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The drivers of legal costs are many, but certainly one of them is the pace of change and growth of an industry segment. I would hypothesize that an industry’s pace correlates well with total legal spending. How might research quantify that ferment fomented?

An article on corporate governance published in the Acad. Mgt. Rev., Feb. 2012 at 140, uses a measure for “industry dynamism.” The researcher created the variable by “regressing industry sales over time for the prior five years and using the standard error of the resulting regression coefficient.” I have written the author to find out more about the math and the robustness of this method. It does seem eminently reasonable that the more an industry grew during the five years before a given year, the more “dynamic” it should be deemed. Benchmark metrics on legal spend should rise and fall with industrial dynamism.

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Reid G. Smith, who is currently Enterprise Content Management Director and IT Upstream Services Manager, Marathon Oil, published several years ago a list of non-starters for knowledge management initiatives in law departments. I quote the four.

• Expect that people will “make time” for KM. Either give them extra time, or specifically re-balance current responsibilities to make it clear that KM activities are included in Terms of Reference (TORs) [RWM I assume TORs are personal objectives].

• Assign people to communities – true CoPs [RWM Communities of Practice] are powered by their members’ personal or professional interests. Let lawyers join the communities they find relevant.

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During the summer of 2011, Legal Suite, a leading French provider of matter management software for legal departments, conducted a survey of visitors to Village de Justice, an online site for lawyers. They collected 58 responses and published the results.

One question asked about the benefits respondents anticipated from specialized legal-department software (“Quelles bénéfices attendez-vous d’un logiciel de gestion specialize?”). Nine choices were available to respondents. My translation of them follows and the percentage of respondents who selected them.

Improve our image as a business partner in the company (5%)

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An article in Fortune, April 9, 2012 at 16, describes an ingenious method to quantify the possibility that companies will tangle over their patents. An analyst needs to compare how often companies cite each other’s patents in their own applications. “If each company’s patents are of equal quality, and each cites the other at about a 1:1 rate, then one would not expect litigation, since each company seems equally reliant on the other’s technology.”

The article analyzes Facebook, Yahoo, Amazon and Google in these terms and forecasts the likelihood the companies might clash. The article leads you to believe there is empirical work on the possible amounts of settlement that could eventuate should there be litigation, depending on the degree of imbalanced citation – if one cites the other much more, that company is more vulnerable.

Look into the future. One can imagine a comprehensive system like this that analyzes large numbers of patent-intensive companies, integrates an algorithm for estimating their patent-related litigation expenses, and thereby contributes an important driver of total legal expenditures.

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In the world of claims management, predictive analytics has blossomed lately, at least according to an article in Lit. Mgt., Spring 2012 at 44. “Predictive analytics is the analysis of data through statistical or mathematical techniques that results in meaningful relationships being identified in the data.” Informed by predictive analytics, claims managers can make better decisions. In the authors’ apt wording, predictive analytics can help claims staff “allocate the right case to the right law firm at the right price.”

Litigation management presents more complexity than claims management, so the tractability of predictive analytics is lower. The return, however, on effective analysis may be higher. At this time, the authors point out, few law firms think in terms of data mining and analysis; worse, the authors don’t even mention law departments as sources of data mining. For predictive analytics to pay off, generous sets of data need to be available and law departments may in fact have an edge.

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Assuming the general level of managerial skill in U.S. law departments has risen over the past 20 years, how might we detect that progress? One clue could be that the number of lawyers and dollars required to support each billion dollars of revenue has held steady (See my post of April 6, 2011: in-house counsel climb the value curve.). Even with the burdens of increased complexity, scope and size, legal resources per unit of income have stayed stable. Managerial improvement could account for that, but so could increased ability, training, or intellectual aptitude of lawyers wholly apart from how they are supervised and structured. So could cleverer clients or the accumulated reduction of legal mis-steps because of processes, or general awareness.

Clue number two might be that the legal functions of companies have over those two decades absorbed less of the corporate fisc. But that hasn’t happened, if the metrics above hold. Worse, a smaller legal slice of the corporate pie might suggest that CEOs have perceived that the management contribution of general counsel has tailed off!

Third, management consulting to general counsel has perhaps shrunk, which if true might have to do with increased abilities of those who run legal departments. Other reasons might account for this such as more publications, conferences, groups for general counsel – thus making consultants less valuable – or the decline and retirement of consultants without replenishment.

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An ongoing survey distributed by Hyperion Research Group, experts in patent management and technology, listed the following eleven packages for intellectual property packages. A handful of posts on this blog have mentioned some of these, such as CPA Global, Dennemeyr, and CPI, but for all the others they are making their debut appearance here.

Computer Packages (CPI)

CPA Global - FoundationIP
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Unable to pass up metrics that pertain to law departments, unwilling not to squeeze metrics for what might drip out, I will confess that a recent sentence left me puzzled. In Met. Corp. Counsel, March 2012 at 16, an FTI consultant shares some findings from FTI’s interviews with 31 in-house counsel. The topic was e-discovery and his metric is that e-discovery service providers to the law departments had dropped in one year “from an average of five providers in 2010 to a 2011 average of three.”

What to make of that finding? First, let us assume that the methodology was sound enough. That is, 31 in-house senior lawyers who handle discovery issues were reasonably representative and the question was clear and the group year-over-year was sufficiently the same, etc. (I noted that three out of four work in companies of $10 billion or more in annual revenue, which alone makes them highly unusual.). Second, let us assume that the median change was comparable, not that one law department that had used a large number of providers drastically cut its rolls and lowered the group average. Third, let us assume that FTI, a large and capable service provider, did not bend the findings to promote its value proposition: hire just us, not lots of others, because we can do it all.

Does, then, the 33% drop in the average number of providers hired portend drastic consolidation in the industry? Does it mean law departments have virtually eliminated some particular kind of provider (consultants, forensic specialists, hosting services, temporary staffers) or is the shrinkage shared across them all? Even more telling, and going to the nub of the implicit benefit, has the proclaimed drop in the number of retentions saved money or improved quality?

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Previous posts have mentioned some of the reasons “number of lawyers in a legal department” is inexact. “Number of lawyers” in the colloquial sense will do for many purposes, such as headcount and planning how many attendees at a retreat, even though more precise or different metrics could add insights. “Lawyer-years” could be for each lawyer in a department how many years it has been since they passed the bar. Or adjust the number of lawyers by full-time equivalent or by chargeable hours or by years with the law department. You could correct for years in the position as another indicator of effectiveness. Perhaps another measure would disaggregate lawyers by time they devote to different practice areas. A half-time litigator is not as effective as a full-timer.

Surely, all that said about the imprecision of “lawyers,” we can depend four-square on the annual internal budget? Even there, uncertainty or lack of precision rears up. Were all internal charges correct? Were cutoffs logical and enforced? Did some expenses leak elsewhere? What about capitalized costs? Regarding expenditures on outside counsel, what about discounts, accruals, present value, currencies?

My point is that all numbers, even those we treat as if they are engraved in stone, ought to have some gauge of uncertainty associated with them. John Brockman, Ed., This Will Make You Smarter (Harper Collins 2012) at 53, inspired this comment.

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Scientists thrive on experiments, carefully designed and thoughtfully construed. Few general counsel, perhaps none, deliberately experiment with a management method and try to learn from the outcome. Some of them try all sorts of things but they don’t set up control groups, gather data over time, reduce variables, and adhere to experimental methodology. Having mentioned the desirability of testing the effectiveness of different courses of action deliberately (See my post of March 25, 2008: randomized tests and experiments by law departments.), I should suggest some.

What if you stopped holding staff meetings for a quarter, and then quizzed your direct reports as to what they feel about cessation of the meetings? What if you experimented with office hours, where anyone could sign up to spend 15 minutes with you on any topic? What if you tried out incentives to get people to contribute to knowledge bases? What if you randomly assigned cases to a trio of a partner, associate and paralegal? John Brockman, Ed., This Will Make You Smarter (Harper Collins 2012) at 25, got me thinking about this. All managers should try semi-formal experiments.