Enterprise GCs are Having an "A-ha" Moment: The New Operating Model for Legal

I imagine it’s not all that common for top GCs to have many “a-ha” moments; there’s a reason they’re now the top legal leader and it’s their job to see around all of the corners.

But in the past several weeks, I’ve surfaced more than a few of these “a-ha” moments with some of the GCs I’ve spoken with.?

I want to share some of what’s spurred those “a-ha” moments with you here today. (It’s a bit long, but stay with me on this; it’s worth it.)

The legal marketplace is at a tipping point.?

Legal has long enjoyed a special status that has allowed it to escape the same scrutiny as its peers in the business.?

But that time is up. ??

As the role of the GC has expanded and changed, so have expectations about what the legal function should deliver, how it must report, and how it should be measured.?

Legal teams are facing increased pressure to reduce costs and demonstrate how they are adding value to the business with the same rigour and transparency as their peers in the business.?

GenAI has only accelerated the urgency to find new efficiencies in this context.?

And I guarantee that if you’re not thinking about this,? the management consulting firms (McKinsey, Bain, BCG — take your pick) are thinking about it for you — cost (and headcount) is almost always their sole focus.?

GCs have got to decide — will you take charge of showing how you are proactively managing your resources to create more impact for the business — or will you let others do it for you?

Your firms can help you fix this problem — if you’ll let them.

External legal spend consumes around 40-60% of total legal costs for most businesses — which makes it one of the single most powerful levers that GCs can use to demonstrate they are efficiently using the company’s resources to optimize outcomes, reduce risk, and deliver more value to the business.?

But this is about a lot more than simply controlling costs.?

Firms are a critical extension of the in-house legal team.

But for too long, the broken billable hour model has introduced friction into the in-house/firm relationship.?

That’s because time spent on a matter is a poor proxy for the value that’s actually delivered to the business.

Rather than vilify law firms for padding their hours and charging exorbitant hourly rates, in-house teams have got to accept that they’ve been complicit in prolonging the problem by continuing to define the value their firms add to the business by the wrong measure.

In-house teams are the ones with the power to redefine the relationship with their firms — a relationship that needs to be centered on how both parties are partnering to add more value to the business.

More and more, we see enterprise teams turning to what we call a “new operating model” for legal to do that. ??

What is the new operating model for legal?

Everything that an in-house lawyer does (or ideally should do) can be broken down into two buckets.

?? The first is to provide legal and strategic advice to the business.?

?? The second is to procure or buy legal services for the business.?

Traditionally, in-house lawyers aren’t taught — or expected — to think about how they buy legal services for the business.?

When a matter comes across their desk, they pick up the phone, call their incumbent firm, watch the work get done, and then wait for the bill to arrive. ????

The new operating model for legal is a fundamental shift in this mindset. ??

Rather than falling back on the status quo, pick up the phone,? blank-check approach for every matter that arrives, in-house teams need to be asking:

“What are we trying to achieve, what outcomes need to occur, and what is the best way to achieve those outcomes?”

When in-house teams begin to apply an outcomes-based mindset to how they resource their matters, the new operating model begins to take shape.

In most instances, that operating model looks like:

? Using top firms (and paying top firm rates) only for bet-the-company matters or high-value matters that require certain expertise.?

? Turning to boutique and mid-sized firms and ALSPs to handle the majority of their matters.

? Increasingly using fixed fees and competitive sourcing when engaging their law firms/ALSPs.

? Using tech solutions (like yours truly) to enable front-of-matter sourcing and work-in-progress disciplines to proactively manage external legal spend.

? Harnessing the data from these disciplines to incrementally (or even exponentially) become smarter buyers of legal services.?

? Using the wins from all of the above to upskill and resource the in-house team to do more and create more impact for the business.

Your peers are already harnessing the power of this new operating model.?

Just recently, I heard yet another example from one of our clients who has adopted this new operating model with their team — their goal is to transition a majority of their matters to alternative or effective fee arrangements within the next two years.

After running a matter through a new scoping process and competitive RFP, they discovered that their incumbent firm of over a decade was priced significantly higher than similarly situated competitors. ??

And better yet, the firm that unseated the incumbent (a firm they were previously unaware of) offered them a more sound strategy and approach to how they proposed to handle the matter (every head of litigation’s dream!). It’s a wonder they went with the new firm, even when the incumbent dropped their price by nearly half.

When you layer on multiple instances like this over time, the impacts are transformative.?

Right now, dozens of enterprise legal teams are using this new operating model to:

?? Save millions on their external legal spend.

?? Demonstrate new process, rigor, and predictability in how they’re doing that — fueling cost certainty that the company loves.

??? Source new and better-fit partners to help them deliver better legal services to the business.

???? Reinvest their savings into the in-house team to drive more proactive, strategic impact for the business.

(I’d be happy to introduce you to some of your GC peers at these companies to hear exactly how they’re doing this — just hit reply here and I will be in touch.)

The new operating model for legal is here.

GCs, I can’t be any more clear. This is your “a-ha” moment.

The question is, what are you going to do about it??

I'm Jim Delkousis. Founder & CEO of PERSUIT? | Recovered BigLaw Partner | Helping Transform How Enterprise Buys Legal

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