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Legal ROI: Quality & Innovation, Incorporating Efficiency

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These are slides from a presentation for a conference on law firm financial metrics in New York City on October 22, 2014.

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Legal ROI: Quality & Innovation, Incorporating Efficiency

  1. 1. Legal ROI: Quality and Innovation, Incorporating Efficiency Copyright © 2014, Ron Dolin 1 Ron Dolin, J.D., Ph.D. Research Fellow Center on the Legal Profession Stanford Law School Financial Metrics Conference New York, Oct. 22, 2014
  2. 2. Part 1 Copyright © 2014, Ron Dolin 2 What we can't do: Measure Client's ROI on Legal Spend
  3. 3. Client (Fortune 100) Me: Do you measure ROI on legal spend? GC: No. Me: Why not? GC: We can't measure quality. Copyright © 2014, Ron Dolin 3
  4. 4. Startup Competitor (e-discovery) Me: Do you measure quality? CEO: Yes – top quality and inexpensive. Me: Is that successful? CEO: It can be challenging when the law firm has a board member that questions our quality without data. Copyright © 2014, Ron Dolin 4
  5. 5. ABS Law Firm (England) Me: Do you measure quality? CEO: Constantly. Me: What is your fee structure? CEO: 95% is multi-year flat fee, and the client contracts with the company, not with the lawyer. They stay with us even with lawyer turnover. Copyright © 2014, Ron Dolin 5
  6. 6. Measuring Value and ROI  Value is Quality/Benefit over Cost  ROI requires a value assessment on R  Quality metrics are financial metrics  Legal service quality is measurable  Clients need to estimate ROI on legal spend  Law firms need to estimate ROI on innovation projects Copyright © 2014, Ron Dolin 6
  7. 7. Optimizing Product Purchasing* Copyright © 2014, Ron Dolin 7 *innovias.com
  8. 8. Optimizing Service Purchasing* Copyright © 2014, Ron Dolin 8 *innovias.com
  9. 9. In General (e.g. Legal)* Copyright © 2014, Ron Dolin *interactioneurope.com 9
  10. 10. Row 1 Row 2 Row 3 Row 4 12 10 8 6 4 2 0 Column 1 Column 2 Column 3 0 10 20 30 40 50 60 70 80 90 100 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 E-discovery Quality (hypothetical) Relative Cost Precision * Recall Copyright © 2014, Ron Dolin 10
  11. 11. Part 2 What we'd like to do: Measure Law Firm Innovation ROI Copyright © 2014, Ron Dolin 11
  12. 12. Law Firm Innovation  Compare marketing (2-3%) with innovation budget.  Measuring ROI on marketing (which focuses on current offerings)?  Propose: 1% on innovation.  Focus: pilots and business models, not large-scale software development. Copyright © 2014, Ron Dolin 12
  13. 13. Innovator's Dilemma/Solution*  Threats and opportunities  Non-consumption  Unknown and unknowable markets *Christensen/Raynor Copyright © 2014, Ron Dolin 13
  14. 14. Innovation ROI and Finance Metrics (Innovation Killers*)  Discounted Cash Flow, Net Present Value *Christensen/Kaufman, HBR Copyright © 2014, Ron Dolin 14
  15. 15. Fixed and Sunk Costs “When new technologies or capabilities are required for future competitiveness, margining on the past will send you down the wrong path.” Finance and strategy “need to be studied and practiced in an integrated way.” Copyright © 2014, Ron Dolin 15
  16. 16. Consider “...the importance of other indicators such as market position, brands, intellectual capital, and long-term competitiveness.” “One study even showed that senior executives were routinely willing to sacrifice long-term shareholder value to meet earnings expectations or to smooth reported earnings.” What does a compensation model incentivize? Copyright © 2014, Ron Dolin 16
  17. 17. Innovation Process  Independent team, dedicated budget  Discovery-based planning, not stage-gates  Identify assumptions, test early, repeat  Budget must include learning through trial-and-error Copyright © 2014, Ron Dolin 17
  18. 18. Conclusion Copyright © 2014, Ron Dolin 18 “Some of the tools typically used for financial analysis, and decision making about investments, distort the value, importance, and likelihood of success of investments in innovation. There's a better way for management teams to grow their companies. But they will need the courage to challenge some of the paradigms of financial analysis and the willingness to develop alternative methodologies.”
  19. 19. rdolin@stanford.edu @legalnoise radicalconcepts.com Copyright © 2014, Ron Dolin 19

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