Productizing Your Corporate Legal Department’s Services: Making Build vs. Buy vs. Outsourcing Decisions

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For years, general counsel have weighed the pros and cons of doing a task internally versus sending the work to outside counsel – this is not a new dichotomy. What is newer, however, is the proliferation of technology available for legal and the business savvy now being applied to internal legal departments. This has opened up more choices for legal departments. First, you have to figure out whether you can apply technology, then whether you should build or buy that technology, and finally if you should outsource any portion of the process.

Before you start down the path of buy vs. build vs. outsource, I would recommend assessing your department’s offerings. In the earlier parts of this series, I outline how you can do that. Once you understand your services and your gaps, you can better determine where you may need to apply build vs. buy decisions. Whether you are a general counsel or a legal operations professional, this blog will outline four key aspects to include in your framework as you make these decisions.

1. Problem/Solution List

Start with a list of services your company needs and possible solutions. If you followed the productization process, you will have a good list. If you have not yet done this, you can at least jot down a list of your company’s legal needs, how pervasive and urgent they are, whether they further the company strategy, as well as any potential solutions.

Next, order that list from most pervasive to least pervasive. Where there is a tie, look to the problem’s relationship to company strategy.

Table to help list items from most pervasive to least pervasive.

Next, work through all of the items in box A. You want to be able to answer the following questions:

  • Is there an existing solution?
  • Is there a software solution that may apply?
  • What are the costs/benefits of all possible solutions?
  • Is there typically urgency around the request?
  • All other things being equal, do we have the expertise to handle this in house?

If you have gaps in A, B, or C, I would recommend addressing those before process improvement items.

2. Cost-Benefit Analysis

Next, for any change (either addressing a gap or a process improvement) you should do a cost-benefit/return on investment analysis. Note that if you are just trying to get a sense of which problem on your list to address, you can do a high-level analysis by categorizing the solutions into low, medium, or high financial impact. If, however, you are getting to the point of suggesting a change internally and asking for budget, you want to do a much more in-depth quantitative analysis. On the benefit side, you want to consider any revenue acceleration for the company (e.g., customers’ revenue hits a quarter earlier) as well as costs reduced and avoided (e.g. outside counsel fees). If there are other quantifiable benefits, you should include them as well. On the expense side, make sure to consider licensing, annual maintenance, user fees, implementation, infrastructure, training, hourly support/expert charges, and any ongoing costs. You should predict these benefits and costs for the next 3 years, as that is a common period to see whether there is a return on your investment. You can also prepare a version of this document showing the same cost/benefit of building the solution internally as well as outsourcing it to outside counsel.

3. Additional Factors: Urgency and Expertise

Once you have the cost-benefit analysis for the various solutions, you usually have a preferred direction. However, don’t forget to account for time and expertise. You should then consider how urgent the requests are. The more urgent a request, the more likely it should be handled by technology or outsourced, as those solutions typically can bring more resources to bear. You should then consider expertise. More specifically, does one need specific knowledge about the company to solve this problem or will there be a lot of need to liaise internally? If so, the solution should likely stay with the internal corporate legal department. Conversely, does this require niche expertise and is it better handled by an outside counsel with that expertise? Make notes of these considerations with your cost-benefit analysis, as these factors can sway a decision in one direction or another.

4. Decision Time

Ultimately, making these decisions is more of an art than a science. They are also decisions that can and should be revisited as things change in your business and legal department. The above should give you the right information to make an informed decision. Ultimately, you will want to share your decision with others and get input before finalizing a direction.

By following the productization process, orienting your solutions towards your customers, streamlining how you deliver services, and applying the right sets of resources through build versus buy decisions, your legal department will operate more efficiently.

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