What Are Legal Department KPIs Anyway?
Key Performance Indicators, or KPIs, are measurable values that demonstrate how effectively an organisation is achieving key business objectives. Legal departments should utilize KPIs to help gain insight into department performance, whether the goal is improvement, better cost control, resource allocation or streamlined internal operations . KPIs can help provide answers to questions such as: where does the department excel, what are we doing well, where do we find the most savings, where are there the most missed deadlines, and how long on average does it take to close a matter. KPIs enable data-based decision making and help with the alignment of departmental goals with the overall strategic vision of the organization. KPIs should be relevant, quantifiable and easily accessible. Typically KPIs are reviewed on a quarterly basis to allow time for evaluation and adaptation to business needs.
Key Legal Department KPIs
For legal departments to be viewed as a valuable asset, as opposed to a cost center, they must focus on Key Performance Indicators (KPIs) that result in improved performance. There are two essential aspects to KPIs – the metric being collected and the analysis and resulting process improvement actions taken. The matter analytics process provides legal departments with meaningful insights to help them become more efficient, improve quality compliance, and ultimately justify their value and related expense.
An example of specific metrics to measure include:
· Matter resolution time
· Cost per matter
· Client satisfaction ratings
· Compliance rates
· Realization, collection and loosed rates
· Average Length of time to close matters
· Matter risk settings and profile rankings
· Matter portal usage
· Total hours of time logged per matter
· Matter staffing and departmental personnel performance rankings
· Allocation of discounts per matter
· Sub-contractor allocations by matter
· Pricing variances per matter type
· Paralegal and staff productivity
· Total profit per matter, hour, attorney, and department
· Cost per page for scanning and copying
· Time to reach closing settlement terms
· Matter settlement terms
· Pre-closing discussions and litigation matrix
· Negotiation impediments and problem listing
· Litigation progression steps and task lists per matter
· Negotiations statistics
· Representation details and profiles
· Matter progress report card
These examples are only a sample of the KPI metrics tracked in a literature conveyance process. Several other metrics can and should be added or included to enhance broader departmental insights.
Implementing KPIs
Successful implementation of KPIs within a legal department requires a considered approach that takes into account the remote nature of the department and the myriad of responsibilities assigned to it. An effective approach is to leverage the expertise found within the department itself by ensuring that KPIs are agreed upon and set by those who will be responsible for delivering them. If the purpose of KPIs is to drive improvement of performance, then it is essential that the delivery of the KPIs is recognized by the team as appropriate, feasible and relevant. When team members have been involved in the process of determining what the KPIs are, they are more likely to take ownership of them and to ensure that they are delivered and maintained. Delivering KPIs can be achieved through the diligence of the team within the department, but it is essential that those at the very top of the function are committed to ensuring the KPIs are viewed as central to the success of the department. Changing the behavior of those with a long history of working without KPIs, let alone those who have been resistant to KPI development, can be difficult. If they are left to believe that the KPIs are simply a tick box exercise that they can ignore, then the likelihood of meaningful adoption is low. Ensure that the C-suite understands the importance of the KPIs themselves but also as a method of improving the effectiveness of the legal department. We advocate that the top-level performance KPIs are reported to C-suite regularly and in an understandable format. It is essential that these KPIs are recognized by the business as relevant because unless they are understood by the business, they will not have the power to affect change. Bringing it all together Keeping the team engaged and committed to the delivery of the KPIs is at the heart of ensuring that the performance improves. If teams are clear on their role in delivering the KPIs and see them as an important part of their job, then they are more likely to invest the extra time and effort required. For the senior team, buy-in and understanding are essential. Unless you engage both the C-suite and line management on the progress of your strategic initiatives, including the KPIs, they are unlikely to buy into them. It is only when the KPIs are seen as an invaluable part of the business that they will be adopted and utilized effectively.
Tracking and Evaluating Your KPIs
The effectiveness of the performance measures you have implemented is only as good as the system you have in place to continuously track their progress and respond to their messages. Whether using a balanced scorecard, dashboard or some other approach, sticking to the KPIs you’ve selected requires consistent checking. Diligent monitoring of legal department KPIs is critical. The effectiveness of the KPI as a performance measurement tool for the legal department hinges on the data you have selected to use and how often you are reviewing performance across the board. KPIs are not one-size-fits-all, so the tools for tracking and evaluating them also differ according to business goals and strategies. Several examples of such tools include Software as a Service (SaaS), Microsoft Excel Spreadsheets , Enterprise Resource Planning (ERP) applications or a combination of all three. Technologies enable and simplify the ability to analyze important legal department metrics. Many solutions allow for consolidated, real-time, interactive tracking of everything from budgeting, paralegal and legal assistant productivity, matter-level budget vs. actual, to the number of matters handled by external counsel and average fee to perform various activities on standard matters. Regular review and analysis of key performance indicators enables the legal department to proactively adjust in order to stay aligned with changing business goals and client expectations, as well as legal department objectives. Not to mention it allows you to respond in real-time to problem areas and take advantage of passing opportunities.
The Challenges Associated with KPIs
Despite the clear advantages of using industry-standard KPIs, most legal departments face significant challenges in collecting, managing and interpreting the data they are responsible for preparing. In the past 10 years as we’ve installed our legal business intelligence system at various law firms and corporate legal departments, we’ve come to realize that there appears to be an ‘invisible wall’ that has prevented many law departments from implementing and actively using legal KPIs. This barrier appears to be fundamentally based on the fact that KPIs require one to embrace the concept of measuring the efficiency and effectiveness of one’s department, as well as the true success of the firm. This is in stark contrast to the traditional view that the primary role of a law firm was simply to measure "how much" (i.e. the time spent on the matter) and then bill for everything.
What have been the primary causes for the resistance to adopting KPI metrics in most legal departments? There are several main factors that we have come to understand over the past decade:
Another type of problem that many legal departments experience is the effect of a shift in long-term or short-term priorities or focus. For example, when a new GC comes in with his or her own priorities or strategic plan, past historical performance may suddenly become obsolete. As opposed to looking at each person based on their individual performances, the company may decide to share bonuses or tie salary increases to a collective measure (for example, adding the expenses of the department and the anticipated outside counsel’s bill for the entire next year into the budget). In other words, the company may decide to determine performance based solely on the costs of legal services. If this new GC does not appreciate or understand that some firms are faster and/or less expensive than others in supporting the company’s activities, some firms may get penalized.
A granular analysis of individual lawyer performance may become obsolete. The department may base future decisions on a strict basis of cost only, without regard to particular external counsels’ strengths or weaknesses. For example, if one firm does better work faster than another, but costs are exactly the same, the more experienced firm may be "rewarded" by getting less work. This shift creates a valuable opportunity for a savvy GC with a sophisticated legal billing system to reward and penalize lawyers based not just on their true cost to the company, but also by a combination of speed, quality, and cost. In particular, if the legal department is using alternative fee arrangements, the ability to receive high quality information becomes indispensable.
One of the other common issues we’ve observed with many law departments is to see how a particular historical metric is handy when it suits the current company management’s interest, but becomes irrelevant when its outcome is not optimal.
Another trap that many law departments fall into is that some sections of the legal department are much further along then others when it comes to the implementation of KPIs. This creates the worst of two worlds: it introduces a perception of bias, but also creates a tremendous amount of work when it comes to compiling a set figure that is consistent across all parts of the department.
Finally, a very common problem we have observed is a disconnect between the purpose of the KPI and how that KPI is actually used. In particular, many companies have started measuring matters instead of cases, but the sheer measurement of "how many" cases or matters are handled becomes the most important KPI, and the "why" is becomes irrelevant.
Using KPIs to Enhance Legal Department Performance
As each law department introduces different Key Performance Indicators, the overall goal is to understand how the function and its people are doing against the business targets they are aligned to. For instance, if you are working with a particular revenue growth area, then the KPI could be around closing the deals more quickly or lowering the price point. Tracking a KPI against a target is just one way of tracking success.
Success is defined in many ways and can be subjective. Some common measures of success are things like happiness, satisfaction, or cost. As a department, it is important to build a clear and unified understanding of what success is for your team. While one may feel success is about keeping as much work in-house as possible, another may believe success is found in getting as much work-offloaded as possible.
For many legal departments the ultimate measure of success is cost, but if you are only going to measure success by cost, consider taking that one step further by including the cost against external benchmarks which provides a more relevant measure of success.
Law departments are now expected to run like businesses. That means turning a profit instead of a loss, improving margins, and being proactive rather than reactive. Every business action must have a measurable value tied to the company’s bottom line. These are the business asks of GCs today . Reducing portfolio prices for renewals by a specific percentage, reducing external counsel pricing (per hour) by a certain number of dollars, average savings per matter, and other bottom-line measures. These are all legitimate asks and KPI’s that a legal department should track and use to gauge success.
The reality for most legal departments is that outside counsel fees are just part of the cost of doing business. The other cost to doing business is achieving positive outcomes that mitigate or eliminate risks and ultimately helps the business make money. Therefore, when considering which KPI’s to adopt, you must think like the business and go beyond just the bottom line. If you are not re-engineering your legal processes, looking for cost neutral improvements and adding value to your business, then you are missing the opportunity to demonstrate the value you bring to the organization.
Data is the language of business. Legal departments create and use data and metrics to improve the department internally and externally. The guidelines and best practices for developing, implementing, and tracking KPI’s are countless. What’s most important is to ensure that when you adopt your KPI’s you ensure you get buy-in from the business so that you can manage perceptions (that you are not just tracking for tracking sake) and by demonstrating an understanding of business priorities.