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Most legal departments deal with huge amounts of data every day. From e-billing platforms to compliance software to internal documents to public data sources, the issue faced by legal teams isn’t where to find data but where to find the right data.

For making decisions about outside counsel spending, easily accessing actionable data is a challenge for even the largest legal departments. According to the Thomson Reuters 2023 Legal Department Operations Index, only 9% of legal departments have outside counsel management processes that are “predictive” and include forecasting and benchmarking of performance.

With the largest companies spending over $130 million per year on outside counsel, it’s clear there is a huge opportunity for legal operations professionals and in-house counsel to make a business impact with better outside counsel management processes. One common way large legal departments achieve this is through law firm scorecarding. In this article we’ll take a look at scorecarding, explaining what it means in the legal department context, its benefits and best practices.

WHAT IS LAW FIRM SCORECARDING?

For legal departments, law firm scorecarding is simply a systematic approach to something that in-house counsel and legal operations professionals are already doing: Analyzing outside counsel performance. Instead of an endeavor that individual legal team members undertake separately using their own rubrics, scorecarding operationalizes the process of reviewing law firms and attorneys, setting standard categories and measurements on which to judge them.

THE BENEFITS OF LAW FIRM SCORECARDING

The overall goals of law firm scorecarding should align with your legal department’s business goals. Maybe those are larger goals such as cost savings, increased efficiency and better results or maybe they are smaller-scale goals such as retaining institutional knowledge or building more consistent processes. The Association of Corporate Counsel’s (ACC) Value Challenge Tool Kit Resource, “How to Formally Evaluate Outside Counsel’s Performance to Improve Service,” explains some of the key benefits of scorecarding:

Increased Consistency. Formalizing law firm reviews through a scorecarding process ensures that firms are measured in a consistent way across all members of the legal department. The review data collected about a law firm through scorecarding is much more valuable because it can be compared apples-to-apples with every firm the company works with.

Managed Expectations. Being able to explain the specific ways your legal department grades law firms helps outside counsel understand what you’re looking for and how they’re being judged. When it comes time for rate negotiations, scorecarding provides a consistently applied objective standard that shows outside counsel how they performed.

Retained Knowledge. Systematically reviewing outside counsel creates a database of knowledge about the law firms your legal department works with. That information is carried forward even if individual relationships are lost.

Standardized Cycle of Reviews. Scorecarding serves as a reminder for legal operations professionals and in-house counsel to reflect on and review outside counsel relationships. It ensures that important information about successful (and failed) matters is kept. It also helps to gather feedback from all team members who interact with the law firm, which can sometimes be overlooked without an operationalized review process.

WHAT DOES A LAW FIRM SCORECARD LOOK LIKE?

One of the most important elements of a scorecard is its design. While the underlying data is what will drive decision-making and improve your legal department’s processes, without the right design that data will be hidden and, ultimately, useless.

Legal departments can perform law firm scorecarding effectively with everything from a bare-bones spreadsheet to a bespoke, top-of-the-line tech implementation. In thinking about design, the general goal is to create something that surfaces important data points clearly and can be understood at a glance.

Here are a few tips on format that we learned while building the scorecarding function for our outside counsel decision-making platform, Scout:

• A Picture Is Worth a Thousand Words: It’s obvious but true—make your scorecard visual wherever possible. Clean and crisp visual representations of data increase efficiency because your team will spend less time poring over documents and more time making decisions.

• Highlight the Important Information: Put number labels on design elements like bars or stars so users aren’t left guessing exactly what the measurement is. Similarly, use up and down arrows to indicate increases or decreases compared to historical data or benchmarks. Just like the point above, the more you can add to make the data quickly understandable, the more time your team will have for decision-making.

• Keep It Simple: Minimize the amount of explanatory text and, if possible, include all of the relevant information on one page. If a one-page format is too limited, consider creating an “executive summary” version of the scorecard and include additional pages or tabs to collect the supporting details.

TIPS FOR CREATING CATEGORIES

To create an effective scorecard, you need to thoughtfully choose the categories you’re going to judge law firms by. When doing this, it helps to keep in mind general principles for measuring performance. Whether you use something like the SMART (or Specific, Measurable, Achievable, Relevant and Time-related) goal-setting framework or another method, thinking about the ways you want to measure performance and making sure you can communicate and keep track of those categories will ensure your scorecard performs its purpose.

We worked with our legal department clients to build law firm scorecarding into Scout and learned about what worked well (and what didn’t) along the way. Here are a few tips for creating effective categories for your scorecard:

• Evaluate quantitative and qualitative measures. You’ll want a mix of both to capture the fullest picture of your outside counsel. Quantitative examples include spend, forecasting performance, time to invoice, staffing ratios, use of AFAs, case or matter outcomes, conformance with outside counsel billing guidelines and diversity statistics. Qualitative examples include things like how happy in-house attorneys are with the firm, proactive strategic and/or industry insights provided by the firm and pro bono or CLE opportunities.

• Encourage objectivity and data-based assessment. For qualitative measures (e.g., innovation or creativity measures), create a scoring system.

• Focus your data categories on metrics that drive your decision-making process. Limit your scorecard to three to six categories if possible and avoid summarizing all of the data you have about a law firm.

• Include different levels of benchmarks (e.g., all firms, comparable firms and by cohort based on experience, expertise, etc.).

• Include an overall or composite score that is weighted based on key metrics in your categories. This creates a shorthand for quick comparison.

NEXT STEPS FOR LAW FIRM SCORECARDING

Now that you’ve decided which data categories you’re including in your scorecard and what it looks like, how do you start using it and ensuring it helps your legal department achieve its goals?

The most important first step is to incorporate your scorecard into your existing workflows. Collecting metrics and populating the scorecard is a huge win, but if you’re not using it to make decisions it’s not going to have the impact you want it to. It is also important to establish a regular reporting cadence that fits in with your workflows and business needs. This ensures that the data doesn’t become stale and it also helps as a reminder to review the results from scorecarding in your other processes.

We have found that many legal teams, especially those in large legal departments operating on the cutting edge of the industry, are moving away from manual, static processes using spreadsheets into tool-based reporting options. If the time it takes to build, compile and execute a law firm scorecarding strategy is holding your legal department back, looking to legal technology to offset that time and energy expense could be the right option.

If you’re curious about how our outside counsel decision-making platform, Scout, not only helps legal teams build a scorecard but also manage outside counsel relationships and structure unorganized data using artificial intelligence, schedule a demo with our team to learn more.