Balancing Your Legal Scorecard
A Performance Management Tool
For The Legal Department
Introduction
Every organization recognizes the importance of measuring performance. It provides the means of monitoring the achievement of the organization’s strategy. As such, it is a vital means of motivation.
That, at least is the theory!
However, in reality, many organizations have yet to implement a performance measurement system that adequately fits the bill, especially in the legal department. They, instead, focus their attention on “after the horse is out of the barn”, like outcomes and financial performance. Thus, these organizations pay the price:
•Most legal matter indicators and financial indicators are backward looking – it has been likened to “steering the ship by watching the wake”
•Legal department performance and financial performance tends to be measured over the short term and induces short term ‘fixes’
•Legal department measures and financial measures alone cannot communicate the organization’s strategy and priorities to its managers and staff
Although, the following approach may be applied to many departments within the organization, this article focuses our attention on the corporate legal department. As we have found that it is disparagingly referred to by senior management as a “necessary evil”.
With that said, corporate legal departments are now being required to do more than win cases and manage costs. They have a dual mandate, which includes adding value to the corporation while providing successful, cost effective legal work to their corporate client. Adding value includes qualitative as well as quantitative measures.
As such, what corporate legal managers increasingly need is a performance measurement capability that supports a long term, forward-thinking strategic view. They need a performance measurement framework that provides a view across a range of measures that encompass all of the key issues for the continued financial success of their organization. A framework that itself helps improve performance by changing what people do, one that:
•Communicates priorities and direction
•Focuses on improving processes, not functions
•Aligns operational activity with strategic goals
•Provides the necessary leverage for change
The benefits of such an approach can be financially dramatic. It has been estimated that the impact of adopting a balanced approach to measurement (in the legal department alone) is a profitability increase of between 15% and 25% for a typical Fortune 500 company.
The balanced Scorecard (R. Kaplan and D. Norton, Harvard Business Review 1992) is one such a framework.
About The Balanced Scorecard Methodology
The Balanced Scorecard methodology, developed by Robert Kaplan and David Norton, translates an organization’s business strategy into an understandable action plan. Using the Balanced Scorecard technique, an organization can clearly define strategic concepts like value, quality and satisfaction. The Balanced Scorecard then becomes a framework for implementing the strategies related to those concepts. This range of uses makes the Balanced Scorecard an integration hub for strategic management.
With the balanced scorecard, corporate legal managers can measure how outside entities and individuals create value for the department and the organization as a whole. They can determine what the department must invest in or take away from to improve that performance. While maintaining an interest in financial returns, the Balanced Scorecard reveals the non-financial drivers of superior, long-term value creation.
In addition, The Balanced Scorecard enables legal managers to view the well being of the organization from four important perspectives or quadrants. Each quadrant of the scorecard reports performance measures in the form of key performance measures or indicators (KPI). The Balanced Scorecard is a mechanism for translating an organization’s vision and strategy into a coherent set of objectives and performance measures. It uses measurement to communicate the drivers of current and future success.
Read about Balanced Scorecard Perspectives in Part 2 of “Balancing Your Legal Scorecard”
About the Author
Richard Hall is founder/CEO of Hall’s Benchmarks & LexTech, legal information companies that help public & private entities Manage the Business of Law©. Rich’s meld of technology & statistics produced a techno-analytical model of law practice. In 1994, he invented linguistic SW which automatically budget codes, reports GAAP accrual financials & conducts compliance analysis. t 530.820.4070, f 530.820.4071, rhall@hallenterprises.us