Short-term Cost-Cutting Measures in 2023 Only Highlight the Precarious Position Legal Departments Are In, According to ALM’s New Pacesetter Report

A new report on legal department spend management finds that innovators among professional services providers recognize that they aren’t just struggling with cost pressures and higher workloads, but they also need help repositioning themselves as business centers

New York, NY – June 15, 2023–A new report from Law.com Compass Pacesetter Research (previously known as ALM Intelligence Pacesetter Research) finds that legal departments in 2023 are under tremendous pressure to cut costs and often face edicts demanding radical reductions in their spend. Most of their efforts focus on slashing either resources (e.g., headcount) or costs (e.g., bringing more work in-house, asking for rate freezes from outside counsel, etc.). Still, economic conditions aside, perception is the real culprit in their spend management woes. Far too many legal departments still see themselves as cost centers and their organization treats them accordingly: The only way to deal with them is to continuously reduce their costs despite rising matter volume. What the current economic situation is highlighting for legal departments is the need to rethink their mission and reposition themselves within their companies as not a cost center but as a value-enabling center that becomes a strategic partner for internal clients. There is significant variability among legal departments regarding where they are on this journey, and the same is true with professional services providers catering to legal department needs.

“Legal departments traditionally think of spend management in terms of simple cost reduction,” said Tomek Jankowski, Director of Law.com Compass Pacesetter Research. “However, most legal departments have little fat to cut. The only sustainable remedy is for legal departments to become more adept at resource management, relationship management, and ultimately – value management.” 

Key trends identified in this research include:

– Technology has turned budgetary and process efficiency into a surgical science, but the truth is that with steadily rising volumes of workload, the law of diminishing returns asserts itself, and it quickly becomes apparent that efficiency alone will not solve legal department spend management challenges  

– The journey for legal departments to becoming a value-enabling center in their company requires recognizing that effective spend management is a combination of balance sheet strategy, resource management, matter (project) management, relationship management, and ultimately – value management

– An absolute sine qua non for this journey is having dedicated legal operations capabilities and resources 

– Legal departments have key allies on this journey, whether they realize it or not, both internally (procurement, finance, operations, the board) and externally (law firms seeking to shorten payment cycles, other legal departments)

– Another essential trait of more mature legal departments is a willingness to take the reins in their relationships with outside counsel and other vendors through detailed billing hygiene

Professional services providers are well aware of this problem, and many have pivoted to help legal departments address it. Law firms are the first place most GCs turn to, and a small but growing handful of law firms recognize that spend management is a crucial relationship enhancement opportunity. Management consulting and multiservice providers have tailored some of their business transformation and performance optimization offerings to legal department needs, including digital transformation offerings. However, the group that has made the most hay from legal departments’ current budgetary woes is a growing cadre of specialized consulting or technology start-ups created by law market veterans frustrated with the unnecessary friction in law firm-legal department relationships.  

In Law.com Compass Pacesetter Research: Legal Department Spend Management 2023-2024, the Pacesetter Advisory Council assessed dozens of providers to arrive at twenty-three Innovators recognized for their unique approaches to legal department spend management challenges. And of those twenty-three, the Pacesetter Research team identified seven leaders of the innovation pack as Pacesetters. The research and analysis also provide insights into the competitive dynamics and service delivery trends driving convergence across legal, management consulting, multi-service, and specialist boutique mobility specialist providers.

In this report, Law.com Compass Pacesetter Research evaluates the innovation in Spend Management capabilities and offerings of the following providers: Bain & Company, Baker Donelson, Barnes & Thornburg, BigHand, Bryan Cave, Crowe, Deloitte, Elevate, EY, FTI Consulting, HBR Consulting, KPMG, Kroll, Legal Bill Review, McKinsey & Company, Mitratech, Onit, Protiviti, PwC, Seyfarth Shaw, Sterling Analytics, UpLevel Ops, Wolters Kluwer.  

Law.com Compass Pacesetter Research provides independent, objective research to providers and buyers of professional services and practical insights that inform decision-making processes. 

To learn more about the research or to obtain the full version of the Legal Department Spend Management report, go to: https://www.alm.com/intelligence/pacesetter-research-2/legal-departments-spend-management.

For more information or the full version of the Pacesetter Research series, visit https://www.alm.com/intelligence/pacesetter-research/.

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Tags: legal spend, legal departments, In House, Cost, Law Firm, technology, GC, Budgets, Legal Department Spend Management, Spend Management, Budget, Legal department, Pacesetter Research