Move over e-billing, a new breed of spend management tools are enabling law departments to advance from merely asking, “How much are we spending?” to “Why are we spending that much?” and “Is that the most efficient way to spend it?”
by David Griffin and Nicholas d’Adhemar
This year, the technology analysis firm Gartner published its “Hype Cycle” report on legal and compliance technologies. Key to the report is a graphic that assesses the level of maturity and market adoption of different legal technologies over time.
Legal spend management is one such category of technology that the report classifies as a “high priority” with “high benefit.” Despite the need and advantage, Gartner forecasts mainstream adoption will take 5-10 years.
We agree with the priority and benefit categorizations in the report. However, we believe this is now a mature area of technology ready for mainstream adoption. Legal spend management has grown beyond e-billing – a technology that’s been in the market for more than two decades now.
GCs seeking legal spend management solutions have weathered the inflated expectations and subsequent period of disillusionment that often accompanies new technologies, as described by the Gartner curve. Today, they are seeking new tools that help them proactively manage legal spend, control budgets and complement the time and budget they’ve invested in e-billing.
Legal spend management is more than e-billing
One of the potential limitations of e-billing, in comparison to newer approaches to spend management, is where e-billing fits in the financial process. E-billing only deals with the invoice – and invoices are retrospective.
By way of analogy, matter management solutions facilitate the entire process from matter intake to case closure. Lawyers can see how a matter progresses across a given matter’s lifecycle and take action as needed.
The same need across the entire process exists in legal spend management. To that end, emerging technologies provide fresh functionality for budgeting, forecasting, vendor management, visibility of accrued work-in-progress (WIP) and comparative analysis of forecast-to-actual costs, among others.
Spend tracking versus spend management
GCs used to struggle to quantify the value of their legal departments. In some ways, they didn’t need to either: the culture was such that legal was just considered part of the cost of business. For example, corporations had no choice but to defend themselves in a lawsuit.
The financial crisis of 2008-2009 permanently challenged this view. The economic pressure caused CFOs to reexamine all business costs including legal. To their credit, legal shops stepped up their efforts. However, the resulting actions have largely focused on book-end math. These are more along the lines of spend tracking than spend management.
There’s a good reason for this too. Traditionally, legal leaders only had two choices in enabling technologies: tabulate the numbers in spreadsheets or implement e-billing, both of which have constraints.
As a tracking tool, spreadsheets require human input, which is labor-intensive and demands a skillset that isn’t usually organic to legal. The manual effort means the entries are error-prone and the calculations can quickly become outdated. Lastly, the data sources feeding spreadsheets are often inconsistent and incomparable; it’s challenging to perform any real-time analysis because you’re looking at data about what you spent, not what you are about to spend.
E-billing sometimes has similar challenges. Its reputation is marred by a history of expensive and time-consuming on-premises (on-prem) deployments. Expectations and benefits could easily be overstated as to what these tools could deliver. It also took a toll on relationships because law firms chafed at e-billing and the focus on invoice rejection.
The next evolution in legal spend management
The good news is, whether through spreadsheets or e-billing, spend tracking was a step forward to getting a handle on legal costs. As legal departments gained a broader picture of their legal spend, they began to question their spending habits. This is a big part of what’s driving adoption of newer legal spend management tools.
Modern spend management is giving GCs greater visibility into the budget status of their legal projects as it happens. For example, legal leaders can see WIP which provides them the opportunity to make collaborative adjustments with their law firms on the spot.
Moreover, the data is analyzed in real time. This helps legal departments to spend more strategically. In other words, law departments are moving from merely asking, “How much are we spending?” to “Why are we spending that much?” and “Is that the most efficient way to spend it?”
This is proving to be a mutually beneficial approach for both in-house teams and their partner law firms. Rather than reacting to invoices that come in months after the work was performed, they can discuss any concerns as they emerge and resolve it then and there.
Market trends facilitating adoption
The business need and benefit of current spend data isn’t the only driver facilitating faster market adoption; there are several other conducive trends. Importantly, many of these trends were already underway prior to the Coronavirus pandemic which has acted as an accelerant.
1. GCs are increasingly business savvy.
Research shows that senior legal leaders are increasingly business savvy. They are getting more face time with the CEO and the business is asking for their input on strategic decisions more often. Having command of the numbers is an essential task among peers in the c-suite.
2. The Amazon-ification of legal project management.
Legal departments have taken a page from the Amazon logistics playbook: in-house teams are finding better ways to route matters and deliver services to the business. Spend management analytics provide the basis for making such decisions.
3. The cloud has simplified adoption.
The cloud is making advanced technology more accessible. It provides speed, scale, integration, development and security that could not be matched in an on-prem environment. There’s a cultural acceptance of cloud technology in legal too. A few years ago, much of the legal community wouldn’t have considered a cloud product, but today it’s the gold-standard.
4. UX and the consumerization of technology.
Software makers are more focused on the user experience (UX): the idea that technology should be easy-to-use. It’s a refreshing twist on the clunky interfaces that historically plagued the legal industry. The focus on UX is making data analysis accessible – even for those professionals without a background in those areas.
5. Competition and right-sized software.
Years ago, law departments had just a handful of solution providers. Typically, they had to purchase large software packages when they only needed one feature. Today, a range of customer-focused solutions are aimed at solving specific problems in spend management.
Beyond proving value, a model to follow
We can see how this all comes together among forward-thinking law departments. Those that have explored newer legal spend management have data to both drive decision-making and prove value. Apperio has worked with many in-house teams, with one in particular becoming a model cited by the CFO as a standard for other departments to follow.
The business needs exist, the benefits are clear, and the market conditions are prime. More than just coming faster, the next stage of market adoption in legal spend management is already happening.
David Griffin is the Head of Legal Technology and Change at BT plc. Nicholas d’Adhemar is a lawyer and the founder and CEO of Apperio, a legal spend analytics and matter tracking platform for in-house counsel.