Question: What are examples of key performance indicators (KPIs) for high-performing legal departments?
Answer: KPIs relating to effectiveness, focus, personnel, and cost are central and used as levers for better performance.
It is sometimes observed that businesses improve what they measure, and they measure what they seek to improve. Legal departments that seek to enhance their effectiveness should think strategically about what aspects of their performance they most wish to improve, and measure accordingly. Effectiveness, activity, personnel, and costs are essential factors affecting the performance of a legal department—and all can be measured in various ways.
Effectiveness. This category of KPIs can be boiled down to its essence, namely: outcomes. Outcomes can be measured in many ways, including for instance speed (how long it takes the legal department to address and revolve legal matters raised by the business); the number of legal matters handled, both by the legal team as a whole and by individual lawyers; and the impact of the legal department’s advice on key matters and strategic priorities (e.g., in terms of financial impact, compliance with laws and regulations, transactions completed, judgments/fines/penalties avoided).
Focus. By examining the types of activities that occupy the legal department (think: what the lawyers and legal staff do over the course of an average day, month, and year), this category of measurements can generate insights not only into how the legal team spends its time, but whether such activities are, strategically speaking, the right activities. For instance, KPIs relating to activities can focus on the legal services catalog (the types of legal services the team provides, which can be compared against the types of services the team should provide); the types of matters that are handled in-house vs. those that are sent to outside counsel (and why); the distribution of legal matters (including how evenly, equitably, and effectively such matters are allocated among the team members); and other measures that capture what the legal department does.
Personnel. Legal teams are only as good as their people. How well their people perform, in turn, depends on a host of factors, some of which can be measured. Issues such as employee ratings/performance evaluations, job satisfaction, professional engagement (e.g., employee Net Promoter Scores, a common benchmark survey), professional development/advancement, tenure/retention, and the like can be measured, and provide insights into how the legal team feels about their work as well as their levels of engagement—all of which contribute to the impact the legal department makes on the business.
Cost. Costs are a perennial concern of many business organizations, and legal teams are no exception. That is especially true because the legal department is often deemed a cost to the business, rather than a value-creator. (That is a limited and incomplete view of legal departments, which should be addressed and rebutted wherever possible; more on that in another post.) Discussions about legal teams in the larger business world, accordingly, often focus on the outlay required to sustain the legal department, and whether the budget for legal can be cut. Well-conceived KPIs can help re-frame the discussion of cost from a zero-sum game that starts with the presumption that legal is too expensive, to a more nuanced analysis that helps achieve maximum cost-effectiveness in the legal department, while still providing the risk mitigation and other value-creating services that only the legal department can offer. In addition to simple aggregate legal spend, other measures of cost that can be tracked include legal costs as a percentage of revenue, cost per lawyer, ratio of external legal spend to internal legal spend, and broader measures of legal risk and value such as judgments and penalties avoided, settlements achieved, and transactions accomplished.
By thoughtfully tying KPIs to specific objectives the legal team wishes to improve, and defining how the KPIs will drive improvement regarding those objectives, the legal team will not merely track, but measure with purpose and improve.