A recent white paper on law department performance is worth a careful read. Written by Patrick Jonson at Serengeti Law, a division of (Lexpert publisher) Thomson Reuters that provides legal matter management systems, e-billing and performance analytics, the report lists “10 metrics your legal department should be tracking.”
Five of the metrics relate to expenditures: spend relative to budget; by matter type and business unit; outside and inside spend as a percentage of revenue; invoice savings; and timekeeper rate increases.
The white paper proposes staff workload metrics such as cycle times to gauge the efficiency of the law department. But this approach supposes that the definition of a matter is clear and that all matters and the related resource estimates are captured by a matter-management system. It also assumes that all members of the law department use the system diligently, and that the analytics can apply to strategic developmental and advisory activity.
A full suite of staff workload metrics should also include work-intake and allocation practices, practice-management patterns, backlogs, the proportion of legal and non-legal work for each department member, the alignment of complex work with experience levels and the total number of hours worked in a year. It then becomes easier to profile services by internal client and by service provider.
Serengeti’s four remaining metrics are external counsel evaluations; litigation exposure over time; internal training vs. ethics complaints; and lessons learned by matter. While I have concerns that Serengeti’s set of metrics are unduly focused on costs and activity levels, they are still valuable. They should be fine-tuned so that they do not depend on tracking time and rates, and will favour alternative fee arrangements.
It has been said that you get what you measure. I have seen lists with 40 to 50 metrics used by law departments. Many are related to resource consumption, activity levels and costs. Others are more developmental and strategic. Still others focus on client satisfaction, lawyer engagement and knowledge transfer. Metrics, however, are not the same as key performance indicators. KPIs come before metrics in the “chicken and egg” sequence of what to measure. KPIs should have a sensible and sustainable architecture. The targets and measures should follow.
Four criteria should be front and centre when selecting metrics for the law department. First is the extent to which the law department makes a significant and ongoing contribution to strategic activity in the company. The second is the extent of the department’s specialization by area of law and by business unit. The third is the amount and quality of formal training of the lawyers in leadership, business fundamentals, legal project management and negotiations. Finally, there is the extent to which the company has introduced performance-based fees for each type of work referred to external counsel.
Tracking progress with metrics for each of these areas means the law department is committed to adding value to corporate priorities, that it is upgrading the skills and knowledge of its lawyers, and that it is paying its external counsel cost-effectively.
Many companies pattern their business plans on a balanced scorecard. This is how the four criteria for a progressive law department come into play. Over the years I have applied the four scorecard categories (clients, business process improvement, people and finance) to the law department’s reality, usually by tracking three or four KPIs for each category. The right balance of indicators is necessary to overcome skepticism that KPIs and metrics are a poor fit with the “art form” called legal services.
The client category usually consists of three KPIs: results, strategic impact and overall satisfaction. The “business process improvement” category has three and sometimes four indicators: operating practices, accessibility, turnaround and sometimes technology. The people category has KPIs for knowledge management, department management, individual lawyer performance and sometimes for engagement. The financial category has KPIs for unit costs and total legal spend.
There can be up to five projects for each KPI in a given year, such as greater guidance to internal clients on how best to access legal counsel and what to expect for service and results. A law department looking to expertly manage its coverage, competence and costs benefit from a detailed game plan. That game plan is more likely to succeed with the right combination of key performance indicators and metrics.
Richard G. Stock, MA, FCIS, CMC, is a partner with Catalyst Consulting. He can be reached at (416) 367-4447 or [email protected].