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
Nov. 15, 2014, by 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 Toyota, Starbucks, Eli Lilly.
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.”
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.
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.
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:
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.
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.
Jason Winmill is a Partner at Argopoint. He has designed award-winning, nationally recognized legal sourcing approaches for leading Fortune 500 companies.