Results Count – Purchasing Department Influence on Legal Spend
In the war for clients, results count.
Obvious as that may be, where are good metrics that measure legal results? In Legal Tech 2.0 I described a war for clients driven by service and results. Game-changing uses of technology can win battles. I suggested that a weapon ripe for development is metric for results.
The failure of the legal market to develop metrics is likely one reason for purchasing departments and sourcing professionals inserting themselves in outside counsel selection. Hiring Lawyers by the Numbers (Legal Times, 24 Mar 2008; GC Mid Altantic, 1 Apr 2008) by Ursula Furi-Perry describes how “Procurement Divisions Get more Involved with Hiring Outside Counsel.” In it, I am quoted extensively:
Some corporations are implementing policies that mandate that their procurement or purchasing departments become involved in every decision to outsource services—including legal work—says Ron Friedmann, president of Prism Legal Consultants [sic] Inc.
The procurement department is often brought in because some corporations understand that their attorneys aren’t that great with numbers, budgets, and purchasing, Friedmann says. Management may think that attorneys tend not to negotiate legal costs and decide to step in. “When purchasing departments see how lawyers operate, they see low-hanging fruit,” Friedmann says. For the cost-conscious company, legal services present an easy way to reduce costs.
“One of the challenges is balancing how well the outside firm knows the company’s business with how cost-effective they are overall,” Friedmann says.
“It’s clear that corporations are increasingly looking at ways to save money, and law departments are cost-centers and need to be managed as cost-centers,” Friedmann explains. “A forward-thinking general counsel should look to the purchasing department for help.”
Law departments can also help by drawing clear lines between legal projects and cases that need different types of attention and assistance. For instance, law departments can help differentiate “low-end” work from “high-end work,” Friedmann says.
“Some may be higher-stake, but there are a lot of lower-level day-to-day claims . . . that are fairly straightforward.” For those cases, general counsel should first determine whether to in-source or outsource the work, and if the decision is to outsource, “the next question is, whom do we outsource to?” Friedmann says. “If you separate the nature of the cases, you can apply different sets of criteria.”
General counsel may be worried about alienating long-term outside counsel colleagues, yet cost-cutting measures don’t necessarily have to adversely impact trusted outside counsel relationships. “There are ways of managing purchasing that are still respectful of relationships,” Friedmann says. Have scientific—not antagonistic—conversations with outside counsel, he recommends, laying out data about their costs and the costs of competitors.
My comments are another way of saying it’s all about results. General counsels who rue the day they had to involve, placate, or answer to purchasing would be in a stronger position if they had independently developed better metrics to assess their budgets and results.
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