Establishing the required processes for identifying, capturing and analyzing relevant data isn’t necessarily intuitive.
The role of corporate legal departments is evolving rapidly. As the responsibilities of corporate legal departments become increasingly focused on providing strategic support for business goals, general counsel and legal operations leaders are relying on data to set objectives and track performance.
Successful legal departments that establish effective processes for identifying, capturing and analyzing relevant data are benefiting significantly from an investment in an enterprise legal management (ELM) solution; however, based on my experience working with hundreds of CounselLink® clients, I have learned that establishing the required processes isn’t necessarily intuitive. While every legal department is unique and requires a specific set of metrics, there are seven characteristics that all successful metrics initiatives share.
1. Metrics are linked to organizational objectives. Although metrics of any kind can be interesting, the goal should be to identify metrics that help the legal department support the company’s overall business goals. In doing so, you position yourself as a strategic partner and demonstrate the department’s value to the organization.
2. Metrics are well balanced across different types of objectives. Generally, a law department should focus on metrics that provide the information necessary to gain financial control, better manage legal outcomes and risk, and improve operational efficiency. The most commonly used metrics are financial, but it is critical to include other types of metrics programs, as well. You may also be interested in metrics that don’t fall into one of the three categories. For example, if you have a strong diversity program, the legal department might choose a metric related to vendor diversity.
3. Metrics include both leading and lagging performance indicators. Some data can be used to assess your past performance, such as outside counsel spending, while other data is useful for predictive purposes, such as the number of new matters coming into the department. Ideally, a metrics tool kit should contain both kinds of data to ensure that the law department can develop a performance road map that uses historical data to influence future behaviors.
4. Metrics are limited to a manageable number. When it comes to metrics, the Goldilocks-inspired, just-right approach is best. Gather too few metrics, and you won’t have enough data available to draw conclusions. Focus on too many, and the excess “noise” will similarly obscure useful insights. Limit your metrics to a manageable number, however, and the analyses that follow will yield an abundance of valuable information you can leverage to achieve your departmental goals. Between six and 10 key performance indicators per practice area is a manageable number.
5. Metrics are controllable at the level being measured. Measuring a variable over which you have little or no control might produce an interesting piece of information, but ultimately, this practice wastes time.
6. Metrics are comparable to a baseline. A metric requires context so results can be appropriately interpreted. When considering which metrics to use, make sure that the data you generate will be compared to an existing data point, such as a relevant benchmark, a prior time period or a budget.
7. Metrics demonstrate the value added. This final characteristic is closely related to the first. One of the benefits of linking law department metrics to organizational goals is that the metrics can then be used to illustrate the department’s contribution to the organization, proving that it is a valuable partner. Metrics that document cost savings in legal spend or a reduction in exposure, for example, are especially useful in this endeavor.
Good Data Is Essential to a Metrics Program
Obviously, a metrics program can’t succeed without good data. In this case, “good data” means data that lends itself to meaningful analysis. There are several things to keep in mind if you want to capture data that supports rather than hinders analysis.
First of all, it’s important to make sure that your matter classifications are meaningful for purposes of analysis. A best practice is to establish a matter-type hierarchy that distinguishes core matters from extraordinary matters and takes varying levels of matter complexity into consideration. Doing so facilitates an apples-to-apples analysis of similar matters that’s not skewed by the unusual characteristics of the occasional outlier. Avoid the temptation to make matter types too granular. Doing so increases the likelihood of misclassified matters and can result in population sizes that are too small to provide analytic value.
A second best practice for ensuring data integrity is the enforcement of consistent billing. For example, if the law department and an outside law firm have agreed to a fixed fee to handle a matter, and the firm submits an invoice for the matter that expresses the agreed-upon fee as an hourly rate, any future analyses of hourly rates will be compromised by this drastically skewed calculation. Similarly, it’s important that you insist that a firm accurately distinguishes between fees and expenses when submitting invoices.
An additional component of consistent billing practices is ensuring that firms establish meaningful timekeeper titles. Taken together, these data hygiene practices help ensure that analyses can be performed efficiently and will yield trustworthy insights.
Mining Data to Inform Future Decisions
Once a metrics program has been established, leveraging the analytic capabilities of an ELM solution such as CounselLink can identify key drivers of metric results. It’s only when the drivers of negative performance variances are clearly understood that an action plan can be developed to improve performance in the future.
Applying relevant metrics and powerful analytics to first inform and then achieve departmental and organizational goals allows legal department managers to make data-driven decisions that help increase the value of their contributions to the enterprise. With corporate legal departments under increasing pressure to maximize efficiency without sacrificing value, the importance of analytics that fuel strategic decision making cannot be understated. Legal departments that embrace the technology that makes that possible don’t have difficulty proving their worth.