How Does Technology Enable Legal to Run More Like a Business?
The answer is in the reporting and ability to quantify data. Having access and visibility into legal operations is a key initiative among legal practices that understand the value of running legal like a business.
Efficiency, cost savings and leveraging limited resources is the name of the game, and bottlenecks and inefficiencies can be clearly identified by reviewing and understanding that information.The ability to run reports and analytics on the business grants access and visibility into information, including process information, financial information, and contract information. It fuels the insight and analysis to make better business decisions and improve overall business performance. Reporting also ensures that a legal department can be proactive in its approach to risk management.
Process studies and financial reporting can help decision making, but harnessing and quantifying the legal provisions within contracts tends to be more challenging. We find that few organizations know with any degree of confidence how many contracts they have, where they are located and what provisions they contain. Even those who can answer some of the more basic contractual questions (e.g. how many active contracts do you have with company X and when do they terminate) cannot find similar answers when new questions are posed (e.g. how many active contracts do you have with company X that address data breaches). Leveraging new types of AI technologies to find contracts and extracting key pieces of information, in an automated fashion, is an absolute game changer for the legal profession.
Now that the system has found the information and extracted the data, the next step is to figure out what the information means. This often means loading it into a business intelligence (BI) tool or contract lifecycle management (CLM) software. With a BI tool, organizations can visualize data, report and run additional analytics.
They can also enter the more interesting space of predictive analytics. Analytics tells us what's happened today and yesterday, and then leverages the patterns in this information to predict future behavior or outcomes. BI tools also allow us to present the big data outputs of contract analysis in ways that business users, not highly skilled analysts or data scientists, can intuitively access, understand and use.An example of some very useful predictive analytics with contracts is when an organization can compare their standard language against all of the provisions actually negotiated and executed upon. When doing this, users can begin to see that some percentage of the time, a specific provision is changed to a consistent alternative clause or if bespoke “new” language was created. Now, if they take that information and use it to assume the same trend will continue in the future, they can then take action by considering offering the alternative clause as the primary provision, thus reducing the negotiation time. This reduction in negotiation time can lead to a more efficient contracting process and earlier revenue recognition as well as a stronger relationship with the other party (because you may be viewed as more reasonable in your approach to negotiation). Corrective action can also be taken against the person insisting on creating bespoke language to ensure they properly follow the contracting playbook.
Having this contract data, users can also set a baseline for acceptable language and behavior in contracting, and measure against that baseline as improvements are implemented. This is typical business practice but rarely adopted as a legal practice. By looking at all of your contracts and seeing where deviations from the standard occurred, and by how many rounds of negotiations it took to reach the final executed copy, you can improve upon the metrics to gain more value and accurately assess the cumulative impact of changes made.
By uploading contractual information or creating and negotiating a contract within the analytics software, the legal department can now create reports to determine areas of inefficiencies and their impact, and improve upon those areas.
Examples include number of review iterations, deviations from standards, average turn-around time, etc. With this level of insight, legal departments and the organizations they serve can quickly start gaining a competitive advantage by turning contracts around more quickly and achieving additional cost savings.AI tools also help with revenue recognition and tracking. By tracking the information in the agreements, an organization can receive the full value of its expertly-negotiated terms, such as discounts or rebates, and avoid the penalties of lost information, which may include erroneous payments or missed expiration dates. This revenue recognition provides legal department’s hard numbers to build a business case for initiatives such as performance bonuses and increasing headcount.
More importantly, if a legal department truly wants to serve the business, it must transform itself and understand which activities bring value and at what cost. It must have the data to answer the question: “Does my current course of action bring the biggest value to my organization?” Rather than speculating that something creates risk, it can now provide clear data to support or refute such proposition.
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