"Managers tend to pick a strategy that is least likely to fail rather than pick a strategy that is most efficient. The pain of looking bad is worse than the gain of making the best move."
--Michael Lewis, "Moneyball"
No One Ever Got Fired for Buying IBM
Our biases often cause us to see what we want, which means that we may not always make the best decision. Although controlling and forecasting costs are top priorities for corporate legal departments, human biases often obscure decision making and can end up costing the company millions in lost savings opportunities.
Today's legal departments are now held to the standards of other business units in terms of budget predictability and cost control. According to a recent survey (1), 94 percent of law departments feel pressure to demonstrate value to the organization beyond providing legal expertise. The survey also found that 78 percent of law departments are experiencing demands by CEOs and CFOs to reduce spending on outside counsel. (2)
"The message to today's GC is clear: It's no longer sufficient to be a great corporate lawyer. It's now a job requirement to be an effective business manager who can also communicate the value of his or her legal department to the company." (3)
Unfortunately for most general counsel, this is easier said than done. For years, in-house and outside counsel widely have believed that legal services belong in a separate category of corporate spend--one that is impossible to predict. Clients were indoctrinated successfully to believe that every case merited a custom-tailored approach, every matter can be characterized as high risk/high complexity and legal services are so relationship-driven that efforts to predict or reduce costs would undermine the quality of representation. Legal spend was even so "untouchable" that it was common for clients to receive a one-page bill containing one line and a lump sum: "Fee for services rendered."
In the same way that baseball teams make the mistake of focusing on the number of runs batted instead of how often players got on base, legal departments rarely venture beyond the old school, gut-based decision criteria for outside counsel selection and management. And without considering the data, clients and law firms are at a loss when it comes to negotiating fees, structuring alternative fee agreements and evaluating staffing profiles.
Analytics: Data That Answer Questions
"It's about making uncertainty a little less uncertain." (4)...