Maximising value whilst managing risk and resources
Being an elder sibling is not easy. You see your younger brothers or sisters desperate to try new things, always pushing boundaries and by doing so, sometimes getting into trouble. As the oldest child, you want your siblings to grow, but you are often tasked with keeping them safe.
In the same way, most Legal functions have a complicated dual role - helping the business grow but are also there to protect it.
However, this is easier said than done. In most cases, the business values legal services that enable them to generate revenue, looking for a “can do” approach to contracting for example, whilst hoping for a more “behind the scenes” approach to regulation and legislation compliance.
The cultural challenge – working through conflicting forces
The reality is that Legal often comes out badly as it manages this conflict. On the one hand, it is often seen as too risk averse to be a proactive growth enabler. On the other hand, legal service levels are restrained by scarcity of resources amidst high work volumes and the justification for legal gets looked at through a cost lens.
Legal is having to navigate conflicting forces, on the one side, seeking to meet its customers’ demand to enable growth and on the other side, having to protect them by managing legal risk for the entire organisation. Legal often finds itself balancing a fine line, constantly having to communicate difficult messages to the business whilst also feeling that the work being done is never quite enough.
The answer to this dilemma is not in changing the risk appetite and nor is it in transferring the risk by seeking external law firm advice. To answer this dilemma is to solve an equation that maximises the value provided by legal whilst managing constraints.
Maximising the value provided by legal
Partnering in strategic planning
The first step (and arguably the most important) towards breaking perceptions that legal is not able to return value back to the business, is for legal to spend more time in formal strategic planning with the business. It is crucial that legal proactively immerses itself in the strategy of the business and defines how it can support to meet these objectives. Doing so will allow legal and the business to agree on which legal services are of higher value, which will inform a prioritisation of effort and resources. Too often this is ad hoc and assumed which is where issues arise.
Articulating clear financial value
In addition, some of the services provided by legal generate a clear financial value. The value generated by those services should be articulated and fed into strategic planning conversations with the business. For instance, support in commercial enforcement of contractual obligations, claimant litigation, IP licensing are all legal services that can generate significant revenue upside (for instance, an estimated 9% of annual revenue can be linked to contract value realisation*). Identifying higher value contracts or key relationships, core assets and IP and focusing effort on managing those tightly are key areas where legal can have a visible impact on revenue whilst also developing strong relationships with the business.
Delivering services seamlessly
Finally, ensuring quick turnarounds and a frictionless service delivery – providing quick answer to simple questions and dealing with urgent queries seamlessly are key qualities expected from legal service delivery. Agreeing areas of self-service vs high-touch support is key.
Managing legal risk
Managing risk is not about avoiding it. It’s about identifying legal risk, assessing it and defining which risks can be accepted, vs. those that should be controlled and averted. It is first by understanding legal risk that legal can then systematically manage this risk and can therefore define where to focus effort and resources.
Managing effort and resources
In order to break perceptions that legal is a “money pit”, legal needs to manage resources by focusing effort on high-value-high-risk activities and reducing effort on low-value-low-risk activities. The recommendation is often made to divert effort away from low value repetitive tasks by standardising, centralising, automating or outsourcing such tasks. But for Legal specifically, there is one more dimension which adds to the challenge. Once the need for change is accepted (which may previously have been pushed back on), legal often struggles to secure the necessary investment as business sponsors fail to understand the return on the investment. Therefore, starting by defining the value and then maximising the value provided by legal is a necessary first step in order to drive change.
Legal can navigate conflicting forces and break free from a vicious cycle of high-spend-low-investment by maximising the value they provide to the business and by focusing effort on high-value-high-risk activities and reducing effort on low-value-low-risk activities.
And by doing so, legal is becoming less of a middle office cost function and more of a professional services organisation, to be ran like a business, or more so – to be ran with the business. Like an older sibling, there to help you achieve more whilst trying to keep you out of trouble and protecting you when you do get into trouble.
* Figures based on independent market research carried out by IACCM in 2011/12. 9% represents an average which varies between companies and industries.