6 Steps to Demonstrating the Value of an In-House Legal Department

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Covid-19 has placed an unprecedented strain on corporate spending.

Budgets are under greater scrutiny than ever, which increases the pressure on internal departments and teams to demonstrate their value.

This presents a particular challenge for in-house legal teams.

As an industry, we’ve traditionally struggled to categorically demonstrate the results of our actions. It’s not often possible to directly link the ideas, explanations or warnings of a lawyer to the outcome of a specific transaction or dispute. And if positive contributions are difficult to quantify, that counts double for instances when the “added value” is the avoidance of loss.

So with no financial return to demonstrate and a departmental budget to protect, how do legal teams prove their ROI in a post-coronavirus world?

1. Survey internal clients

For an in-house legal team, your clients are internal stakeholders.

Measuring the satisfaction of these internal clients can be one of the most effective ways to demonstrate the value and effectiveness of your team. After all, if the people who rely on your counsel day in, day out feel that you’ve actively helped them win business or avoid loss, this is arguably the most meaningful proof you can provide.

Satisfaction surveys are most valuable when repeated and re-assessed over a regular period, ideally quarterly or half-yearly. Hopefully, you will be able to demonstrate that satisfaction – and, by extension, value – is increasing over time. But this approach should also help you identify and resolve issues that are hampering your team’s ability to make a positive impact.

2. Measure against industry benchmarks

Sometimes, the best way to assess the ROI of your own legal operation is to look outward.

By considering how much other organisations are spending on their legal departments, it’s possible to demonstrate in simple terms the comparative “value for money” that your team provides.

Various benchmarks of this nature exist:

  • The Law Society found that the average overall legal budget represents 0.6% of revenue, rising to 0.9% within Business Services, but dropping to 0.4% and 0.5% respectively in Consumer Services and Primary Production.
  • According to the Corporate Legal Operations Consortium, average legal expenditure as a percentage of revenue stands at 0.5% for large companies (with revenue of $10b+), 1% for medium-sized companies ($1b-$9.9b), and 2.7% for small companies (less than $1b). The split between internal and external costs was found to be roughly equal.
  • Acritas, part of Thomson Reuters, discovered that on a global level, companies in the real estate industry spend by far the highest proportion of revenue on legal costs at 0.89%. Banking (0.48%), tech / media / telecoms (0.45%), hospitality / leisure (0.42%), and not for profit (0.41%) round out the top five.

3. Charge internal clients for legal time

Perhaps the best way to definitively demonstrate that your team provides clear value is by charging internal departments for the legal time they use – in other words, lawyers’ costs directly hit the budget of the relevant business unit.

If your services are still being heavily utilised across departments, despite the associated costs, it shows that those departments place substantial value on the services you provide.

Again, any changes in utilisation can be measured and reported on over time to (hopefully) illustrate growing ROI – or if not, to take steps to rectify any decreases in activity.

4. Market the department

To some extent, it’s incumbent on the legal department to educate the wider business on what the “ROI” they provide actually looks like. If it can’t be defined in purely monetary terms, how should it be measured?

This is where it becomes vital to market your department to key stakeholders. After all, they aren’t legal experts. They can’t be expected to immediately understand your value, because they lack the context or in-depth knowledge of how seemingly small legal actions – a note of caution here, a piece of advice there – can ultimately have a significant impact on an organisation’s bottom line.

Marketing the legal department is a long-term project. It requires a concerted commitment to build the brand of your team as hard-working experts who create real value. Shout about your successes – and ensure that they’re being seen, and discussed, at C-level.

5. Demonstrate productivity by tracking time

Many lawyers are pleased to see the back of time sheets when they move in-house, but they can be a valuable weapon in the law department’s arsenal when it comes to demonstrating ROI.

Most lawyers are already familiar with the practice of time recording, which is used by law firms to account and bill for time spent. In our experience, it is largely disliked – but it serves a purpose, and may therefore be accepted by in-house teams as a necessary evil.

While “value” and “productivity” aren’t one and the same thing, tracking time can at least help you to build a business case for your team. By showing that your ilawyers are being productive – in other words, spending X% of their time on tasks Y and Z – you can illustrate that they:

Have a full workload; and
Are using their time on beneficial activities.

There are various tools available to track your lawyers’ time, including:

Toggl
Harvest
Everhour
Timely
HourStack

Once again, benchmarks and reporting can be highly effective here, allowing you to demonstrate efficiencies (more on this in the next point).

6. Highlight efforts to drive efficiency

Demonstrating that the legal department is a lean, efficient operation can go some way to proving that the department’s budget is being well spent – and therefore needs to be safeguarded.

The work you’ve done in point five – identifying exactly how your lawyers are spending their time – is invaluable at this stage. For instance, Gartner revealed that 63% of in-house legal work is either “routine” or can be standardised. How do you stack up against this benchmark? And is there an opportunity to achieve efficiency savings through templating, creating self-service tools for internal clients, or adopting standard rules around recurring actions?

What’s more, the same Gartner study found that 93.5% of in-house departments’ external spending goes toward law firm bills. Can these costs be reduced through upskilling your own team?

All of these measures will help you paint a picture of an in-house law team that is being effectively utilised, operating with the business in mind, and adding genuine value in its transactions.

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We build meaningful partnerships, offering support, insight and market intelligence to in-house legal teams, regardless of whether they’re currently in the market. Find out more about our in-house commerce & industry expertise.