Perspectives from the 11th Annual LDO Survey – AFAs, AI, & KPIs

Perspectives from the 11th Annual LDO Survey – AFAs, AI, & KPIs

For the modern legal department, finding an efficient, effective way to measure progress is key to success. Whether the department as a whole is innovative and advanced or still mired in the limitations of outdated legacy systems that are slowing progress as a whole, it is important to know and understand 1) what, if anything, is stunting progress, and 2) how those barriers can be removed through technology and other forms of innovation.

In partnership with Consilio, the Blickstein Group recently released its 11th annual Law Department Operations Survey entitled “The End of Duopoly.” The annual survey was created in 2008 as a way to give law departments a “consistent platform to benchmark themselves and shed light on the emerging profession of law department management.” It is the oldest and most comprehensive survey of law department operations, garnering responses from more than 100 law departments nationwide.

The 11th annual Survey focuses on several aspects of improving law department operations, centering on the issue of diversifying the ways that corporations can seek and leverage legal services. As the Survey’s introduction notes: “The modern corporate legal function has always operated under a duopoly. Corporate law departments could do work in-house, or they could send it to their law firms. There were really no other options.” The Survey addresses several key ways that law departments can depart from this duopoly and leverage technology to improve legal services. In this article, we will highlight three particular features: key performance indicators (KPIs), AI and analytics, and alternative fee arrangements.

Key Performance Indicators (KPIs)

For law departments that are not currently using key performance indicators (KPIs) to measure progress, the report urges their implementation as a critical first step. Once established, law departments need to find a way to track their KPIs using viable data sources. For instance, in relation to litigation, law departments can track progress using a variety of outside data sources. The following chart, produced in the Survey, shows some examples of measurable data points that law departments can use to track and report progress.

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When it comes to law department reporting, however, KPIs are about more than just reporting for reporting’s sake – it is not just about establishing benchmarks for progress. What matters is how law departments are using their metrics once produced and what mechanisms they have put in place to make strategic data-driven business decisions. At the end of the day, the goal is not simply data-gathering: without the ability to measure, no meaningful progress will be made. In the LDO Survey, Arup Das, the CEO of Alphaserve, notes that, “The process of developing KPIs starts with asking important questions. What are our goals? Are we trying to increase capacity by automating some work? Are we focusing on creating a better user experience? Can we better optimize how we get work done?” From these questions, Das recommends molding the answers into four or five measurable KPIs that law departments can start tracking to make data-driven decisions based on their actual performance.

AI and Analytics

The LDO Survey acknowledges a growing trend of legal departments using AI and legal analytics to make business decisions, but notes that there is also a high percentage of law departments not using AI at all. According to Kiran Mallavarapu, SVP and Manager of Legal Strategic Services for Liberty Mutual Insurance, 16% of the survey respondents are not capturing metrics or utilizing data to make decisions – a process that is key to implementing AI and analytics into process improvement. Mallavarapu relays that doing so requires “an investment in collecting good quality data and appropriately managing it. If you don’t have good data, AI won’t be that helpful.”

Many legal professionals misunderstand the ways that AI and legal analytics can be used effectively to improve internal processes within legal departments. This misunderstanding may stem from the alarmist belief that AI may eventually replace in-house lawyers altogether. When they think of AI, many people picture robots making decisions that substitute human judgment, but in reality, AI and legal analytics will only enhance modern legal practice, helping lawyers to deliver even better legal services.

What legal departments need is a way to classify and organize information without expending valuable time and resources. This is where AI comes into play: by providing the means to collect, structure, and normalize data with machine learning that allows law departments to build analytics needed to make reliable, data-driven decisions on issues like matter budgets, the selection of outside counsel, and developing alternative fee arrangements.

At UniCourt, our Legal Data APIs help law departments manage data by connecting their internal applications with more than one hundred million federal and state court records to identify business opportunities, manage risk, cut costs, and improve organizational productivity. This is just one example of the many ways that law departments can leverage AI and legal analytics for innovation, efficiency, and process improvement.

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Alternative Fee Arrangements

Alternative fee arrangements (AFAs) are steadily gaining traction within law departments. In fact, more than 70% of the Survey’s respondents reported that AFAs are more cost-efficient than hourly billing and more than 12% of respondents noted that over 50% of their legal spend is managed under an AFA.

The LDO Survey also provides insightful information about the type of work managed under AFAs, detailing that litigation is the most common, followed by transactional labor and employment, IP, and M&A and divestiture work. It should come as no surprise that litigation is the most common work to be managed under an AFA, as it is almost always the most expensive item in a law department’s budget. The problem, however, is that law departments continue to struggle with weighing the profitability and cost associated with AFAs, especially in litigation. In terms of controlling costs, most of the Survey’s respondents listed flat fee arrangements and other AFAs as “somewhat effective.”

Beyond hassling outside counsel to provide more data, or using “shadow billing,” which can cause reporting nightmares for nascent law departments and distort the premise of AFAs, law departments can look to internal and external data sources to predict and track value. One of the best ways to structure AFAs and track their value is to use data from prior matters. Most law departments are sitting on mountains of valuable internal data, but as previously noted, law departments must ensure their data is accurate and reliable or risk the consequences of overpaying AFAs.

This is where bulk data is critical: Being able to draw inferences from historical data points is key to helping law departments make more informed decisions based on reliable data. This is why UniCourt has an open data policy: We want to ensure that in-house teams, law firms, and other businesses have access to reliable, consistent, and sufficient data to help them make informed and intelligent business decisions.

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LDO Managers as Influencers

LDO managers have continued to evolve and grow to become change agents within law departments and take on the role of critical partners capable of managing legal spend. As noted by Robin Snasdell, MD of Consilio: “Now, general counsel that don’t have law department operations managers need to explain why they don’t.” Whether we’re talking about KPIs, AFAs, or AI and analytics, an elemental aspect of acting as a trusted advisor for LDO managers is providing in-house counsel and the business with reliable, actionable data. At their height of acting as influencers, Snasdell notes that LDO managers “allow the lawyers to be lawyers, and let the businesspeople be businesspeople.”

At UniCourt, we are doing our part to improve access to structured court data. Like LDO managers, we are constantly finding ways to connect legal professionals with the data points that allow them to measure progress, automate internal processes, and continually find better, more efficient ways to deliver legal services.

Contact us if you want to learn more about UniCourt’s products and services and if you are interested in accessing bulk court data through our Legal Data APIs.