Prioritizing Improving Legal Profitability Can Right the Ship

Why Small Businesses Need Legal Ops

Legal operations is kind-of an unsung hero, in business. I believe it’s the key to getting the most out of your business, now and in the future.

If you’re worried about falling behind your competition, or simply not reaching your full potential in business, this article is for you. In this article, I’ll tell you why you should focus on improving legal operations, and give you some resources for doing just that!

Your small-to-medium business (“SMB”) needs legal operations for one or more of the following three reasons:

1. Your business has a legal department, but …

2. Your business doesn’t have a legal department, but you have outside general counsel, but …; [or]

3. Your business doesn’t have a legal support provider, and …

… its legal support provider (if it has one) is not optimized to deliver maximum value at minimum cost.

In short, unless your business has an outstanding legal operations solution, you’re not prioritizing legal profitability.

Legal profitability is a metric that helps evaluate two things: (1) the measurable benefits and uses of legal support and (2) the measurable income generated (or savings realized) by a business’s legal support provider.

If you’re not prioritizing legal profitability, your business will never reach its full value potential, minimize stress, or have the resilience it could have. This is why legal operations is essential to small business.

What Is Legal Operations?

“Legal operations” (or “legal ops”) is a set of business activities and processes that empower legal departments to serve their clients more effectively by applying business and technical practices to the delivery of legal services.

Legal ops encompasses strategic planning, financial management, project management, and technology expertise. These, and similar, legal-adjacent disciplines overlap with the legal advice legal service providers offer.

Legal operations pros focus on the work of aligning legal services with these other aspects of business operations and enterprise goals. Lawyers tend to focus on providing legal advice. When legal support and legal ops are combined, the business maximizes the benefit it receives from legal support.

In short, legal ops enables businesses to effectively prioritize legal profitability.

The Current Trend

The vast majority of legal departments now have legal operations functions. This area of operations has seen massive growth in the last two years. Legal ops is especially important for small companies, because it helps them get the most benefit, at the least cost, from their legal support.

“In the LDO Index survey,[1] legal departments were asked to identify those measures that were most effective in controlling the costs of outside counsel. …

One of the most effective strategies for managing the costs of external services may, however, be tied to a significant change in the organization and management of corporate legal departments themselves. In recent years, an increasing number of legal departments (particularly large ones) have created legal operations staffs with the specific mission of managing the overall operations of the department — including the oversight of outside counsel. The directors of legal operations in these companies have taken an increasingly active role in the hands-on management of the relationships with external counsel.

In the 2020 LDO Index survey, 81 percent of legal departments now report having dedicated legal operations functions. That represents a 24 percent increase from 2019, when only 57 percent of companies had such capacities. Moreover, the survey also noted that expanded use of legal operations professionals is no longer just a large company phenomenon, but one common among smaller companies as well.”[2]
(emphasis mine)

If your business, or its legal department, either (1) has no legal operations functions, or (2) has some “legal operations functions” that aren’t laser-focused on improving profitability and using legal Key Performance Indicators (“KPIs”), your company is either off-trend or off-focus.

The trend towards legal operations is an outgrowth of a larger, holistic focus on improving profitability and effectiveness. Using legal KPIs and focusing on profitability must be cornerstones of your legal ops efforts, or your company won’t get out of legal ops what you likely intend for it to obtain from those efforts.

Ride the Wave to Higher Profits

If your business could have a stronger focus on legal profitability and improving its use of legal KPIs, you’re not alone. Most small companies–even those that have legal departments that have some “legal operations functions”–aren’t getting the most out of their legal ops or their legal support.

This is not a criticism of the lawyers who work in those legal departments, by the way! Using KPIs is still relatively new to lawyers. Historically, few, if any, law schools have had a strong focus on using metrics to create a conversation around the value of the services lawyers deliver.

So, lawyers who want to talk about return-on-investment (“ROI”) for their clients, value-based fees, and other (for the legal industry) relatively new and innovative concepts, often are left to figure out for themselves the best way to implement legal ops for their department. Plus, they still have to do all their “pure legal” work, so to speak.

This is why even great lawyers running excellent legal departments need help with legal ops. That’s where we come in. Reach out to an ExecutiveLP® attorney, today, to see how Profit from Legal™ can help you reach your business goals. 

 

Citations and References

[1] Thomson Reuters Legal Tracker, Legal Department Operations (LDO) Index (Fifth Edition, 2020) (the “LDO Index”).

[2] Jones, J. W., Regan, M. C., Jr., Abbott, M., Blackwood, J., Brooks, I., Shepherd, L. H., . . . Seemer, S. (2021). 2021 Report on the State of the Legal Market (p. 14, Rep.). Toronto, ON: Thomson Reuters®.