Indicators Measuring the Effectiveness of Legal Departments' Contributions
Modern LDs increasingly focus on aligning the way they apply their knowledge of the law with business objectives and strategic goals, whether it is to ensure growth or to enter into new markets for example.
By focusing on purpose and context, LDs can make their contributions with relevance and value, based on the definition of creative plans and viable alternatives and the implementation of proper concepts and ideas. As a result, legal team members can expect to achieve their aspiration to be given much broader attention by business stakeholders.Wherever legal teams intimately understand the business objectives and goals, and the missions of the LD are properly pre-defined, relevant indicators can be identified, using not only the data traditionally available within LDs but also the increasing volume and detail of information obtained from customers, partners, the global ecosystem, suppliers, etc. This makes it possible to measure the effectiveness of legal contributions towards the different objectives, and consequently the actions to be undertaken to improve legal performance towards their achievement.
From this perspective, modern legal departments should not measure every input/output they provide, but should simply demonstrate through robust analytics to what extent they contribute to key goals and protect the company. Obviously the associated Indicators will greatly depend on the nature of such business objectives and goals. It is yet possible to classify “effectiveness KPIs” into different sub-groups.
Some of such Indicators will measure whether by executing their missions and responsibilities LDs actually help avoid value destruction (negative risks), while others will measure whether they help create value (positive risks/opportunities).
In order to easily give several illustrations of relevant “effectiveness KPIs”, we will start from the main matters that are typically under the LD’s responsibility:
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It is probably in relation to contractual matters that analytics appears most advanced at this stage. Modern contract analytics can include, among other things, the measurement of:• the impact of contractual deviations from standard terms or preferred contractual positions;
• long-term revenue generation/protection and therefore long-term relationships with customers/partners/suppliers;
• working capital to be reduced;
• payment cycle times to be shortened;
• the effective avoidance of value loss and the control of revenue leakage by documented “add-on sales” and/or cost effectiveness;
• the mitigation of delays in delivery and the minimization of liquidated damages or exposure to delay penalties;
• the avoidance of uncovered contract non-compliance;
• hidden costs and unbilled spending;
• supplier performance.
2. Analytics can also be performed regarding litigation matters, measuring among other things:
• litigation avoidance rate through effective settlement agreements;
• settlement cycle times.
3. When applied to Intellectual Property (IP) management, analytics can for example track IP spending as well as the creation of IP value.
4. Compliance analytics can measure among other things:
• the impact of compliance programs on the prevention/occurrence of the related legal risks;
• the impact of business targets and employee reward schemes, which may tend to “promote” specific (i.e. ethical/unethical) conduct.
5. Finally, analytics can assess the transmission of key legal knowledge by LDs to the rest of their business organization by measuring, for example:
• legal awareness-raising throughout the organization via regular training of non-legal staff and communications which are clear and accessible;
• the impact of such legal awareness on, for example, the level of disputes and claims, the efficiency of business decision-making processes, or compliance costs.
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