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

1. Legal ROI:
Quality and Innovation,
Incorporating Efficiency
Copyright © 2014, Ron Dolin
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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. Part 1
Copyright © 2014, Ron Dolin
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What we can't do:
Measure Client's ROI on Legal Spend

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. 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.
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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.
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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
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7. Optimizing Product Purchasing*
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*innovias.com

8. Optimizing Service Purchasing*
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*innovias.com

9. In General (e.g. Legal)*
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*interactioneurope.com
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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. Part 2
What we'd like to do:
Measure Law Firm Innovation ROI
Copyright © 2014, Ron Dolin 11

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. Innovator's Dilemma/Solution*
 Threats and opportunities
 Non-consumption
 Unknown and unknowable markets
*Christensen/Raynor
Copyright © 2014, Ron Dolin 13

14. Innovation ROI and Finance Metrics
(Innovation Killers*)
 Discounted Cash Flow, Net Present Value
*Christensen/Kaufman, HBR
Copyright © 2014, Ron Dolin 14

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.”
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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?
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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
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18. Conclusion
Copyright © 2014, Ron Dolin
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“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. rdolin@stanford.edu
@legalnoise
radicalconcepts.com
Copyright © 2014, Ron Dolin 19