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Law Department Trends + Contract Management Opportunities

Now is law department survey season. In my prior post, GCs Now Do Less Law, I reported on the Altman Weil survey of Chief Legal Officers. Here, I report highlights of two other recent surveys:

 

A connection between the two is contract management. After discussing both surveys, I offer closing thoughts about contract management.

Law Department Operations Survey Highlights

Law Department Innovation is Limited. David Cambria opens the survey with a nice introduction. He is the Global Director of Operations of the Law, Compliance and Government Relations department of Archer Daniels Midland Co. and the Chair of the Law Department Operations Survey Board of Advisors. He observes that law department managers complain about law firms not innovating yet notes they themselves do not do so:

 “those in positions of authority, like LDO managers, actually fail to value innovations properly.”

Too many in law departments, he says, stick with old ways and incremental changes. Cambria confirms my long-held view that the GC bark is far worse than the bite.

GCs Can Do Less Law. Cambria points out that only $7B of of $275B (2.5%) of legal spend is for bet-the-company matters. Yet, he says, many GCs act as if the percent were far higher. That supports my Do Less Law theme: if clients and firms realized the real stakes, they would budget less and do less on many matters.

More Metrics But Perhaps the Wrong Ones. More than half (56%) of  law departments have a formal metrics or reporting program. How the others operate, I do not know. Of those with metrics, only 43% – that’s 24% of the total – track the total cost of outcomes. What am I missing that GCs fail to track fines, judgments, penalties, and settlements? These may total far more than legal fees. Wouldn’t managing total cost make much more sense?

Interest in Legal Process Outsourcing (LPO) Up. Answering “would you consider using offshore [LPO]”, 39% said yes, up from 21% last year. LPOs started about 15 years ago and seemed a rage 5 years ago. I cannot explain the sudden spike? Other surveys show LPOs growing 30% annually but with a still small market share. I am not persuaded the results here augur faster growth.

Use of Technology. Asked about the effectiveness of several types of technology, respondents answered:

Law department trends survey - tech effectiveness

2015 LDO Survey (Blickstein Group) – Tech Effectiveness

I was struck by the low rating for contract management. The report discusses contract management but does not explain why it scores lower. This is a good segue way to the Apttus survey, which offers a deeper dive into contract management….

GC Tech Report – Contract Management Survey (Apttus)

The Apttus survey finds that the “fastest growing [tech] trend in legal departments” are cloud-based solutions at 41%, automation at 33%, and analytics at 26%.

My interpretation of its more detailed contract management findings is that law departments have much room to improve. Here are some of key findings:

  • Playbook Use is Limited. Contract play books can streamline operations, reduce risk, and achieve consistency. That only 23% of law departments have them is a surprise. More shocking: 54% are hard copy binders. So only about 10% have digitally accessible play books. I wonder how many actually pull the binders off shelves.
  • Contract Automation is Limited. Only 40% use a contract automation tool. Such software has been available over a dozen years. The survey offers reasons for the low uptake: 25% are not interested, 29% are interested but “not sure where to begin”, and 46% are interested but lack resources, budget, or personnel.
  • Manual Methods Take a Toll. The biggest contract-management pain point is time lost on admin tasks at 65%. Furthermore, 21% do not know where contracts are stored and 35% don’t know how many active contracts they have. The ability to report is also limited:

Apttus Contract Survey - Analytics - Nov 2015

Closing Thoughts – The Contract Management Opportunity

Perhaps the LDO survey finding of low effectiveness of contract management speaks more to failure to use than to the technology itself. The low uptake may be a result of dispersed contract process ownership. The Apttus survey finds that contract management is a business function among 33% of respondents, legal among 46%, and Not Sure among 21%. Perhaps if ownership lay clearly in one function, more would happen.

I wonder whether investing more in contract management would pay off for companies. Consider a comment by Jason Smith, Senior Director and Legal Counsel at Apttus, in the survey:

“More than 80% of a business’ transactions are tied to a contract – and these critical documents outline who is paying you, what amount they’re paying you, how long they’ll be paying you, penalties for agreement violations, compliance risk – the list goes on.”

That observation strikes me as key. Try a thought experiment: increase legal spend by 5%, all focused on better contract management. What would happen? Would companies save money by enforcing contractual rights? Earn more by collecting more from customers? Avoid costly disputes? Increase licensing revenue or decrease licensing fees? If yes, isn’t this a great way to create the value GCs crave?

I cannot answer but given the central role contracts play in corporate life, spending a bit more to manage them better seems, if nothing else, a good test to run.