Cutting Legal Costs

Workload for the average law department has grown, but this has not made them immune to pressure for improved cost control and reduction. Achieving this can be challenging, especially since spend management discipline is not an innate competency within these departments.

To succeed, in-house legal must undertake greater analysis of current expenditure, as well as finding alternative delivery methods. A new study by IACCM indicates that most cost reduction efforts have focused on spend with outside-counsel – understandably since this is the largest area of expenditure, but with the risk that such a focus misses wider opportunities for innovation.

To date, alternative delivery methods such as increased automation or use of low cost providers have been limited – and surely must be set to increase. Indeed, recent research shows that more than 70% of large in-house legal groups anticipate the introduction of new technology[1] – but few seem clear on what that technology will be or what purpose it will serve.

Even though there is such a strong focus on cost reduction, the relationship between Legal and Procurement functions remains at best tenuous and those legal groups that do engage Procurement report mixed results. The main exceptions appear to be when the Procurement resources are embedded within Legal; this closer alignment generates increased trust and shared objectives.

Based on this and other research, IACCM offers two observations:

• The major impact of new technology is likely to come from investments outside the Legal function. One will be through broader business initiatives such as RPA (robotic process automation) and blockchain, where lawyers will become more integrated participants in overall business processes and data flows. The other will be through external providers offering technology-enabled services (systems using artificial intelligence, natural language processing) such as litigation support, M&A analytics, contract standards and benchmarks and ‘big data’ analysis.
• Legal departments are conflating increased value with lower costs. While cost reduction is important, it is not in itself a source of business value. To date, many in-house legal groups have not adequately examined their role and contribution in the context of the strategic goals of the business. As a result, they will struggle to demonstrate ‘value-add’ in a wider business context and to show a meaningful return-on-investment (ROI). Without such data, the pressure on cost reduction will continue.

[1] Source: HBR Consulting June 2018

This blog is extracted from an IACCM survey report, ‘Legal Department Spend & Resource Management’, to be published in July 2018.