Cost-effective legal departments allocate almost twice as much of their in-house budget to training than higher-cost peers, according to research from Gartner, Inc.

Continuous improvement

The most cost-effective legal departments commit to a strategy of continuous improvement of their in-house capabilities, including training, standardizing legal work, and allocating more of their total legal work in house. Gartner surveyed more than 140 companies across geography, industry and revenue to determine the drivers of cost-effective legal departments. The data helped identify features of cost-effective legal departments, those that spend in the lowest quartile of their peer group, while managing a similar volume and portfolio of work. “Legal departments have a tendency to hand off complex work to outside counsel, but organizations can achieve significant cost savings by bringing this work in house,” said Michael Mayfield, research director in Gartner’s legal & compliance practice. “The rate for an in-house attorney is likely going to be significantly less than what outside counsel will bill.”

Additional benefits

Beyond achieving cost savings, Mr Mayfield explained there can be additional benefits to executing such work within the legal department, “Bringing strategic, complex work in-house can actually improve the quality of legal services because your in-house staff are more familiar with business operations. Having a staff member that is an informed, ‘go-to’ contact for a strategic matter can help build stronger relationships with your business clients.” Cost-effective legal departments consistently seek to leverage the cost savings from bringing more work in house by expanding their team’s capabilities and improving work processes. Gartner found that cost-effective legal departments allocate nearly 8 percent more of their total budget to in-house line items (e.g., staff salaries, training, IT systems and software) compared with higher cost peers. Cost-effective legal departments stand out through their focus on improving internal processes and capabilities. These departments invest in staff training, standardize more legal work and develop their own legal operations capabilities.

Other findings

Cost-effective firms employ a high level of standardization to in-house legal work by templatizing routine matters, creating self-service tools for business clients, or implementing standard decision rules when appropriate. Gartner found that on average, 63 percent of in-house legal work is routine or can be standardized. They hire dedicated legal operations specialists. Departments without legal operations capabilities spend 30 percent more than those with legal operations capabilities. “In order to take advantage of the cost savings by bringing work in-house, General Counsel also needs to invest in the right areas to equip their teams to be successful,” said Mr Mayfield. “This is most clearly on display when looking at the differential in training spend between cost-effective legal departments and their higher cost peers.”

Reducing Outside Counsel Spend

Gartner research found that law firm expenses make up 93.5 percent of a legal department’s outside spend. Lower-cost legal departments focus on consolidating outside counsel spend by limiting their work to critical matters, while investing in alternative legal providers and enabling nonlawyer staff to work on lower-risk activities when appropriate. Gartner found that after controlling for variables such as industry, revenue and legal work volume, lower-cost legal departments work with 55 percent fewer firms than the median legal department. By working with fewer firms, legal departments can negotiate better hourly rates in exchange for volume or explore alternative fee arrangements with preferred outside counsel providers. Lower-cost legal departments also spend significantly more on alternative legal service providers. Cost-effective legal departments spend more than 6 percent of their outside spend on alternative legal service providers, compared with higher-cost legal departments, who spend less than 2 percent. Alternative legal service providers can be used for tasks that are high volume and less complex, such as e-discovery, contract management and document review.

Full results of the survey can be found here.