The Legal Core: A best practice strategy
A lack of a focused legal strategy is diluting legal’s effectiveness.
Although our research suggests that 31% of legal functions have a ‘strategy’ only 21% of legal counsels suggest their functional strategy is effective. Few, if any, address the hardest questions: ‘where do we create the most value’ and ‘what are we going to stop doing to focus on that’.
However, a handful of leading functions are thinking differently. They are clear on where they play and, perhaps more importantly, where they won’t play. They translate this into a set of ‘guardrails’ for how legal will provide support and get explicit agreement from senior leaders to stay within their core focus.
What is Legal's Core?
Legal’s Core is a narrow spectrum of activities that encompass the greatest points of leverage for the legal function. Points of leverage that are often missed because legal is ‘buried in the weeds’ outside of the Core.
When we ask General Counsel what their ‘Core’ is we usually hear something like ‘we have deep legal expertise and knowledge of the business’. This may be true, but it does not bring clarity to what the legal function can do better than anyone in the world and how that generates a competitive advantage for the business.
As a result of this limited clarity, legal functions often default to one of two equally damaging Legal Strategies:
- The Law Firm Alternative:
This legal strategy is as old as the quills in the inkwells of the first Company Lawyer. It is an extension of the original business case for in-house lawyers - they are cheaper than traditional law firms.
Most functions anchor resource allocation decisions to this cost centric strategy, leading to the frittering away of a function’s competitive advantage. Any counsel who has decided to keep work in-house solely because it would cost too much to outsource has tacitly adopted this strategy.
- The Jack of All Trades:
In an effort to ‘serve the business’ strategy is driven by the ‘squeaky wheel’ of client requests. In this environment internal clients often use legal as ‘shield’ against any negative consequence of their decisions and an ‘outsourcer’ for work. Any lawyer who has found themselves editing a document for grammar or spelling mistakes has become a victim of this strategy.
Not only do these strategies not work. They are no longer necessary. Given you can now outsource work to companies like Plexus or use technology like our Promotion Wizard at a comparable in-house cost legal functions don’t need to do low value work at high opportunity cost.
How do you work out where to play?
After hundreds of conversations with General Counsel over the past five years Plexus has distilled down four simple criteria to identify your Legal Core.
- High Value:
Does the underlying business activity generate a high level of enterprise value? The key litmus test for this criteria is: To what extent does this activity support the organisation’s strategy?
- High Risk:
If there is no legal involvement is there a high probability of a risk occurring, and, does that risk have a high consequence for shareholder value? Leading functions partner with Internal Audit and Risk to achieve a consistent definition of what is ‘High Risk’.
- Business Proximity:
Does this activity require a deep knowledge of the business to perform it well? This is Legal Counsel’s key ‘competitive advantage’ versus external lawyers. Undertaking tasks that do not leverage the legal counsel’s competitive advantage is a misallocation of resources and should be outsourced or, perhaps, not done at all.
- Competitive Advantage:
Most critically does Legal’s support of this activity generate a ‘competitive advantage’ for the organisation? The key litmus test of this is: If your function could only do three things to support your organisations mission and strategy would this make the list?
The top GCs are using this framework to bring clarity to catapult up the functional performance curve.
One GC we work with measures and incentives his teams focus on activities that are within their ‘Core’. As result of this methodology they have reduced time spent on non Core activities by 70%. His team has reallocated this time to advise the business on how to accept more risk to generate competitive advantage.
Another GC recently told us how they had outsourced their property work to Plexus to free the team up to focus more on their ‘core’ - which centers on a deep knowledge of their regulatory environment. In just one example, since this shift, they were able to identify a tweak in the interpretation of the regulatory framework that governs their advisor network, which has resulted in $700 million in additional sales in the first year alone.
As this example illustrates, the ROI of focusing on your Legal Core is extraordinary. Instead of trying to save a few pennies they created $700 million in value through focusing on what creates competitive advantage.
But perhaps the greatest example of this Core Focus comes from outside of the legal industry. When Steve Job’s returned to the near bankrupt Apple there were over 100 product lines, within months he had reduced it four. Within a decade of that change they were the highest valued company in the world.
As he said, “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are”.