​Riding the winds of change: the innovation and efficiency agenda in action

As part of Ashurst's focus on understanding and meeting the changing needs of our clients, we conducted extensive research to better understand the trends and pressures driving the evolution of the in-house legal function. A summary of the research is below.

A potent combination of sustained cost pressure and rising workload is driving a new era in how the in-house legal function operates and organises itself. We have clearly moved into a phase where specific action is essential to rebalance the cost and resource equation. Lacklustre growth for many industry sectors, coupled with an evergrowing burden of regulatory scrutiny and complexity are also reshaping the priorities and role of the in-house legal function.

The role of key individuals in the in-house legal function is evolving. The General Counsel or equivalent is ever more of a Strategic Counsel, called upon to advise the business on how best to balance commercial opportunity with the risks of decisions that are central to the success of the wider business.

So what steps are in-house counsel and their teams now taking to manage the manifold challenges they face? What is their appetite for new ideas and services from both existing legal advisers and new providers? How quickly are in-house counsel adopting smarter and more efficient strategies to manage their workloads? Are ‘New Law’ ways of working becoming accepted practice?

To understand the extent of the impact of these trends on the in-house function and how organisations are meeting these challenges, we conducted a series of in-depth interviews with GCs and the C-suite1 across a range of prominent global businesses.

Our analysis provides a unique insight into how legal teams are using smarter technology, integrated with more efficient ways of resourcing and managing legal matters to meet their challenges. We explore how innovative approaches to managing the legal function are increasingly promoting the growth and profitability of their businesses. We also uncover evidence of a willingness to embrace new approaches.

Caught between a rock and a hard place

In-house counsel face the dual challenge of greater workload and squeezed budgets

In the last two years, there has been a rapid acceleration in the evolution of the role of the in-house legal function. GCs face ever increasing workloads, tightening budgets and growing pressure to deliver greater efficiency and value. The success of GCs and the legal function are now judged by their ability to balance these two demands.

For many, a widening gap between workload and budget is placing strain on the in-house function as it tries to manage spiralling resource deficits and maintain morale.

Over the last 24 months, 56% of companies report that overall budgets for the legal function have been cut, resulting in widespread reductions to both internal and external legal spend.

The pressure of managing a growing workload with flat or declining budgets has been exacerbated by reductions to internal headcount for 24% of companies.

GCs are responding to this challenge by thinking creatively about how to improve their approach to resources, technology and the process of managing legal matters to meet the legal needs of their organisations most efficiently.

1. Increasing regulatory implementation burden is the most prominent challenge facing GCs

GCs identify increasing regulatory pressure as one of the greatest challenges they face in their role, citing a proliferation of regulations across industry sectors. Not surprisingly the Financial Services sector reports the greatest pressure to manage regulatory issues.

Moreover, management teams are increasingly encouraging GCs and their teams to ‘own’ regulatory matters and advice. This includes not only advising on regulatory developments, but also devising and implementing governance strategies.

Despite downward pressures on overall legal expenditure, risk and compliance activities are safeguarded from budget cuts for a significant proportion of organisations. In fact, many companies report that budgets have been increased in risk and compliance as a deluge of regulatory requirements has pushed companies to seek additional external advice and bolster their in-house capabilities.

Managing regulation is becoming an increasingly complex and multijurisdictional challenge for GCs. In our research, GCs report that they are most concerned about (i) keeping abreast of changes to the regulatory landscape, (ii) maintaining a strong understanding of how the broad range of regulatory matters are relevant to the organisation and (iii) implementing measures to safeguard against regulatory scrutiny.

GCs expect the fast pace of regulatory development to endure in future. To keep abreast of evolving regulations, GCs are taking a fresh look at how they draw-down upon external legal resource to ensure that they keep up-to-date not only with regulatory changes, but also best practice in implementation and governance.

2. Supporting the Business: 88% of GCs are taking a more strategic role in shaping and implementing business strategy

88% of GCs believe they are taking a more strategic role in decision making. The expectation to provide strategic counsel is currently most keenly being felt by in-house teams in the Resources and Infrastructure industry.

Not only are GCs expected to provide more strategic advice to their organisations, but a majority of GCs also report that the in-house function is increasingly required to play a central role in implementing business decisions, such as asset acquisition and contract management. Many expect that this trend will only increase in the future.

GCs also report that their increasing strategic remit and the demand for non-legal, commercial advice are driven largely by regulatory changes. Organisations increasingly expect the legal function to take the principal role in enbedding regulatory requirements within the business and its processes.

3. Greater focus on operational efficiency

83% of GCs and their teams report increasing pressure from management to deliver and improve cost efficiency. Many report that the pressure they face to reduce spend is part of an organisation-wide initiative to improve operational efficiency.

Increasing the efficiency of the legal function is becoming a fundamental aspect of the role of the GC and one of the major criteria against which they are evaluated. But as organisations push to do more for less, they may also risk compromising the quality of legal advice and organisational governance. Companies must think creatively about how they manage both internal and external resource to achieve greater efficiency while maintaining the quality of legal advice. The increasing number of legal operations roles within in-house legal teams reflects this challenge.

More and more, GCs regard greater efficiency in the legal function as the key that will enable them and their teams to engage with crucial strategic and regulatory issues. In the following section, we examine the strategies that GCs are adopting to drive greater efficiency in their organisations.

Strategies to overcome the efficiency challenge

GCs taking a fresh look at technology, resources and process to deliver more for less

The in-house function is being squeezed and the pressure to deliver more for less is unlikely to relax. To combat this, in-house counsel are rapidly adopting a range of strategies to help manage the function more effectively.

Our study reveals that the top three strategies in-house teams are adopting are:

1. More innovative use of technology.
2. Increasing efficiency of resources, including unbundling matters.
3. Strengthening the process of managing legal matters, including project management skills.

When implemented together, these three strategies can support each other in a 'virtuous circle', producing greater efficiency improvements together than in isolation.

67% are becoming more innovative in their use of technology

Two-thirds of in-house counsel are focusing on innovative use of technology as the cornerstone of their strategies to support smarter working and greater efficiency for the in-house legal function.

Three main benefits underpin the rationale for organisations’ focus on technology – all closely linked with delivering more for less:

1. Greater cost and time efficiency.
2. Improved document management and generation.
3. Better recording and reporting of key metrics.

The greatest barrier to adoption of technology is a lack of knowledge of what tools are available. In-house counsel widely believe that legal teams require greater support both to understand the benefits of technology tools and to select the right solutions for their organisation.

But which technology solutions will organisations adopt to drive greater efficiency in future? 45% of GCs report that a document management system is top of their ‘wish list’ of technology services. Moreover, 29% believe that better communication and matter management systems would greatly aid their legal function.

63% now improving efficiency of resources through unbundling matters

The major advantages which GCs reap from unbundling legal work are greater efficiency and cost savings. There appears to be a growing willingness among GCs to take advantage of outsourcing to deliver essential components of matters in a more cost effective manner.

However, a number of GCs continue to regard unbundling with caution. The most common concern is that coordinating several providers for each matter could significantly increase the workload for the in-house team, particularly if one or more providers are unfamiliar with the working processes of the client. Several GCs also question whether unbundling matters among several providers achieves net cost savings, as disaggregating matters may reduce economies of scale and drive-up project management time and therefore costs.

As a direct reflection of those concerns, our research reveals that of the many approaches taken by GCs to manage external advisers, over two-thirds believe that instructing a ‘one-stop-shop’ for complex matters is the most effective. A one-stop-shop firm is defined as one which provides both high-level, bespoke legal advice combined with a different delivery model for those more recurring and lower value elements of matters.

Proponents of this approach describe the two major benefits of this approach as: (i) low project management burden for the in-house function (including in day-to-day communication and budgeting) – freeing them to devote more time to other aspects of their role and (ii) greater confidence that the firm ‘gets the job done’ especially for complex and multijurisdictional matters – this is mentioned by almost 50% of GCs.

In order to attain the optimum benefit from unbundling matters, a number of GCs have developed innovative and effective approaches to classifying different elements of a legal matter – an approach that helps in-house teams to unbundle and manage projects efficiently.

However, at present only one-third of in-house teams adopt a more refined approach to classifying matters and their component parts, assessing them by not only legal practice and jurisdiction, but also by their importance to the business and/or the level of legal expertise they require. Most of those GCs comment that this is the best approach to classify matters and decide which external advisers to instruct. Many organisations that classify matters in this way believe that their approach is still somewhat basic and will be strengthened in future.

62% are evolving the process of managing matters by strengthening in-house project management skills

More and more, senior in-house counsel are coming to regard the process of managing matters as a discrete skill, and one that can materially improve the efficiency of the in-house team.

62% are taking steps to improve the project management skills of their teams. The benefits of more robust project management are two-fold: an improved ability to manage complex legal matters internally – leading to improved productivity for the in-house team, and an enhanced capability to coordinate external advisers, which unlocks greater flexibility in how matters are disaggregated. Both of these outcomes support in-house teams to improve the efficiency of the legal function and contribute to strengthen the bottom line of their organisation. It is perhaps for this reason that companies are increasingly willing to invest in dedicated project management training for their in-house legal teams.

More than one-third of GCs report that their organisation currently conducts formalised, in-house project management training for their teams, with another 19% of respondents engaging external advisers to provide this. Conversely, one-third of counsel depend solely on on-the-job experience for in-house teams to develop project management skills.

38% of GCs currently have no plans to improve their in-house project management training, although the majority of this group would like to do so. The main barriers faced by GCs include budget restrictions and time constraints. Only a few senior in-house counsel are confident that their team’s project management skills need no further improvement.

The efficiency evolution

Management action is delivering material improvements to efficiency

74% of GCs have achieved greater efficiency through improvements to internal and external resources, technology and the process of managing matters

Overall, the operational strategies adopted by GCs over the last 24 months appear to be paying dividends. Almost three-quarters of senior counsel report that they have increased the efficiency of their function by adopting one or more of the above operational strategies. For most GCs, this improvement in ‘efficiency’ is defined as reducing costs, taken in the context of the overall amount of legal work completed.

In addition, most GCs believe that efforts to improve technology, management processes and both internal and external resources have enabled them to deliver more value to their organisations over the past two years.

The enhanced value takes a variety of forms but GCs most commonly focus on three main areas:

1. greater involvement in strategic decisions;
2. increased cost efficiency; and
3. closer integration with their businesses.

Firstly, GCs are working with their senior management teams to engage more with the overall strategic decisions taken by the business and their implementation. In many cases, this has supported organisations to strengthen their governance procedures and meet growing regulatory demands for in-house legal involvement in strategic decisions.

Secondly, specific operational strategies are supporting GCs to deliver results in the drive to boost the efficiency of their organisations. These strategies help GCs to do more for less, improving their organisations’ bottom line without compromising the quality of the legal advice they provide.

Finally, in-house teams are integrating better with their organisations, giving the legal team a deeper and more nuanced understanding of their business’ strategy and how they can best support it.

Operational strategies

In-house counsel should consider in light of our findings

Many Gcs commented to us that the most effective starting point was an analysis of what time was being spent by their teams on what activites and ranking those activities in terms of value delivered to the wider business. That analysis can be undertaken over a relatively short time frame and should not be over-engineered. Through this analysis and key stakeholder engagement, it will be possible to identify areas for focus and prioritisation and, in many cases, some "quick wins".

Based on our own experience and reflecting the themes of the operational strategies which many GCs are deploying, we recommend focusing your activities as follows:

1. Explore ways to improve the process of managing matters: (i) formal project management training for in-house teams (ii) defining and embedding 'best practice' within your organisation and (iii) drawing-down on external expertise in these areas.
2. Review and sharpen current alignment of resources - who is being used to do what? Using insights from a deeper understanding of legal process, strengthen unbundling strategy, including approach to classifying matters, to support more effective disaggregation.
3. Deepen understanding of how more innovative use of technology can boost the efficiency of managing and delivering legal matters, including both (i) tools to employ in-house and (ii) technology-driven approaches of external advisers.

Interviews included a series of questions to identify current challenges and the strategies individuals and organisations are implementing to respond to those challenges.

This research highlighted that more than 80% of clients remain under significant internal pressure to deliver operational efficiencies. Those clients also confirmed that their three core priorities to address these challenges are:

• Increasing efficiency of resources, including unbundling matters;
• Strengthening the process of managing legal matters, including project management skills; and
• More innovative use of technology.

When implemented together, these three strategies can support each other in a 'virtuous circle', producing greater efficiency improvements together than in isolation.

This insight was the foundation for Ashurst Advance, our uniquely integrated offering which brings together resources, process and technology to help us deliver legal services to our clients in a way that is smart, efficient and different.