The difference between metrics and KPIs
The biggest challenges faced by legal departments according to corporate counsel are improving operational efficiency, ensuring regulatory compliance, alleviating budget pressure, delivering despite a staff shortage and making better use of technology. So, in a nutshell, doing ‘more with less’ is an overriding objective. Often, corporate counsel often has a gut feeling that everyone in the department is “doing more with less”, but struggle to quantify the “more” and the “less”.
All the above-mentioned challenges could to a large extent be reduced by using legal analytics. Existing data can help to measure these items and drive quantifiable improvements. In addition, it allows the legal department to speak the language of company executives and senior management – i.e. the language of metrics and Key Performance Indicators (KPIs).
To obtain high-quality, trustworthy analytics, one must feed it with good data. There are several factors that determine quality data. With regard to legal spend management, these are for example: categorised matters, Uniform Task Based Management Systems (UTBMS) task-coded line items, robust line item descriptions and line items that are not block-billed.
Law departments have an abundance of available data, like historic bills from their outside counsel, which contain a wealth of valuable information, if they could mine it. This requires a structure and using legal analytics platforms is a good idea. These platforms can structure, aggregate, organise and compare data in meaningful ways to make it truly actionable in the form of metrics and KPIs.
To speak bluntly, metrics in organisations tend to be what can be easily measured. So often decision makers discount the metrics that don’t appear to achieve the outcome they desire at the least possible cost. Nevertheless, in order to convey the resounding impact of process innovation and improvement through the use of applied metrics on the legal department, it’s important to define success factors, limitations and choose KPIs that align with the established strategy. This makes the relationship between a KPI and a metric tangible – a KPI is simply a metric that is tied to a target.
A metric is generally understood to be a standard of measurement and that can be used as a way of quantitatively assessing the efficiency of performance with respect to a particular process. In order for a metric to be useful, however, there must be full agreement in advance as to how the relevant data will be collected, organised and displayed. Metrics cannot be used in isolation and their results must be evaluated against pre-agreed standards. This exercise is referred to as “benchmarking”, post which a large number of “performance indicators” can be identified. The focus must be on those that are truly “key” – meaning that KPIs should have a sensible and sustainable architecture, which aligns with the company’s overall strategy and are easily understood by stakeholders while being limited to those areas that can create the most value for the organisation.
There is no “right answer” for what metrics a legal department should use and the KPI programme must be implemented, but there are some questions that can help drive the decision-making process:
- Why are the KPIs being developed? For example, is it to demonstrate the value of the legal department; or just track trends?
- What are the department’s goals? What are the company’s overarching goals? Is there a strategy you could review?
- What aspects of performance are of value to leadership (company, law department, business units)?
- Does anyone have extensive experience of developing and implementing KPIs within the organisation?
- Are metrics being tracked in other areas? What do those look like and what is the process for evaluating and measuring them? What were the lessons learned?
- What processes and tools are in place already that could help with measurement? What processes and tools would need to be implemented and what does that effort look like?
- Where does the KPI programme fit with the priorities of the department?
When determined following a diligent process, metrics can help incentivise the legal department and they can be embedded within the workflow. KPIs, on the other hand, should be used to establish goals and objectives for further improvement. Note however, that the goals should not simply be to achieve a “better score”, but rather be supported by specific “next steps” that can be understood, implemented and measured. This approach will enable the department to truly strive for and achieve definite improvements.