Due to the current market conditions, finance teams have been extraordinarily tight-fisted with releasing funds for any new project. Their mandate in 2023 has been to cut spend wherever possible.
As a result, the only way to get funding is to either prove how an investment is critical for the company’s growth or show how an investment will net positive returns. However, even if you provide one or the other, Finance allocating a budget is not a sure thing.
In Legal’s case, it’s likely they’ll have to supply both. For this to happen, legal teams will need to track the return on investment (ROI) so that they can build a case for legal tech implementation.
Why Is Tracking ROI Important?
The repercussions of 2020 have fundamentally changed the modern workplace, and there’s no going back.
While some companies continue to make a push for a return to the office, the fact remains that hybrid and remote work are here to stay. At the same time, hybrid and remote forms of work impede the visibility of what’s happening.
Legal technology is just one solution for enabling transparency and data collection. It also helps in-house legal teams cope with the pressure to do more with less while making it easier to spot and address workflow bottlenecks.
Data collection is especially important because company leadership requests regular updates from Legal about progress towards their KPIs. Legal tech is an easy fix that ensures leadership can see what’s working and what’s not so that the team can pivot if necessary.
Cost of inaction
Knowing when to pivot when something’s not working as it should is essential for success. Otherwise, the cost of inaction may prove too much to bear.
Without legal technology to shoulder some of Legal’s workflow, the legal department won’t function as effectively and efficiently as it could.
Technology gives teams a chance to solve high workloads without throwing more people at the mountain of tasks (and draining the budget in the process due to hiring new talent). Legal tech also affords teams a chance to breathe, which may prevent burnout and low morale.
So what’s the cost of inaction or not implementing legal tech? High burnout rates, empty budgets, and excessive employee churn.
Technology ensures you won’t suffer such costs. Ultimately, technology should be able to cover at least its initial cost and make it “net zero”. More importantly, technology empowers people to efficiently manage risks, carry out obligations, and ensure compliance while eradicating low-value work.
How Can You Measure ROI?
When teams can conduct their work more efficiently, this lowers the price tag of “business as usual”. They spend less time doing their work, which means they can pursue other endeavors. Cost-wise, this means that funds end up going much farther.
However, without the data to back up such claims, it’s mere speculation. This is why it’s so critical to measure the ROI of technology. It transforms speculation into cold, hard statements.
There are two ways to measure ROI: quantitative and qualitative. Considering that ROI is a mathematical expression, the most straightforward approach to measuring ROI is quantitative.
It’s easy to focus too much on the return itself, but the investment is just as essential. The less you invest, the easier it is to get a high return. But before you proceed, you need a plan.
Action plan for maximizing the ROI
Your first step should be to look for free solutions or review your current technology to see if you can use it in other ways.
Your second step is more about what you shouldn’t do, which is buy the hottest and coolest tech just because it’s the “best new thing”. If people aren’t going to use what you purchase, it’s an automatic loss.
Your third step is to make the hard decision and cancel software that isn’t essential or whose function is performed by another software you have. For instance, while many companies signed up for Zoom at the start of the pandemic, even though they had Microsoft Teams, tough market conditions meant companies no longer had the budget for both. Since Teams is part of the overall Microsoft package (Office, Word, etc.), Zoom ended up getting axed by many.
Your fourth (and final) step is to assess a software’s qualitative and quantitative return. While qualitative is more subjective and quantitative more concrete, both returns are equally valid.
Evaluating returns doesn’t happen overnight. In fact, chances are you won’t have near enough data in your first year. But once you do, you need access to it.
This is why it’s important to consider who your vendors are. A good legal tech vendor provides powerful reporting capabilities, which supply Legal with the numbers needed for data-driven business decisions. Furthermore, good reporting makes it much easier to track metrics, calculate returns, and present data to leadership.
Example: How to calculate time savings
Let’s say you want to calculate time savings and prove to company leadership that a specific contract management tool helps your team. Your best approach is to use extremely simple metrics and a common situation like an NDA.
Imagine it typically takes you 30 minutes to create an NDA. If a contracting tool can generate an NDA with a playbook in 2 minutes, and you review 1,300 NDAs in a year, then your math is simply 1,300 (number of contracts)x 28(pre-automation minutes spent – post-automation minutes spent) = 36,400 minutes.
Converted to hours, the contract automation engine saved you over 606 hours (an equal of 25 days) of contract review, which you can repurpose for more critical matters.
The more you track activities as they happen, the more accurate your ROI estimation.
And don’t forget to measure the before and after. This is critical if you want to assess the ROI.
How to Build a Case for Investment
Once you have the ROI, you have one of the building blocks for your case to convince Finance to release funds for legal tech. But to increase your odds of success, there are a few more things you need to do:
Identify pain points, inefficiencies, and bottlenecks in current processes
Explore areas where the department is struggling or stands to benefit
Look into how to promote the savings and benefits of technology, especially if you aren’t presently using tech to measure savings
Use data to explain and demonstrate how tech reduces costs, increases compliance, boosts efficiency, and manages risk
Map all stakeholders who have an interest in high legal performance
If you really want to bolster your case, you should try to pilot the technology. By testing the tech and gathering real data that supports your case, you’ll enjoy better odds that Finance funds your purchase.
If the tech you want doesn’t allow pilots or free trials, you can use your current in-house tech to explain the ways new tech will help you. Just don’t forget to emphasize the point, “If my tech was capable of X, I’d be better positioned to provide support.”
One additional trick you can use is to loop in stakeholders who would stand to benefit from using the same tech. Finance becomes more willing to fund software if more teams will use it.
After you’ve identified your ROI and built your case for investment, you’re two-thirds of the way done. The last step is an implementation playbook.
Tactical playbook process
If you haven’t done so yet, before you start implementing, you need to set up a process for measuring ROI.
Once you’ve enabled your process, you can proceed with other steps:
Investigate and identify problems and opportunities in measurable ways (e.g. lawyers spend too much time on NDAs, spending 30 minutes on each NDA)
Create your hypothesis (e.g. if we use this tech, we cut time on NDAs from 30 minutes to 2 minutes)
Find a balance between underpromising and overdelivering during early ROI conversations
Identify the software that solves your problems while measuring your ROI
Keep it small, keep it simple, keep it easy for quick wins
Monitor as your implement
The more methodical and transparent you are, the better for you once it’s time to ask Finance or leadership for the funding. Just make sure to communicate that your hypothesis is not a guarantee but an estimate.
Strategic playbook process
You’ve ironed out the tactics for making the investment pitch, but you need an overarching strategy.
For example, when you try to loop in stakeholders, tailor your case for their needs, not yours. If it’s IT, explain how this legal tech will address IT’s own pain points or how it will reduce friction and improve collaboration with Legal.
If you have to make your pitch to leadership, ask how they want the info: bullets? Exact ROI estimates? Quotes from demos? Learn what they like, and adjust your pitch to match it.
You should also look into the specific language and indicators that will get CFOs and GCs to buy into an investment. Even better, look for any case studies of companies who did the same, and explain how those companies became stronger as a result. Bonus points for finding case studies where the company or team mirrors your own situation.
Make sure that you’re prepared for objections or follow-up questions like what resources are needed, what systems do you need, and does the long-term benefit outweigh the short-term cost.
Convincing Finance and leadership about the importance of legal software won’t be easy, especially in 2023. But that doesn’t mean it’s impossible.
Instead, by carrying out the steps and processes outlined above, you can build a solid case that can sway even the most frugal individual. For this to happen, not only do you need to show a positive ROI, you must also indicate how it will benefit the company and the teams you work with. Success will allow Legal to continue shifting from doing to leading.