Jason Winmill is a Partner at Argopoint Consulting LLC. Argopoint has designed legal sourcing approaches for leading Fortune 500 companies that have been nationally recognized by The Wall Street Journal, Bloomberg News, and the Association of Corporate Counsel.
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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.
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.”
Stay tuned for the next segment, which will disclose best practices for sourcing the legal category.