By many accounts, sourcing is making progress in the legal category and delivering millions of dollars in saving. Legal sourcing is emerging into something of a media spotlight. A recent article in the Wall Street Journal noted that several global companies─ including GlaxoSmithKline, Toyota, Sun Microsystems, and eBay─ are using competitive bidding.
Legal Sourcing Steps in to the Spotlight
Reprinted with permission of the Institute for Supply Management; dated November 20, 2012.
Nov. 15, 2012
Jason Winmill and Celia Parsons
Jason Winmill is a Partner at Argopoint LLC. Argopoint has designed award-winning, nationally recognized legal sourcing approaches for leading Fortune 500 companies. Celia Parsons is a seasoned sourcing professional with deep direct experience in the legal category. She has held positions at both Toyota and Eli Lilly.
Bustling mid-town Manhattan was the location for a recent conference on collaboration between sourcing and the legal function. On the rostrum, a seasoned sourcing executive from a Global 200 company was sharing his successful experience working with legal. Seated to his left, his colleague, a senior executive in the company’s legal department, would echo and amplify his comments. As they described a series of new approaches to purchasing legal services that had saved millions of dollars, some audience members began to shift in their seats, becoming increasingly uncomfortable.
The speakers had touched a nerve. The audience, a mix of sourcing professionals and in-house attorneys, began to vocalize some of its anxiety, which seemed more like defensive denouncements than actual questions:
“At our company, legal matters move on tight timelines – typically days. We would never have the time to involve non-attorneys in our hiring process.”
“Our legal department has good long-standing relationships with our outside counsel; this ensures the best outcome. Our organization is satisfied that there is no better way.”
The contrast could not have been more stark. Onstage, the speakers demonstrated that they had built a coherent multi-year partnership between sourcing and legal. For some members of the audience, even the possibility of in-depth collaboration was raising not just tension, but outright ire.
Had the conference split into two camps: those, including the speakers, who were successfully collaborating and the many others in the audience who could only see reasons why sourcing and legal collaboration would be impossible?
More broadly, does this division reflect the state of corporate America – two very different camps?
By many accounts, sourcing is making progress in the legal category and delivering millions of dollars in saving. Legal sourcing is emerging into something of a media spotlight. A recent article in the Wall Street Journal noted that several global companies─ including GlaxoSmithKline, Toyota, Sun Microsystems, and eBay─ are using competitive bidding, sometimes referred to as “reverse auctions,” to purchase legal services.
For the first time, the Association of Corporate Counsel highlighted several legal departments (such as Home Depot and Medtronic) for delivering “substantial value to their clients through value-focused legal management skills”. The American Bar Association is reporting that more and more leading legal departments, including American Express and Pfizer, are pushing for flat fees. Pfizer is on the second iteration of its ground-breaking formal program to manage outside law firms, with the much heralded “P3” (Pfizer Partnering Program) having evolved into the “Pfizer Legal Alliance.”
“Compared to a few years ago, legal sourcing is now an area where I see major companies investing. Doing legal sourcing properly does require a real investment. It’s not a category where you can watch a few episodes of ‘Law and Order’ and fake it,” notes Justin Ergler of GlaxoSmithKline Legal Services Procurement, a rising star in this emerging field.
Why Legal is Different
So, what could be responsible for the “great divide” between those procurement groups actively working on the legal category and those sitting on the sidelines? “When procurement enters a new category, there is often a ‘procurement playbook’ to reach for. However, if you start off in legal and call your first 15 standard ‘scripted procurement plays,’ your legal department will tell you that you don’t know what you’re talking about. "Your first strategy meeting with legal might be your last if what you bring is a standard approach,” cautions Ergler of GlaxoSmithKline.
"Your first strategy meeting with legal might be your last if what you bring is a standard approach,”
Perhaps it is important to first recognize that several aspects make the legal category different from other areas that sourcing pursues:
Legal Senior Sponsorship is Necessary but Not Sufficient: Too frequently, CPOs at Fortune 500 companies falsely assume that sponsorship at the General Counsel level means that a legal procurement initiative will lead to success. Paul Ashley, a strategic sourcing veteran with IBM warns, “Sponsorship is nothing more than an invitation to the party. Even with full General Counsel support, don’t expect you will be allowed access to the strategic meetings across the legal organization you will need to attend. To win over legal, you will need a ‘two-pronged’ approach: sponsorship from the top is important, but you also need well-thought out approaches to get buy-in from the bottom up.”
Legal Services Involve Real Risk: One issue that sourcing needs to consider when managing the legal category is the inherent risk in the legal environment. In-house attorneys are by nature and training highly attuned to risk, and typically avoid it. “Legal is still a very large area of spend for many companies, so further budget cuts are unavoidable. This is where Procurement comes in. However, most legal departments have traditionally resisted working with Procurement.” notes Dr. Silvia Hodges, a professor at Fordham Law School. This may be due in part to an “attorney outlook” that runs along these lines: “well, it might be possible to save several thousand on our legal fees with this particular issue, but if we lose the matter because we didn’t obtain the absolute best outside representation, the damages to the company could cost tens of millions.” Without a sourcing approach that truly addresses risk and overcomes the legal department’s resistance, sourcing should expect to be stymied.
Legal Services are Highly Complex: Sourcing professionals building credibility in the legal department are often faced with the challenge of moving along a steep learning curve while facing short-term savings expectations. Taking shortcuts (such as not understanding key legal concepts or proceeding without robust benchmarking data) is a common mistake – one that often jeopardizes legal sourcing initiatives. Paul Ashley of IBM notes the importance of grasping the details of legal services, “Procurement needs to really understand in-depth the content of the category and become familiar with elements of legal services required such as discovery, jury consulting, trial, settlement.” The investment in understanding the legal market can help assuage concerns among in-house legal colleagues and enables procurement to leverage sourcing strategies more effectively.
Legal Services are Very Fragmented: Sourcing professionals are often used to dealing with national service providers, or if not, regional or local providers whose offerings are somewhat similar to national providers, making some market comparisons possible. However, the number of individual law firms in the US alone is probably between 45,000 and 50,000 – a daunting set of market-data to analyze. Additionally, legal services providers often don’t compete on a national basis – state and local regulations can prohibit truly national markets and increase supply base fragmentation.
Law Firms are not Typical Companies: A law firm is a unique entity from the perspective of in-house counsel. Many corporate legal departments report “We don’t hire law firms, we hire individual attorneys.” This is true in many cases, and is, in fact, a way to ensure appropriate representation. However, it can provide a stumbling block for the sourcing professional, who is far more comfortable assessing the capabilities of business organizations, not the qualifications of individual attorneys, some with decades of highly specialized experience.
Legal Mindset: The legal profession attracts scores of intelligent, self-possessed people. According to former Harvard Business School Professor David Maister, attorneys “vigorously defend their rights to autonomy and individualism, well beyond what is common in other professions. They are trained and hired to be pessimistic and spot flaws.” This professional outlook might be what is desirable when facing opposing counsel in a “must win” legal confrontation. However, it can make collaboration with other groups inside the corporation, especially sourcing, challenging. “Those members of the organization that many assume to be the best at learning are, in fact, not very good at it,” reminds another HBS professor, Chris Argyris, in his seminal Harvard Business Review article “Teaching Smart People How to Learn.”
Best Practices for Sourcing the Legal Category
So – how should sourcing proceed? As an attorney and an accomplished sourcing professional, Krissa Kean Spence, Vice President, Strategist and Counsel at KeyCorp, points out that "legal sourcing is not just ‘nuts and bolts,’ as some procurement professionals want it to be, because to a Law Department, it can represent a radical change."
Our work with Fortune 500 companies that have achieved the highest levels of legal sourcing success suggests that there are several things a sourcing professional seeking to be effective in the legal category should consider:
Let Legal Drive, but Help Navigate - Most successful sourcing initiatives we have been involved with are “attorney driven.” However, since a sourcing approach will often involve bringing the in-house legal organization a new perspective and new approach, sourcing must take care to help guide legal from reflexively falling back into “traditional” approaches. Sourcing can be effective when it:
Providing legal with options - rather than exclusively campaigning for a single approach - ensures legal stays in the driver’s seat. The conversations that follow will shed light on legal’s comfort level with various sourcing strategies and tactics. For example, is the General Counsel hungry for significant savings now or still just getting comfortable with the concept of implementing low-risk alternative fee arrangements?
Data and hard information are critical resources for procurement. “Market intelligence and benchmarking are part of what procurement can provide. ‘Decision-grade data’ provides visibility and a leg for procurement to stand on. Our legal colleagues don’t often have the time to get information themselves. Procurement can play a vital role helping legal get a sense of the trends sweeping the marketplace, and help position their organization to get on the advantageous front end of those trends,” offers GSK’s Ergler.
Legal professionals are often (rightly!) focused on the details of legal matters and specifics related to legal services. As a result, in-house counsel is not always able to “see the big picture” in the same way that procurement can Procurement can help by bringing to the table robust benchmarking data that shows meaningful comparisons with relevant peer companies and by performing “landscape scans” to identify non-traditional vendors, billing models, and other opportunities on the horizon. Procurement is often the first to spot cross-category savings opportunities. At one Fortune 200 company, a sourcing professional was able to point out that the highly secure document management services that the legal department was about to purchase were being purchased in high volumes elsewhere in the company, enabling legal to bundle its volume and achieve greater discounts.
Work with Legal’s Deadlines, Not Procurement’s - Legal departments frequently have non-negotiable deadlines. Some skeptical in-house attorneys hold the notion that procurement could cause legal to miss these deadlines and therefore jeopardize the outcome of critical legal matters. It is important not to validate these misconceptions.
One example of procurement nearly missing the boat comes from a Fortune 500 company where the legal department had called on the IT Procurement team to help source some critical technology. Much to the shock of the legal department, procurement responded saying that any project support would have to wait until the next year; IT Procurement claimed to have too many projects already on the queue. Disappointed not to have any sourcing expertise, legal was prepared to move ahead by itself – and would have done so – had a conscientious procurement professional not intervened and taken personal responsibility for the project. Successful procurement professionals have learned how to act quickly when necessary in order to keep up with the tight timelines of the legal process.
Find Unlikely Allies - It may sound strange, but outside law firms can be potential allies for procurement. Some procurement professionals report that they have developed productive relationships with outside counsel professionals, usually those in more senior relationship management role. Though these professionals are sometimes (but not always) attorneys, they tend to be less involved in case strategy and more involved in improving case management and the health of the overall relationship.
What’s Next for Legal Sourcing
Much has changed in the legal category landscape in just the past few years. Leading companies are not only blazing new paths but are also solidifying gains and building on previous successes.
IBM’s Paul Ashley believes outside counsel can be a critical partner. He explains that, “if you develop good
relationships with your firms, you are able to have effective discussion
sessions…Sourcing needs to help create a two-way street.” He continues,
emphasizing that “you need firms to know that procurement can help them; not
only in terms of awarding them business, but in terms of improving their
business processes.” Today, more and
more law firms are figuring out that these relationships can be “win-win.”
But the market place for legal services is not standing still; it is dynamic. As sourcing makes in-roads, outside law firms are already making adjustments to their businesses and will also be developing effective counter-measures to protect and advance their own economic self-interests. Corporate sourcing groups and in-house legal departments will need to build on their initial collaborations and become even more coordinated and sophisticated in their approach to managing the category for value.
Strategic sourcing of the legal category continues to promise tangible benefits, such as increasing the quality of legal service provided. Navigating the complex legal category is challenging, but skilled sourcing professionals have experienced tremendous success in this area recently and, with thoughtful planning, should reap increased rewards and savings in coming years.
Jason Winmill is a Partner at Argopoint LLC . Argopoint has designed award-winning, nationally recognized legal sourcing approaches for leading Fortune 500 companies. Celia Parsons is a seasoned sourcing professional with deep direct experience in the legal category. She has held positions at both Toyota and Eli Lilly.
Reprinted with permission of Inside Supply Matters, The Magazine of Inside Supply Management.
Inside Supply Management Magazine Volume 23, No. 9; pgs. 28-31.
Permission dated November 20, 2012