In the past decade, CFOs have overseen transformations across every business department. They continue to drive digital transformational projects to provide ongoing cost reduction and efficiency improvement. While these transformations are diverse, and the time, scope and scale of the solutions are different, the motivation and core tenants of transformation are the same.
CFOs are worried about the financial health of the business, the quality and timeliness of financial reporting, and the timely identification and cost-effective management of risk. This translates into a focus on internal controls, cost management, revenue recognition, cash conversion, cash flows and risk management. Transformations provide an opportunity to proactively manage and control these pain points by optimizing processes and workflows, driving cost efficiency, and providing timely and accurate insights, which results in improved bottom lines and fewer financial surprises.
CFOs have reaped the benefits of transformations across support functions such as finance, HR and technology. But there is one final frontier that’s been largely untouched by digital transformation: the legal department. The legal department has been slow to evolve in comparison to other business units because of C-suite priorities and in part because lawyers are trained to follow precedent, to be prudent and to avoid risk. That training serves lawyers well in legal work but presents challenges when it comes to embracing the change required to drive true operational improvement.
Let’s look at three ways CFOs can benefit from an optimized legal department and how they can encourage change that supports such an investment.
Gaining A 360-View Into Internal And External Legal Spend
When CFOs drove transformations of finance, HR and IT, the costs targeted were primarily internal. The opportunity in legal is larger because of the portion of outside counsel legal spend, which is essentially an extension of the internal legal department’s capacity. Yes, procurement best practices may have been applied to legal spend, but they likely address the unit cost, not the volume of work or type of work being sent to outside counsel.
Outside counsel can no longer be the hidden staffing arm of the legal department. Gaining more insights into your internal and external spend can be transformative: Your legal team may not realize which resources are underleveraged, which ones are not yielding the right value and how they could be more efficient. External legal spend can be reduced greatly through digital transformation and its corresponding data-driven insight and foresight.
Proactively Managing Risk And Compliance
Many companies take up initiatives to bolster compliance teams and to respond to legal risks. This leads to a lot of legal and compliance personnel being hired and relieved after the initiative loses steam.
A digitally transformed legal department proactively manages risk and the related legal spend. Digital litigation, for example, seeks to identify root cause issues in advance and triages exposures based on historic precedent. This allows a company to implement monitoring in operational processes to identify potential risks and therefore reduce exposure and the cost of internal investigations.
Developing A Market-Based IP Strategy
One of the most untapped sources of value in any business is intellectual property (IP). Many companies go through the expensive and painstaking processes of filing new patents to protect their new products. But few companies focus their patent filing strategy on the future licensing and revenue generating potential of those patents.
There is fundamental net present value in intellectual property assets, and the key vehicle for realizing that value and contributing directly to the bottom line is through a market-based IP strategy. Transformed legal departments understand how to protect and monetize high-value patents, while implementing operational processes that constantly prune the portfolio to manage costs. Digital solutions can empower legal departments to identify opportunities for patent cost optimization.
Tips For CFOs
The next logical question is: What can CFOs put into action for their organizations?
There are several things. First off, be sure to be a mentor, coach and partner to your general counsel (GC). Support the GC being proactive and driving change, stand with them through tough decisions and implementations — demonstrate the long-term vision and the benefits your company can realize.
Furthermore, make sure you demystify transformation for the legal department: Transformation has a negative connotation for many. Focus people on the outcomes that need to be achieved and the common levers of delivering the outcomes. Provide examples across the different functions to prove the levers of change are the same across the organization.
Reaffirm that technology itself is not the answer, and if you focus on technology only, you will not be successful. Rather, illustrate how in all functions technology is an enabler of change, not the creator of change. Legal departments today have plenty of technology, but it consists of point solutions with no overarching strategy. Technology will only be successful if you are willing to tackle how work is performed, by whom and where.
Lastly, focus your teams on ROI and value creation. Transformation is not a destination but a commitment to ongoing operational excellence, which is measured in outcomes and cost efficiency. The immediate returns should be tied to efficiency and control, which normally underwrite the core business case. The qualitative measures and long-term benefits are achieved over time — and sometimes not appreciated or understood until they are operational.
By following these tips, your digital transformation can turn your legal department from a cost center to a revenue generator.
This article was originally published on Forbes. To read the full article, click here.