Legal ROI: Quality & Innovation, Incorporating Efficiency

Legal ROI: Quality and Innovation,Incorporating Efficiency

Copyright © 2014, Ron Dolin

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Ron Dolin, J.D., Ph.D.

Research Fellow

Center on the Legal Profession

Stanford Law School

Financial Metrics Conference

New York, Oct. 22, 2014

Part 1


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What we can't do:

Measure Client's ROI on Legal Spend

Client (Fortune 100)

Me: Do you measure ROI on legal spend?

GC: No.

Me: Why not?

GC: We can't measure quality.

Copyright © 2014, Ron Dolin 3

Startup Competitor (e-discovery)

Me: Do you measure quality?

CEO: Yes – top quality and inexpensive.

Me: Is that successful?

CEO: It can be challenging when the law firm has a board member that questions our quality without data.


ABS Law Firm (England)

Me: Do you measure quality?

CEO: Constantly.

Me: What is your fee structure?

CEO: 95% is multi-year flat fee, and the client contracts with the company, not with the lawyer. They stay with us even with lawyer turnover.


Measuring Value and ROI

Value is Quality/Benefit over Cost

ROI requires a value assessment on R

Quality metrics are financial metrics

Legal service quality is measurable

Clients need to estimate ROI on legal spend

Law firms need to estimate ROI on innovation projects


Optimizing Product Purchasing*


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*innovias.com

Optimizing Service Purchasing*


8*innovias.com

In General (e.g. Legal)*


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*interactioneurope.com

Row 1 Row 2 Row 3 Row 40

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Column 2

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0 10 20 30 40 50 60 70 80 90 1000

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E-discovery Quality(hypothetical)

Relative Cost

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cisi

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* R

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Part 2


What we'd like to do:

Measure Law Firm Innovation ROI

Law Firm Innovation

Compare marketing (2-3%) with innovation budget.

Measuring ROI on marketing (which focuses on current offerings)?

Propose: 1% on innovation. Focus: pilots and business

models, not large-scale software development.


Innovator's Dilemma/Solution*

Threats and opportunities Non-consumption Unknown and unknowable

markets


*Christensen/Raynor

Innovation ROI and Finance Metrics(Innovation Killers*)

Discounted Cash Flow, Net Present Value


*Christensen/Kaufman, HBR

Fixed and Sunk Costs

“When new technologies or capabilities are required for future competitiveness, margining on the past will send you down the wrong path.”

Finance and strategy “need to be studied and practiced in an integrated way.”


Consider“...the importance of other indicators such as market position, brands, intellectual capital, and long-term competitiveness.”

“One study even showed that senior executives were routinely willing to sacrifice long-term shareholder value to meet earnings expectations or to smooth reported earnings.”

What does a compensation model incentivize?


Innovation Process

Independent team, dedicated budget Discovery-based planning, not stage-gates Identify assumptions, test early, repeat Budget must include learning through trial-and-

error


Conclusion


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“Some of the tools typically used for financial analysis, and decision making about investments, distort the value, importance, and likelihood of success of investments in innovation. There's a better way for management teams to grow their companies. But they will need the courage to challenge some of the paradigms of financial analysis and the willingness to develop alternative methodologies.”


[email protected]

@legalnoise

radicalconcepts.com

Legal ROI: Quality & Innovation, Incorporating Efficiency

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Transcript of Legal ROI: Quality & Innovation, Incorporating Efficiency