In part four of The modern GC and the "more for less" dilemma, Lander & Rogers' Practice Group Leader - Consulting, Anthony Kearns looks at procurement of external providers.
The time has finally arrived to talk about procurement of external providers. Hopefully, you are starting to see the logic behind the sequence of these posts. Without doing the work outlined in the first three insights, there is a risk that procurement conversations tend to focus only on reducing the cost of services rather than on enhancing the value of the whole legal supply chain to the organisation. I completely understand the sense of urgency, with CFOs, internal procurement functions and external management consultants all calling for a reduction in overall legal spend. However, as I foreshadowed in the first insight it is worth reflecting on whether this is really a rush to apply a technical solution to an adaptive challenge.
More for less challenge 4: Procurement
There was a time when GCs were left to manage their relationships with external law firms without significant oversight or scrutiny. There was also a time when these were the only external relationships they had to manage. I think we all know these days are now well and truly behind us with Legal now under intense scrutiny and pressure from a variety of sources to show evidence of rigorous procurement processes and performance monitoring. The disaggregation of legal services has also necessitated the procurement of a variety of external services including legal process outsourcing, enabling technology, labour hire, data analytics and document handling. However, the relationship with internal procurement functions can be fraught as GCs have traditionally based their engagement and outsourcing decisions on largely intuitive assessments of performance and relationship factors that do not often align with the rigour and language of professional procurement. In addition, external management consultants, who have traditionally stopped at the door of Legal, suddenly seem to have a lot to say about how Legal should be managed. It is this reality that has led many GCs to appoint Chief Legal Operations Officers and task them with coordinating the procurement of external providers and explaining the value of the entire legal supply chain (including external and internal elements) to the internal procurement function and the business more generally. A task made all the more difficult when the GCs and providers often have difficulty articulating this value proposition themselves. This issue is not going to go away.
Two years ago I would have said that best practice in meeting this challenge would entail both investing in and positioning expert capability within the legal function to both manage the procurement process and work with the internal procurement function to deliver the right levels of service on the best commercial terms. The rate of growth in the membership of the Corporate Legal Officers Consortium (CLOC) reveals how quickly the CLOO has become a standard role in large legal functions and, once employed, they generally set about reducing the numbers of external providers, implementing a standard procurement process and terms of engagement, agreeing performance standards and monitoring the performance of providers. Sophisticated GCs and CLOOs also enlist the assistance of experts in finance, marketing and process improvement to develop ways to regularly measure and report the value of the contribution made by Legal in a language that the business understands. However, best practice procurement is also about unlocking additional value from any strategic supply chain and should be as much about collaborating with suppliers to realise additional valuable services as it is about increasing the efficiency of what is currently provided. There is still a great opportunity for external providers, CLOOs and GCs to work together to realise greater value from the legal supply chain, and the most sophisticated GCs and CLOOs are shifting the relationship with external providers to one of genuine collaboration in answering both sides of the "more for less" dilemma.
Some time ago I became interested in lean methodology and its application to professional services. In the course of my research I read the fascinating book by Jeffrey Liker called The Toyota Way (audiobook here). I was curious to understand how such profound innovation could emerge from what I understood to be a very traditional and conservative culture. I learned that at the heart of The Toyota Way was honouring the best of Japanese culture as a platform of values from which to challenge assumptions and explore the unknown. The concept I found most beguiling as a westerner and lawyer was Keiretsu, which I understood to be a genuine commitment to every participant in your supply chain enjoying both individual and shared success. At that time, I was providing risk management services to architects and witnessed first-hand the destructive impact of an adversarial approach to procurement on the most valuable thing architects had to offer: their creativity. I remember thinking then (as I do now) that Keiretsu is even more important to the procurement of professional services than it is to the procurement of windscreen wipers.
View other insights in The modern GC and the "more for less" dilemma series here:
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