Business value is business-centric. Law departments frequently ask me about metrics. My response is not nearly as definitive as they desire. I recommend they start with the customer—incorporating the metrics the business is already using and then proceeding accordingly to develop the complementary, internal (to the law department) metrics necessary to manage the department in supporting business objectives.
Talk to most (not all) law departments, you find the inverse. Most law department metrics are law-department centric, full stop. Most track their spend, consistent with a savings-centric narrative, the pitfalls of which I discussed last post. Spend with law firms. Spend v. budget. Internal v. external spend. Necessary. Fine. Limited.
You can also find excellent content online on how a more sophisticated law department can, and should, measure itself. Matter volume. Matter velocity. Cycle times. Better. Rare. Still law-department-centric.
To ground the conversation, we require some metrics on metrics. The most common law department metric is Total Spend By Law Firm, in use at 90% of law departments. No other metric cracks 60%. Cycle Time, by contrast, is near the bottom, tracked by only 16% of law departments. Legal Spend To Revenue is in the middle of the distribution at 29% penetration.
Critically, excepting diversity, these metrics are essentially meaningless from a business perspective. The CEO cares as little about how many matters the law department handles as they do about how many tickets the IT help desk closes, despite the fact both are essential to running the business. These are useful measures for managing workload within a specific function but irrelevant for managing the business—unless and until they are translated into actual business impact (i.e., value storytelling).
Undoubtedly, C-suites are money-conscious. But while law department budgets can appear massive in raw dollars, legal spend at a large company averages about 0.5% of revenue. With internal and external expenditures split about evenly, the common ambition to cut 20% of law-firm spend represents 0.05% of revenue (yes, 0.0005) even if you assume it is pure, sustainable savings (rare). Fractional amounts of fractional amounts.
For comparison, according to the WorldCC, poor contract management costs companies 9.2% of their bottom line. That’s 184x more financially significant than the entirety of the legal budget and 1840x more consequential than a 20% reduction in spend on outside counsel. Marginally improving the legal-supported business process of contracting has a materially greater business impact than “saving” (i.e., eliminating) the legal budget many times over.
A proposal to insource work, move to managed services, or procure technology in order to save legal budget is ultimately legal-centric. A similar proposal expressly aimed at, and framed as, addressing value-eroding gaps in the contracting process is business-centric. The former may sometimes be successful. The latter may sometimes fail. But, over the long run, seeking to address business needs, in the business’s own language, is more likely to win friends and influence people—i.e., secure the resources required for the legal function to help create, and preserve, business value.
Know your customer. I have a vivid recall of one of my many personal failures to influence people. I crashed and burned in an attempt at ingratiating myself with in-house lawyers during a consulting engagement.
In my presentation, I made repeated references to the company’s key performance indicators. The KPIs, and I, elicited blank stares. Some (ill-advised) prodding revealed that not only did these in-house lawyers not know the company’s KPIs, they were also blissfully unaware the company had KPIs. Me sharing that I had found the KPIs at the front of the company’s annual report, immediately following the chairperson’s introductory letter, won me no friends.
I failed to tailor my message to my audience. I made erroneous assumptions about my audience’s knowledge, perspective, and interests. My message did not land. It matters not that, in my subjective opinion, the in-house lawyers should have been familiar with, and fully invested in, the primary metrics by which their company measured itself. It does not matter if you want to go so far as to argue that my subjective opinion comports with objective reality—in-house lawyers should be consciously aligned with their company KPIs.
The purpose of the meeting was not to convince these in-house lawyers of the importance of their company’s KPIs. The purpose of the meeting was to secure buy-in for operational improvements that required their input, support, and (most elusively) patience. The nexus between the outcomes of the proposed changes and the company’s KPIs was intended to make the case for change more saleable. It did no such thing. Embarrassing your audience, even unintentionally, is a bad plan. Ego defense mechanisms were triggered; professional issue spotting was turned up to 11.
That private room was not the forum for me to argue in-house lawyers should be invested in their company’s public priorities. But I am more than happy to do so here.
We must be masters of our own context. Often, I feel like I am campaigning to be elected Mayor of Obvioustown. But too many exchanges like the above compel me to state plainly: how our organization makes money is critical context.
This is beyond, “we’re a [blank] company.” We should have some level of understanding of revenue streams, pricing, profit margins, performance indicators, supply chains, the competitive landscape, differentiators, our business model, our constraints, our strategy,…and the vocabulary/framing that resonates with company insiders.
I stand by my position that every organization, no matter how venerable, looks like a goat rodeo from the inside. Poor strategic discipline from imperfect humans laboring inside imperfect systems leads every employee to wonder “What the frak?” on the regular. Yet cultural fluency and situational awareness often enable us to make sense of what would appear inexplicable with no frame of reference.
As an in-house lawyer, the WTF moments often come like Jeopardy!: in the form of a question. Businesspeople will ask questions that, taken at face value, are pure nonsense. Often, however, the intent of the question can be intuited by understanding who is asking and why.
Early in my career, I was regularly quizzed with variations on, “Can we do X?” and answered accurately with different flavors of, “LOL. Naw. X is straight-up illegal” (bc heavily regulated environment).
It took some seasoning for me to situate these inquiries in an organizational context and recognize that “can we do X?” was garbled shorthand for “we have a nascent idea for a particular program we believe may benefit the company and are trying to determine if it is worth pursuing before we put in too much effort given how frequently we are told no.” At that more mature stage, I was better positioned to turn a narrow conversation about X itself (still totally illegal) into a broader discussion of objectives (rather than specific mechanics) and then work collaboratively to design an objective-satisfying program that passed legal muster (i.e., not resembling X).
This transformation was part of shifting from a law-school mindset of issue-spotting excellence to a business mindset of organizational enablement—evolving from the Department of No to the Department of How (except when No is the only right answer).
Again, painfully obvious, bordering on banal. Yet far less common an evolution than I would have thought—with major implications for effective value storytelling.
We should understand our stakeholders’ context. The anecdote above about in-house counsel unfamiliar with their company’s KPIs was not an excuse to dunk on people from my past. I meant exactly what I said. I failed. I blundered at crafting a message that would land with the intended audience. Importantly, the project itself was still a success because they were only one audience of many.
Corporations are not monoliths. Corporations are composites of different constituencies with their own perspectives, incentives, and politics. These constituencies comprise individuals with personal viewpoints, motivations, and idiosyncrasies. The sales department is unlikely to view the world the same way as the marketing department. And the director of sales is unlikely to always agree with the vice-president of sales.
Task conflict, as opposed to personal conflict, is natural and healthy, in the right environment. Handled professionally, disagreement is foundational to productive battles that refine ideas and lead to superior decisions/outcomes.
For our purposes, however, the heterogeneity of viewpoints means we should not presume our story, no matter how well-tailored to the broader context of the organization, will resonate with each constituency or individual stakeholder without being calibrated to the stories they tell themselves. We should endeavor to learn these stories, and determine which ones are actually important (identifying the signal in the noise is part of mastering context).
Specifically, different stakeholders will have different ideas about how the enterprise currently makes money, how it will/can/should make more money in the future, and their role in the enterprise’s success. They will have their own audiences, accountabilities, objectives, key results, and performance indicators—which they will interpret through their own distinct lens.
The business defines value (most of the time). Up top, I quipped that in-house counsel do not define “value.”
In one sense, adjacent to the current discussion, the reluctance to define value with sufficient specificity is a constant source of tension in the inside/outside counsel relationship. Both sides throw “value” around liberally but—like “innovation”—do not articulate, in practical terms, the meaning of the word.
I’ve covered in-house counsel’s inadequate efforts to define “value” for outside counsel before—see the lawyer theory of value and in-house counsel don’t value diversity (even if they care about it). I have no doubt I will again. But enough of the digression.
While in-house counsel may struggle to communicate what constitutes value externally, the key takeaway here is that, internally, defining value is primarily an exercise in understanding. Oversimplified, in-house counsel do not define value, the business defines value. It is incumbent on in-house counsel to understand how the business defines value and then align themselves to help create, or preserve, that value.
The precise definitions of business value will vary, contingent on context—different stakeholders working at different levels of abstraction. Context-dependent, not unknowable.
Just ask. Most business stakeholders are keenly aware of their own context and eager to talk about the topics with which they are most intimately familiar: themselves, their team, their needs, their ideas, their constraints, their objectives, their burning platforms…
More tangibly, most departments have their own key metrics. They focus on their own versions of Total Spend By Law Firm and Cycle Time—i.e., the semi-meaningful, self-centric metrics to which they default and the broader, more business-centric metrics that increase in salience as they grow in sophistication.
While business stakeholders may struggle to articulate exactly what they need from the law department (just as in-house counsel struggle to articulate what they need from outside counsel), they are usually more than capable of explaining what they themselves are accountable for—i.e., what they need to accomplish to propel the business forward and satisfy their own stakeholders. Savvy in-house departments translate business requirements (what drives business value) into law department requirements (how the law department can help satisfy business requirements to drive business value).
The beautiful part is that much of the math is frequently done, vetted, and accepted.
The in-house department that starts tracking cycle times likely already has broader business metrics into which cycle times can be integrated. Take Speed to Revenue as a digestible example. The law department does not need to invent, justify, or socialize Speed to Revenue. Instead, we need to deconstruct it to a deep enough degree that we can demonstrate how improved legal cycle times improve Speed to Revenue. But if we can accomplish that, the business-impact arithmetic is already settled.
Indeed, when you unpack the 9.2% value erosion figure from the WorldCC, there are many opportunities for law departments to make a demonstrable business impact.
Start at the beginning. Speed To Revenue is, admittedly, cherry-picked. The professional issue spotters reading this piece reflexively identified all manner of standard legal work that does not fold so neatly into a common, prepackaged corporate metric.
But when only 16% of law departments track surface-level Cycle Time, how many have done the deep work to demonstrate the effect of contract-type-specific legal cycle times on Speed to Revenue and the attendant business impact?
Can we start by doing the (relatively) easy but impactful stuff well?
Yes, it gets harder. Recall, I warned “the business defines business value” precept was “oversimplified.”
In particular, it becomes appreciably harder when the law department is responsible for helping define business value in areas—contractual protections, litigation, compliance, privacy, IP, ESG—where value preservation is prominent and lawyers (and other similarly situated professionals) must serve as domain experts.
Even the relatively straightforward value-creating contracting examples are not as simple as parroting the 9.2% value-erosion statistic and then asking for more resources to make it go away. That’s an attention grabber, not a business case. More of this next post on the hard, necessary work of work sorting.