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Indeed, one key metric — profits-per-equity partner (PPEP) — is down for the first time since 2009, which occurred during the last global financial crisis.

This scenario and lessons in how law firms are attempting to navigate these choppy waters is mapped out in the 2023 Report on the State of the Legal Market, issued today by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute.

The annual report reviews the performance of U.S. law firms and breaks down the factors that most impact financial success and drive the need for a strategic view of firms’ market positions, operations, and future plans.

This year’s report shows that throughout 2022, growing political and economic uncertainty significantly reduced clients’ appetite for transactional work — which had become the white-hot driver of demand throughout 2021 and the early part of 2022. Indeed, possibly the most prominent development in the legal industry in 2022 was the substantial slowing in demand growth that firms experienced throughout the year. On a year-to-date basis through November 2022, overall legal demand contracted by 0.1%, which stood in stark contrast to the 3.7% growth rate recorded for all of 2021.

Not surprisingly, this collapse in demand growth, especially in the transactional practice, fell more heavily on larger law firms. At the same time, many law firms continued to add new lawyers at a healthy pace. As a result, productivity declined, even as direct and overhead expenses remained high, much to law firms’ dismay.

The combination of all these factors pulled down PPEP from its 2021 levels, although it still remains in a relatively good position historically.

However, the report shows that growing uncertainty over macro-issues, such as economic sluggishness in the United States and throughout the world, the challenge of returning to the office, and the rising costs of talent all set the stage for a very difficult 2023 for the legal industry.

One interesting note to the report was the relative strength of the Midsize law firm segment, which stood alone among other market segments in seeing positive demand growth in 2022. The report attributes this to clients’ willingness to move work in search of high-quality but more cost-effective outside counsel.

Looking to the leadership of Luis Urzúa

The report also noted that in times of uncertainty, organizations have a tendency to hunker down to protect against both real and imagined dangers. To steer a firm successfully through such periods requires leaders to embrace somewhat different priorities and be willing to experiment with new ways of operating.

To illustrate further, the report relates the incident of the terrible mine collapse in Chile in August 2010 that trapped 33 miners for 69 days deep underground. Facing certain catastrophe, the miners rallied around their shift foreman, Luis Urzúa, who was a recognized leader and trusted by the men.

The report notes that Urzúa’s leadership skills were a key reason that the miners survived. Taking note that organizations rarely if ever face uncertainties as severe or as consequential as those that confronted the Chilean miners, the report states that nevertheless, it is often in extreme situations that critical leadership traits are most visible.

Urzúa’s leadership manner emphasized telling the truth, requiring teamwork, and staying focused to great success. It allowed his team of miners to concentrate on the singular task at hand — surviving their ordeal together — despite the dire circumstances in which they found themselves.

The report also suggests that as law firms confront a period of significant economic and market uncertainty, the lessons that were exemplified by the leadership of Luis Urzúa can provide some useful guidance for many law firm leaders as they navigate the uncertainties of 2023 and beyond.

You can download the full “2023 Report on the State of the Legal Market” by filling out the form below:

This process then kicked off a volley of communications — internal and external — and necessitated forwarding emails, PDF letters, and spreadsheets for analysis and follow-up. The legal operations team provided some central support, but this was often challenging because data limitations made it difficult to account for past rate increases and freezes across different firms. Overall, the efforts felt somewhat ad hoc and very time-consuming.

“It has always been important to us to get this right,” says Antony Klapper, Deputy General Counsel in Product Liability & Regulatory at VWGoA. “We want to be fair to our law firms, whom we view as trusted partners. At the same time, we must manage our company’s finances responsibly — and execute all of this efficiently with a leanly-staffed team.”

Trisha Fletcher, Legal Operations Specialist at VWGoA, emphasizes these points as well. “Collectively, our team had a strong desire to find a better way to do this.”

Taking a new approach

The VWGoA team launched a new initiative to process rate increase requests more effectively for 2022 and beyond — one that would ultimately win them an ACC Value Champion Award.

The first step, the team decided, was to establish a more centralized, uniform approach. This would be managed by legal operations with strategic guidance from legal leadership. Of course, there would still be coordination with in-house counsel, but in a more efficient way — built around a centralized process, featuring stronger use of data analytics, benchmarking, and core decision governance from leadership.

The next step then, was to improve the in-take process. Outside law firms were asked to submit their rate increases within a designated window of time and through a common portal. This allowed the team to consider them all together, performing side-by-side comparisons of similar firms to ensure more consistent treatment under then-current market conditions. This commonality also enabled the use of greater analytics capabilities to assess past rate increase history, as well as internal and external benchmarking comparisons.

Within this framework, the team also began examining firms’ compound annual growth rate (CAGR). A law firm’s billing rate CAGR shows a multi-year view of the firm’s rate increase history, accounting for past increases and rate freezes. Standardizing the figures this way enabled better side-by-side comparisons across the portfolio, and showed which law firms were high or low outliers based on their multi-year rate history.

The VWGoA team also found it very helpful to use data to model the dollar impact of the requested increases per timekeeper for the coming year. This was instrumental in identifying the most impactful requests in order to focus on managing costs.

Seeing the benefits

Through this new approach, VWGoA legal leadership and legal operations were able to implement more effective governance and decision logic to streamline the rate decisions in light of portfolio metrics and company financial considerations. By streamlining and consolidating the process, they freed up considerable hours that their staff had previously spent responding to rate increase requests as they came in, managing them all through one common workflow. They saved further time be setting auto-approval thresholds for certain rate increase increments.

In the end, the projected savings for the coming year were significant, with rate increases for various timekeepers, for example, trimmed to about one-half of the increment originally sought. The VWGoA team devoted particular attention to adjusting high outliers and managing the impact on budget in a sustainable way.

Beyond time and money savings, the team built a process that leveraged better data to drive better decisions. The result is a strong business case showing how those in legal can use technology and data more effectively to increase productivity and execute against business metrics.

From law firms’ perspective, understanding the data that informs a client’s financial position is a helpful way to focus their rate increase conversations onto a productive end for both sides.

“We recognize that, in this economy, many clients are facing challenging headwinds,” says Susan Vargas, Partner at King and Spalding. “As trusted partners, we are glad to talk about goals and metrics to strengthen our relationship in mutually beneficial ways — and we welcome informative data to help us do that.”

Interestingly, however, while larger firms also are seeing greater weakness in non-transactional practices, midsize law firms are finding real strength, which suggests that clients might be shifting work based on cost.

And it is upon that suggestion which we offer the following.

Inflation takes its toll

As the US Federal Reserve tried to tackle inflation over the last several months by raising interest rates, the cost of doing transactional deals, such as mergers, debt refinancing, or real estate transactions, greatly increased. And the uncertainty of the impact of those interest rate increases, and the specter of additional increases really killed clients’ appetite for those types of transactions, which then hurt law firms as well.

So, it’s not surprising in this first graphic that Am Law 100 firms are struggling so much, simply because transactional practice work is such a big part of their overall practice mix.

A comparison of overall demand growth from Q3 2022 to the same period in the prior year shows that both the Am Law 100 and the Am Law Second Hundred law firm segments had negative growth of -2.9% and -0.6%, respectively, while the midsize law firm segment had 1% positive growth. While much of this is due in part to the transactional area’s weakness, this trend is also seen in individual non-transactional practices that shouldn’t be impacted by the same macro-economic factors. And that suggests something more must be at play, and the other part of the story involves the level of growth in worked rates and how (or whether) those rate increases are being felt by clients.

Where the work is getting done

Around midyear, a statistic from Thomson Reuters Market Insights began making the rounds that showed about half of legal clients had adjusted their law firm rosters within the past year. So, you don’t have to go too far out on a limb to suggest that clients, in this inflationary environment, may be gravitating to lower-cost law firms, especially as rates continue to rise even as demand falls.

In Q3, we saw that law firms, regardless of size, raised their rates an average of 4.8%, roughly keeping pace with the first two quarters of the year. However, when we looked at data from another independent source — Thomson Reuters Institute’s Legal Department Operations (LDO) Index Survey, published in October — we get a vastly different perspective.

The LDO Index, which surveys corporate law department leaders and relies on Legal Tracker’s data, shows that these clients were seeing substantially less rate increases across the board than the LFFI data suggests. In fact, far from seeing a 4.8% rate increase law firms are charging year-to-date, corporate clients regardless of size have reported that the real growth rate they had experienced was much less and even was negative in some cases

How could this be? For the answer, we need an example to illustrate the phenomenon.

In this hypothetical situation, we can see how corporate clients could be deciding from which segment of the legal industry they’re purchasing their legal services. To illustrate, let’s say you’re a large corporate client and you have three law firms on your roster: one from the Am Law 100, one from the Am Law Second Hundred, and a midsize law firm.

Each one increased the rates it charges you for legal work (using current market benchmarks), with the larger firm requesting a larger increase of 6.9%. The Second Hundred firm increased its rates by 4.6% and the midsize firm by 3.7%.

However, if you, as a legal client, begin to shift your work matters downstream even a bit — say by moving 5% of your work from the Am Law 100 firm and 5% of work from the Second Hundred firm to the midsize firm, which would see its allocation increase by 10 percentage points, you could see a substantial cost savings. Indeed, you would be allocating more work to the firm that charges $311 per hour, rather than the ones charging $523 and $748 per hour, respectively.

That means, you would see the actual rates you are paying for legal services fall by 0.8%, as the chart shows, rather than experience rate increases nearer the industry average of 5%.

This strategy — applied more frequently throughout 2022 — may begin to explain our industry wide data divergence, as clients reported smaller or negative growth in their rates compared to the average law firm’s worked rate growth of 4.8% recorded in the third quarter and YTD.

Given this — and taking into account the shift in demand by law firm size segment, plus the high portion of clients that said they were adjusting their law firm rosters — it all seems to provide strong evidence that clients have begun shifting their legal work to lower priced firms, such as midsize law firms, and are likely to continue doing so into the future as more and more corporate law departments look to do more with less.

However, according to new figures from Thomson Reuters Market Insights, client service today may be less of a differentiator among firms and more table stakes to even get in the door. Additionally, with a probable recession on the horizon and an increasing portion of buyers anticipating a decrease in their external legal spend (17% through the first half of 2022, compared to 22% in Q3 2022), delivering value and efficiency will likely move up clients’ agendas. And that means law firms may need to automate some of their lower-value processes in order to deliver more of what clients really want.

When asked about why they would favor one firm over another, the percentage of corporate clients that pointed to overall service as the reason fell to 31.9% over the past year (October 2021 to September 2022), compared to 38.8% the year prior. Specifically, there were major drops in how many of the 5,000-plus in-house counsel surveyed actually viewed client service (from 16% to 6%) and speed (from 7% to 5%) as major law firm differentiators.

In the place of service, more clients pointed towards viewing expertise and business savvy as key differentiators among law firms. And while this doesn’t necessarily mean that service is less important, it shows rather that firms’ emphasis on service has led customers to expect it on every engagement, says Rachel Heathcote of Thomson Reuters Market Insights.

Service as an expectation

“What it shows to me is that everybody is doing service really well, so nobody is standing out for their service. It’s not a differentiator; it’s just table stakes,” Heathcote explains. “So what we have to be careful about if you’re a law firm is that if you are delivering poor service, then there’s a danger of losing out to competitors that are delivering high service.”

Heathcote also noted that one particular sub-category of service did see an increase in the percentage of clients citing it as a reason to choose a particular law firm: responsiveness rose to 15% from 12% over the same time frame. Coupled with expertise and business-savvy increasing as firm differentiators, this may indicate a client base that is increasingly asking for more active business value out of their engagements rather than simply a good client service relationship.

At the Thomson Reuters Institute’s Emerging Legal Technology Forum in Toronto in October, Fernando Garcia, general counsel at multiple small to midsize corporate law departments over his career, noted that just as law departments are clients of law firms, so too are internal business stakeholders the clients of these departments. And internally, a law department’s objectives are increasingly aligning with the larger business and chiefly focused on providing financial value.

When evaluating outside counsel, Garcia pointed to nine key points of value he wants to see in any relationship with a law firm, including:

1. 1. 1. Make my life easier;
      2. Make us look good as a law department;
      3. Give me the tools to achieve our goals;
      4. Don’t force me to chase you;
      5. Don’t work just to cover yourself, be part of the solution;
      6. Make it such that it’s practical, simple to understand, and we can deal with it;
      7. Quality support on a timely basis;
      8. Reduce a risk but never say no; and
      9. Help me never get caught off-guard.

While there are certainly service elements in play, it’s perhaps no surprise that each of those value points largely deals with business objectives rather than building relationships. “Whatever it is, you’re adding value by letting me add value to my stakeholders and our board,” Garcia adds.

Law firms, no matter the size, are beginning to hear this call loud and clear. The Thomson Reuters Institute’s 2022 Report on the State of US Small Law Firms released in November found that even among law firms with 30 attorneys or fewer, the largest challenge remained spending too much time on administrative tasks and not enough time practicing law. Indeed, 80% percent of small law firms surveyed pointed to time spent doing administrative work as a challenge, even more than acquiring new client business or any other challenge identified. Yet even so, 82% of those small firms said they did not feel they were addressing the time it takes for administrative tasks as well as they should.

This is where technology can play a role. By automating some parts of the administrative process, law firms can free up their most important asset — their people — to do what they do best: use their skills, expertise, and experience to add value to the client’s business. It’s no surprise then that while the report found most small law firm technology budgets are staying the same overall, the technologies seeing the largest increase in investment dollars mostly have to do with back office automation, such as billing & invoice software, timekeeping software, and customer relationship management software.

Now as we move into a post-pandemic yet economically unstable environment, it may be a good time for law firms to re-visit conversations with their clients about preferred methods of communication, where new technologies can fit into the process, and what the client ultimately values in their law firm engagement, adds Heathcote.

“People were working in a different way during the pandemic. It was crisis time, and everybody was working remotely,” she says. “But now, some people are in the office, some people are at home, and people’s situations have changed. So it’s a good conversation to re-visit, especially now that things have settled down.

“In fact, it’s a good conversation to re-visit at the outset of any matter, because those preferences could differ depending on what the matter is or what stage it’s in.”

You can learn how to stay on top of clients’ changing priorities by leveraging market trends and practical advice, here.

Not insignificantly, many law firms became entangled in an ongoing competition for top legal talent, adding to their overall costs; at the same time, many also began seeing early hints that legal demand was slowing in some practice areas.

Taking stock of all this, the newly published Law Firm Business Leaders Report attempts to gauge the mindset of US law firm business leaders — managing partners as well as those allied professionals who are responsible for running their firm’s business operations and may be the proverbial canaries in the coalmine in regard to future challenges to firms’ bottom lines. This annual report is published by the Thomson Reuters Institute, in partnership with the Center on Ethics and the Legal Profession at the Georgetown University Law Center and the True Value Partnering Institute.

The report shows that law firm business leaders see general economic worries ­— inflation, potential recession, ongoing war, supply line disruptions, and a charged political environment — as major threats to the continuing profitability of their firms.

Concerns over general economic pressures were cited as a high risk to law firm profitability by almost one-third of those surveyed, twice the level of those who thought this in last year’s report

Indeed, concerns over general economic pressures were cited as a high risk to their law firm’s profitability by almost one-third of those surveyed, twice the level of those who thought this in last year’s report. In fact, these worries moved to 2^nd place in the list of most-cited risk concerns in the survey, up from 9^th place last year.

It’s as if there’s been an outward shift in law firm business leaders’ gaze toward the uncertain world outside the office. Underscoring that, law firm business leaders identified fears of outside cyber-attacks by illicit actors as their number one most concerning threat, with 42% of those surveyed citing it as a high risk to firm profitability. These fears about security breaches, hacks, ransomware demands, and data loss, marked its first appearance as a survey option choice in this year’s survey.

Of course, the report reflect only dismal thinking. In a move toward the positive, most business leaders who were surveyed said they expect at least a medium level of growth across many of their firms’ practice areas, and even a high level of growth in practice areas such as intellectual property and mergers & acquisitions. And more than half (52%) said they expect one key financial metric, profits per lawyer, to grow moderately over the next three years.

Yet, even as law firm business leaders begin to map out their business strategy for the next few years by taking steps to improve their firms’ financial performance — raising rates, improving technology, supporting more remote work, and increasing cross-selling throughout the firm — many are keeping at least one wary eye outward, on the horizon, and wondering if those darkening clouds signify a more worrisome future.

You can download a copy of the Thomson Reuters Institute’s “Law Firm Business Leaders Report” by filling out the form below:

Seating is extremely limited and available on a first come, first served basis to allow for collaborative and candid discourse.

Stay tuned for our agenda release in Q1 2023.

Registration is complimentary with registration for the 22nd Annual Law Firm COO & CFO Forum.

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The potential growth that law firms could see with existing clients is huge, yet it is still a minority of clients that are invited to take part in a formal feedback program.

In our recent webinar series, I wanted to tackle this issue head-on by breaking down some of the barriers that firms are facing as they try to build a successful client listening program. I also wanted to look at how firms were setting themselves up for success.

Our research shows that client listening initiatives provide a unique opportunity for law firms to develop deeper, broader relationships with their client base and stand out quickly from the competition in their clients’ minds. The webinars not only offered  attendees some new ideas and best practices, they potentially provided inspiration to those client-listening ambassadors within law firms who could use the insights to create or sharpen their own client listening plans.

Getting started

The webinars devoted some time to how law firms can begin to tackle the fundamentals of getting started, how to scale up a client listening program, and the importance of connecting client listening to firm strategy. Attendees also heard a lot about the ambitions that many law firms have for their client listening programs, as well as the challenges they face in bringing these aspirations to life. For example, we know the rationale and benefits for doing client listening far outweigh the trouble it takes to actually bring a program to life; so, why then are only 20% of clients being invited to share feedback formally with their outside law firms?

In fact, we put this question to the webinar audience to better understand the main challenges getting in the way of a firm’s client listening success. Not surprisingly, at the top of the list was the fact that leadership was not mandating the program.

Other factors cited at the top were partner-related obstacles: Partners won’t allow access to clients (second-most cited reason); and they aren’t supportive of the program (third-most cited). It’s clear that more work is needed to convince partners of the benefits client listening programs may have on growing their own practice. Of course, the success of initiatives like this begins with firm leadership — and they must own the responsibility for encouraging and supporting a program, too.

You can learn more about creating a top-level client feedback program here.

Client listening may be the single most important step in securing the long-term future of a law firm — without it firm leaders and partners can’t know for sure how their clients are experiencing the firm, their propensity to consider the firm for future work, or indeed, what their future legal needs may be.

Of course, client listening is a two-step process: Asking is just the first step; and acting on the information is the crucial second. In fact, one of our key messages on client listening is without the commitment to act on what you hear, you should not start asking.

Planning the program

This diagram below shows the four key stages that law firms should consider when planning a successful client listening program:

• • • First, the program should start with careful planning and thought as to what the right input, in terms of stakeholders and engagement, would be. Set clear goals to define the purpose of the research program, and choose the right clients to include.
    • Then, these inputs will determine your program design, which includes determining which methodology is most appropriate for your firm’s needs, based on which clients your firm is researching, what you aim to learn, what you should be asking, and how you will resource the program in terms of skills and capacity.
    • Our message is “Ask and Act”, so that makes the actions that are derived from the program’s results become as important (or more so) as asking for feedback in the first place. How will your firm be set up to work with the results? How will the results be shared around the firm? Who will be accountable for following up?
    • Finally, a review stage requires that you check back periodically with clients to see how firm performance has improved based on clients’ feedback. With this information, firm leaders can assess how successful the program was in line with its goals.

There is much talk within law firms today about collaboration, cross-practice activity, and institutionalizing relationships with clients across the firm. Until firms and their leaders truly walk the journey of clients by listening and taking steps to engrain client listening in the firm culture and make it a part of how the firm does business, however, all this will remain just that — talk.

In the second part of this series, we will look at how to gain support within the firm and with clients for client listening programs

As we rush towards the end of 2022, this quarter’s number may point to the many difficult decisions facing law firm leaders going into the next year and beyond.

Key takeaways in Q3:

• • • Direct and overhead expenses grew at elevated levels;
    • Transactional practices continued to contract, especially at the top of the market, while non-transactional work remained flat; and
    • Productivity contracted by the largest margin since the beginning of the pandemic.

Growing expenses and a dearth in demand were key reasons why the third quarter’s score came in at 36, the exact same score as the second quarter. Once again inflation and return-to-office strategies contributed to growing overhead expenses that continued to vex many law firms. While this quarter saw a slowing of growth compared to the previous quarter, overhead growth rates still remain exceptionally high. Direct expenses, those consisting of compensation and benefits for all attorneys who are not equity partners, experienced a similar slowing, but continued to maintain elevated levels which put additional strain on firms as demand continued to fall.

This fall in demand was primarily driven by shrinking activity in the transactional practices — which includes corporate, tax, and real estate work — most notably in the merger and acquisitions (M&A) practice area. The contractions experienced in these areas has recently had a greater impact on the overall demand as companies leveraged their business more towards transactional work during the pandemic boom times. This, combined with elevated baselines from the previous year, has resulted in poorly performing demand as expenses rise.

The productivity picture

Given this dichotomy between expenses and demand, it was not surprising that productivity dropped to some of its lowest levels seen in recent memory in the third quarter. Indeed, it was particularly worrisome to see such dramatic losses in hours per lawyer. Yet even with productivity’s obvious shortfalls, lawyer growth did not slow, as firms continued their seasonal hiring. Consequently, the decision to cut headcount going forward likely weighs heavily on the minds of many law firm leaders.

All of this combines to paint a bleak portrait for Q3, however there were some positive areas. One area of note was the Midsize law firm segment, which saw demand and revenue grow at the fastest rate in the market, a historical rarity. In the face of falling transactional demand, labor & employment and litigation work proved to be some of the more robust areas of Q3, and many Midsize law firms were able to capitalize on this development.

Another area with a relative positive outlook was rate growth, in which we saw rates grow across the segments at a faster pace than in Q2. These gains, unfortunately, were not enough to overcome inflation and thus the real gains were less than impressive.

Throughout Q3, it seems that firms have decided to weather some short-term losses in this harsh environment in hopes of a more promising future. For now, that promising future sits in the shadow of profit per lawyer (PPL) declines; and this quarter saw the third consecutive slide in PPL.

Even though lawyers still remain more profitable than their pre-pandemic levels, those gains are rapidly dissipating as time runs out in 2022.

You can download the full Law Firm Financial Index (LFFI) for Q3 2022 report below:

However, in uncertain and hectic times – like now – only so much time and resources can be used to take measurements and assess results.

With budgets under rigorous scrutiny, a dearth of affordable talent and cost containment becoming a mantra, it’s important for law departments to determine what data matters most. First, department leaders must make the time to identify and measure the most impactful information.

Simply put, measuring what matters most is intended to prove your department’s value to the business. Most other divisions of any company analyze revenue, profits and their spend in a variety of categories, as well as new business, lost business, the cost and retention of talent, and diversity inclusion. The law department needs to be part of this effort, speak the same language, and prove that it is tracking according to clear, measurable targets of the same type. The general counsel who measure and prove that they are meeting defined numeric targets, and speaking the language of the business and business leaders, are the general counsel who become integral to leadership.

Additionally, measuring a few key things can really boost morale of your teams. People who understand their goals and the goals of the department are more open and productive. They suggest improvements or new approaches in order to reach a collective goal. They feel that they are working toward something specific, rather than just working. And communicating and striving for transparent, measurable goals enhances respect for the leaders pursuing such goals.

The fact is that metrics prove where we are and whether we are improving. For instance, if a company has a goal of increasing diversity by 5%, the law department should measure its diversity and work to also increase it by 5%. If the general counsel is tasked with reducing spend, a measurable goal will be assigned – it could be a spending reduction of a certain percentage or a set amount of money, but it is undoubtedly a measurable number. Understanding this aids in attaining measurable adjustments.

People who understand their goals and the goals of the department are more open and productive. They suggest improvements or new approaches in order to reach a collective goal.

How can you identify the most important metrics? Match your metrics to those of the company itself and of the C-suite. If the company wants to grow sales, the law department should prove that it shortens the time to sign sales contracts. If the company wants to improve diversity, the law department should prove that it has increased its diversity hiring, leadership, opportunities, and pipeline. If the company wants to reduce head count, the law department should assess its own headcount, its organizational structure, and the internal resources it uses. Then the law department should study a restructuring of roles and responsibilities, or determine how to rearrange work so that less full-time employees in the law department are needed. Align what you measure with the most important objectives of the company to prove that you are a key contributor.

Some of the most important measurable goals of today’s business world are geared toward talent retention, enhancing productivity, hiring for the right roles, measuring the legal team’s performance improvements via 360-degree input from the in-house clients, cost reduction, and outside counsel reviews and measuring the legal team’s performance improvements via 360-degree input from the in-house clients. Imagine if a GC was able to show the corporate board the law department’s legal spend has decreased by 10%; or its retention of diverse employees has been 100%; or it was able to reduce other vendor costs by 5%. Those statistics are powerful in proving the law department is valuable to the overall business.

Fortunately, these measurements aren’t that hard to accumulate. For example, the amount spent on legal fees is already known. Most GCs probably even know what is spent on legal fees per business line or per types of matters. Because that information is easily available, it is also easy to discuss with the department’s outside law firms in order to negotiate for cost reductions. Most law firms would be happy to keep your fees flat for a year rather than lose all your business, and keeping fees flat saves a calculable amount of money. Or, ask firms how they think the law department could be better structured in order to reduce fees.

For example, one of my clients and its firm realized, upon investigation, that time and expense could be reduced by training an expert in the company’s IT department to handle discovery responses, rather than randomly asking anyone in IT to handle these requests.

Another example is a law department I advised that educated a particular HR employee on how to search for lawyers, achieving quicker and better hires and reducing search firm fees, rather than simply assuming that anyone in the recruiting department could do excellent legal searches. The department was able to record and communicate how much money it saved on recruiting fees by investing in that particular HR colleague.

These success stories, fortunately, are not rare – they just take some initiative and collaboration.

Additionally, when a department has the ability to make a new hire, they should be sure to hire for the right roles. Just because a senior contract lawyer just left doesn’t necessarily mean there is an immediate need to hire another senior contract lawyer. Perhaps a mid-level contract lawyer can take on more responsibility, undoubtedly at a lower cost than going to market for a senior person. This is the kind of measurement that is sure to please – it saves thousands of dollars and allows a junior lawyer to develop vital skills.

If a law department doesn’t have the time or resources to embark on these types of key measurements, then it should hire a consultant for help. Believe me, the cost of hiring an expert to prove your worth and meet measurable goals is tiny compared to the progress that will be achieved and the savings that will be realized.

The bottom line is this: Data analytics is just another way of saying you can measure where you are and therefore track your improvement. Almost anything can be measured – all you need to do is figure out whether the law department and the overall company will benefit by improving these metrics. Then, it’s just a relatively simple matter of looking for easy-to-find numbers, working with your teams and figuring out ways to improve.

And most importantly, GCs should be sure to use the measurements and improvements that are achieved to make the case for their departments’ value to their corporate boards.