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The squishiness of the seemingly straightforward metric of total legal spending in an industry

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Total legal spending as a percentage of revenue stands out as the pre-eminent benchmark. It varies, however, according to size (See my post of May 4, 2005 on TLS as a percentage of revenue declining as revenue increases; and Dec. 3, 2007 for some possible explanations.) and within an industry.

The variability by industry merits a word. The chink in the armor is that we think of multi-billion dollar, global companies with tens of thousands of employees as a member of a single “industry.” To assign a large company to an “industry” is reductionist. It’s a crude label, although the best we have. All companies vary amongst each other in an infinite number of ways. A maker of tanks is not like a maker of toasters although both might be slotted into “manufacturing.”

Don’t misconstrue my point. Our industry needs reliable benchmark data, collected over time, and “industry” has become one of the standard cuts of such data. It is the best we can do, but we should not forget the squishiness of stirring into one pot a huge range of ingredients and calling it a certain soup.

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One response to “The squishiness of the seemingly straightforward metric of total legal spending in an industry”

  1. Ron Bell says:
    December 25, 2007 at 4:58 pm

    A good point, Rees. To which one might also add that the industry benchmark one selects has to be appropriate and meaningful. The high technology industry comprises software, chip manufacture, internet services, and consulting services, to name just a few disciplines–and the legal expertise and resources needed to address the needs of companies in those industries varies widely by the product time, global footprint, and degree of specialization they have. One can certainly overthink benchmarks, but it’s also a good idea not to underthink them so that they provide a fair basis for comparison.