Legal spend management: The shifting landscape

Legal spend management: The shifting landscape

General Counsels, legal teams and legal operations executives are in an increasingly demanding and complex environment. The business of law is undergoing a seismic shift from being predominantly reactive and transactional to becoming more proactive, strategic and advisory in nature.

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There is a large body of published expert opinion providing advice on how to manage your external expenditure in relation to the procurement of external counsel (billing guidelines, alternative fee arrangements, panel structures etc.), but less opinion and advice when it comes to applying the spend management lens on your internal legal operations. This article seeks to provide some opinion and provoke thought in this specialist area.

Previous models for budgeting legal spend are being tested by an increasingly unpredictable compliance, regulation and governance based business environment combined with increasing demand of business teams for their in-house legal teams to be involved earlier in projects and with a more proactive mandate. The traditional model of law panel firms, billing guidelines and centralised budgets held by the GC is rapidly becoming obsolete as the C-Suite demand more accurate forecasting of spend, evidence of efficiency in the procurement and delivery of legal services and value based outcomes. The question being most wrestled with is, ‘how can we do more with a similar or a shrinking budget’ while workloads increase and the role of in-house legal teams are changing?

Traditional legal spend management model

Traditional legal spend management model infographic

The latest General Counsel Roundtable & Plexus Thought Leaders research (PDF 11.4MB) identified that “75 percent of CEO’s believe their legal functions do not deliver sufficient value to justify the time and money spent”. This is a significant figure and encompasses many challenges but also provides opportunities for forward thinking GC’s to deliver visible and tangible change. There is an industry wide call to action to ‘do better’. But where do you start?

When considering any kind of change or transformation of your legal spend management model there is a tendency just to jump straight into implementing a technology-based solution as evidence of immediate action and decisiveness. A key question to start with is ‘how do we bridge the widening ‘value’ gap between our current legal operating model and increasing expectations of the organisation?’. This widens the discussion to include more than just budgets and incorporates a focus on purpose, skills, resourcing, processes, technology, value and stakeholder expectations and requirements.

Key factors

Six key factors to address include:

  1. Consideration of the purpose of Legal in your organisation, and a fundamental assessment of the ‘make’ versus ‘buy’ decisions currently made to ‘in-source’ or ‘out-source’ legal services.
  2. Analysis of time, activity and tasks of your legal team.
  3. Reviewing value and risk in work activity.
  4. Identifying where Legal can deliver the most impact.
  5. Researching external support options to build capability and scalability, including through technology.
  6. Self-service opportunities for the organisation.

As quoted at the General Counsel Roundtable & Plexus Thought Leaders research (PDF 11.4MB), “the average lawyer spends 25-40 percent of their time on activities that don’t require a lawyer”. If your legal team could get this time back would you still have resource or budget issues, and more importantly would your C-Suite perceptions of legal change?

Most In-house teams understand that a combination of technology and new legal delivery services will support them achieve their goal of delivering on ‘more for less’, but with so many combinations available, who do you listen to, where do you start, what’s involved and more importantly what approach has a proven success rate?

“Analysis of legal spend patterns against different ratios of internal and external allocation has identified an optimal range where legal spend was most efficient – between 40-70 percent allocated internally” – 2018 State of Corporate Legal Departments (PDF 3.54MB). This offers huge opportunity for proactive GC’s and supporting internal departments (i.e. IT, Procurement, Risk) to explore, test and discover the optimal legal operating model to deliver legal services for their organisation.

There are two common approaches when considering the optimal legal operating model:

  1. Address core issues and challenges and deliver incremental change in reaction to immediate requirements.
  2. Take a holistic transformational view and design a new model based on current and future requirements delivering long term efficiency, flexibility and sustainability.

Following on from the ‘key question’ to ask when using the previous traditional model outlined above, we now need to ask a second question to enable our transition to the proactive model approach: "How can we make our legal services scalable for the organisation’s current and future needs?". This broadens our discussion point to include work activity tracking, automation, work flow, on demand resources, managed services and specialist technology and applications.

Budget responsibilities for C-suite procurement

The current landscape for proactive legal service delivery is complex, and many new solutions are unable to demonstrate Return on Investment (ROI), longevity, or be implemented by the legal team alone, especially when technology solutions form part of the new legal operating model.

GC’s can quickly find themselves entering an unfamiliar world of being a Transformation Sponsor in the context of cross departmental decision making (and in some cases ownership), multiple business stakeholders and project teams, business case development, cost and ROI analysis, shared budgets and special requests for project funding (or up to 12 month delays until the new budget cycle). The energy required to make even small changes can initially appear to be time consuming and overwhelming.

Common barriers check list:

  • Challenging the status quo and embedded culture.
  • Shifting mindsets from a reactionary approach to a proactive approach in delivery legal services.
  • Developing a value focussed new model business case for C-Suite sign-off.
  • Proposing changes to business processes of an organisation and the management of ‘new’ delivery channels, including self-service solutions for business teams to access legal resources and services.
  • Up-skilling technical knowledge and change experience within the legal team.
  • Management of multiple internal stakeholders and budget holders.
  • Monitoring and maintaining quality during the change process.

The KPMG Legal Operations and Transformation Services (LOTS) team, which includes experienced legal operations professionals; process engineers; lawyers; former general counsels; legal technologists; procurement specialists and legal project managers can assist you in successfully navigating this landscape by utilising KPMG’s Legal Transformation Framework, Legal Diagnostic Tool and Legal Business Case Planner.

We help you to overcome internal barriers and cut through the ‘white noise’ and focus on the core combination of people, process and technology solutions. We provide a unique approach where, our advice is based on your specific strategic goals, your organisations culture and bespoke data analysis. We ‘simplify the complexity’ for you by utilising advanced scenario modelling and relevant industry examples to demonstrate successful design and implementation of new legal delivery models with proven strategic business impacts. You can feel confident you have the best evidence in which to base your decision and deliver the most impact for your organisation.

Future spend management model

The future of legal spend management and the subsequent models that may be applicable are the subject of much debate and discussion. There is a general consensus that some current trends will continue, which can help with the definition of future modelling, defining future skills requirements and considering the likely ground work needed for new technology based solutions and services. The KPMG Legal Operations & Transformation team have consolidated our thoughts and developed the ‘Predicted Future Model for Legal Spend Management’.

Predicted future model for legal spend management

When considering your future spend management model the ‘key question’ to ask yourself can vary as it is based on predictors not certainty, GC thought leaders are already considering ‘what will the continued pace of innovation in the industry mean for the future of legal services delivery and what will be the impact?’.

The following current trends are likely to continue:

  1. In-house teams will continue to expand but their make-up will skew more towards individuals with specialist skill sets and an advanced understanding of the risk appetite and wider strategic vision of the organisation.
  2. Legal operations is here to stay, and having specialist resources in house and embedded in the legal departments can professionalise the change, transformation and management of new operating models and technology adoption. This will change the organisation structure in most legal teams to include job titles such as Legal Operations Managers and Applied Legal Technologists, among others. These roles will support legal teams to deliver scalable legal advice to their organisations and be the engine room for ‘continuous improvement’. 
  3. Automation technology will result in significant amounts of lower value work activity being driven out of the system and increase the productivity of in-house legal teams. This is likely to reduce the amount of document drafting performed by in-house teams and allow lawyers more time to proactively support the businesses they serve. Over time, these technology solutions will become Productised Legal Services, solving more complex legal and business problems.
  4. Use of technology in the execution of day-to-day legal tasks will provide GCs with business intelligence and insights into those areas of the business that require most attention, and arm GCs with real time data to support strategic decision making and resource allocation.
  5. External counsel will remain a central component of most models, but the overall percentage of work outsourced will decrease and outcomes/value based pricing models will become the norm.
  6. Flexible on demand resourcing will continue but contracts will become fixed term rather than project based as businesses look to secure the most experienced resources available without increasing their headcount.

Based on the predicted future model, new emerging trends are as follows: 

  1. Securing budget will become based on a robust business case and data driven evidence that identifies root causes of challenges/issues – strategy, utilisation, budget, skilled resources etc.
  2. Any new model implementation or systems integration will be reviewed on the basis of improved risk management, client satisfaction, productivity efficiency and employee engagement as base level ROI’s.
  3. The number of enterprise level legal service providers (ELSPs) offering a complete legal services model will increase, simplifying the scalability question for most GC’s. However, the overall number of players in the market will decrease as winning platforms emerge, ultimately limiting the choices available.
  4. There will be an increasing number of acquisitions and mergers in the legal tech and legal business delivery market creating an opportunity to simplify the numbers of vendors required to deliver transformation and change. This also leads to a naturally decreasing cost as services are integrated and managed by a smaller number of vendors.
  5. Emerging technologies will significantly increase the number of highly targeted cloud based SaaS productised legal services, but most will have a shorter lifecycle than current solutions making IT integration and application management a new core skill-set.
  6. Integrated solutions will lead to better quality outcomes, increased efficiency, lower complexity, more satisfied users, increased ease of reporting (demonstrating consolidated value) and simplified management for GC’s.

The future is bright and no matter the level of maturity you have achieved in your spend management journey, it usually comes back to one core question: "Is legal perceived as a cost centre or is it a key contributor to the current and future value and success of the business?’" And if not, how do we get there? By taking the first step.

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