The Value of KPIs in the Legal Department

Most corporate legal professionals see the value in using data to improve performance; however, Hyperion Research data indicates less than one-third of corporate legal departments are actually using data-driven analytics. Yet 58% of the same survey respondents believe that company executives understand the risks and opportunities presented by their legal matters, and more than half feel confident that they understand and can manage the entire matter lifecycle. For legal departments where analytics aren’t being used to manage matters and risk, the survey data implies that general counsel anecdotally understand their matters and the risks the legal portfolio represents. Management without data is certainly viable for small legal departments with low volumes, but for more complex legal departments there is greater risk in managing the legal portfolio anecdotally, increasing the benefit of using a data-driven approach.

I recently presented these insights at a Hyperion conference alongside Hyperion Global Partners President, Eyal Iffergan, during a keynote presentation focused on transforming legal service delivery. In the discussion, we covered several topics related to what it takes to achieve operational excellence in the legal department. Hyperion data indicates a majority of legal department executives, roughly 71 percent, see the value in investing in technology to improve the legal department’s performance. The value they are receiving likely stems from efficiency gains, improved workflows, and outside counsel expense savings that can be achieved through Enterprise Legal Management (ELM) solutions such as LexisNexis CounselLink, but much greater value can be unlocked through the regular use of analytics and metrics.

How Technology Supports Performance Measurement

Establishing Key Performance Indicators (KPIs) begins with a clear understanding of the specific initiatives that will help a legal department meet their goals. For example, in order to meet budget targets, a general counsel might plan to use more fixed fees in the upcoming year. If this is a critical initiative for success, a KPI should be established to assess whether the department is on track. Multiple metrics could be used to track progress, (e.g. the percentage of new matters set up under a fixed fee structure, the percentage of billing under fixed fee structures, the percentage increase in billings under fixed fees over the prior year, etc.) However, only one of these metrics should be selected as the KPI related to this initiative.

When putting KPIs in place for the legal department, it’s better to identify a smaller number of KPIs to reflect what matters most to the legal department. Legal department leaders need to know the right information to manage the department toward its goals, not just more information. It is recommended that a KPI program contain 10 or fewer metrics. Also, while most legal departments tend to focus just on financial metrics, there are several types of KPIs on which legal department performance can and should be measured, including:

• Financial
• Legal Outcomes
• Risk Management
• Efficiency

The question then becomes, how do corporate legal departments use technology to support a KPI program? Data contained in ELM and other solutions can be very useful if captured and mined appropriately. There are two primary obstacles that legal departments run into when leveraging technology for metrics reporting – one is that data exists in multiple systems; the second is that data integrity is compromised due to poor coding or inconsistent use of systems. Taking advantage of integrations between systems such as those offered by CounselLink and carefully thinking through potential data hygiene issues prior to implementing software are steps that can help overcome such hurdles. For example, in order to track volume of matters set up under fixed fee arrangements, a CounselLink customer would ensure that a fee structure was established to properly support such arrangements.

Hyperion research indicates that 75% of legal department executives believe that the biggest obstacle to reporting on KPIs is a lack of well-defined metrics, and that 54% believe there is a lack of information or data. These perceived obstacles are somewhat surprising — it is certainly true that it requires discipline and some effort to define metrics that tie to departmental initiatives, but many consistent metrics are used within the industry today, and resources are available to advise on legal department metrics. With regard to a lack of data — any legal department using an ELM solution has a wealth of data to draw upon in order to report on metrics. Once KPIs are defined, a general counsel may realize they need to track additional data in a custom field going forward. That need should be easily handled within an ELM solution.

A well-designed KPI program provides timely insight for legal department leaders to proactively make decisions that will help the department meet its goals relative to outcomes, risk management, and financial oversight. The same metrics, when shared with the broader organization, improve communication, break down silos, and showcase the value of the legal department.

This is a post authored by Kris Satkunas, director of Analytic Consulting for LexisNexis CounselLink. Kris routinely consults with legal department leaders interested in developing successful metrics programs.