Directors of in-house legal departments face unprecedented pressure to reduce outlay on legal services, and it is tempting to think technology can help. What’s on offer from various vendors today is a single software system that will, in theory, automate matter management, e-billing, document management and reporting tools, and take 5 to 20 per cent off legal expenditure – savings that go straight to a company’s bottom line.
It sounds great. But technology implementations are often tricky. Chances are that a chief financial officer has already been stung in the past by some magical black-box solution that ended up being a waste of time and money. By the time your company’s technology department has ironed out the kinks and everyone has learned how actually to use the system, will it have been worth sticking your neck out to ask for the investment? The answer is an unqualified ‘yes’.

Can’t measure, can’t cut

Not only will GCs save their companies money, they’ll get an amazingly clear view into all the business’s legal counsel activities. Suddenly, a GC will be able accurately to track and deliver detailed reports on legal expenditure by matter type, business unit, law firm or region.
That level of detail will empower them to use the data to drive decisions on panel selection or sourcing strategy. It’s hard to quantify that benefit exactly, but the current business mantra is: if you can’t measure it, you can’t cut it.
We’re not talking magic here. Maximising the benefits of a legal spend management system requires an intelligent, layered approach. Basically, there are four key factors driving return on investment on a legal spend solution: process efficiency, billing guideline enforcement, quick pay discounts and full spend management and budgeting.
Taking those in turn, regarding process efficiency, it is absolutely crucial to assess what a department is already allocating to legal spend processing.
Typical costs when not operating an integrated e-billing and matter management system include the current cost of internal technology support for the hand-built or legacy databases or client/server solutions, including multiple solutions or databases that have to be separately supported.
Furthermore, old systems tend to use a lot of paper and highly compensated staff (lawyers and paralegals both within and outside the legal department). When some of the pioneers in legal billing conducted time and motion studies of the costs before and after introducing e-billing, they found data entry of a typical paper invoice from end-to-end cost £37.50, compared to less than £7.50 per invoice using a fully automated system.

Paper bills

Another target for cost-cutting is enforcement of the legal department’s business terms or outside-counsel guidelines. Typically, these are ineffectively communicated and even more loosely enforced. Often the pain outweighs the benefit if you factor in adjusting a paper bill by hand, playing ‘telephone tag’ with the law firm and manually entering adjusted data.
In contrast, e-billing technology automatically rejects unapproved rates or activity or actively alerts the relevant person that attention is needed. Here, companies will typically observe a 5 to 8 per cent saving in gross legal spend.
Interestingly, the solution can be attractive to the law firms themselves, as they tend to get paid faster.
Legal departments typically lag well behind the rest of a company in analysing and paying their more complex bills. Payment/receivable cycles often run 60 days to 120 days, with problem bills taking even longer. Many market-leading legal departments have obtained significant ‘quick pay’ discounts of around 2 per cent from their external firms and legal vendors for a reduction to 30 days.

Holistic approach

Lying on top of these three layers of return on investment is the opportunity to impose a more holistic approach to expenditure, known as full spend management and budgeting.
Just as important as driving measurable savings to the bottom line is the way a well-designed and implemented legal spend management system enables general counsel to get visibility into every aspect of their global legal function through the use of easy-to-interpret dashboards, which allow them to stay ahead of the demands of the business.
This is something that is difficult to measure in hard figures, but is intensely desirable all the same.
With all these benefits, it might just be time to approach the boardroom with the idea of pulling legal spend management into the 21st century.

Scott Walker is European managing director at TyMetrix, a global legal sector technology company