You Can’t Effectively Allocate Resources to Your Company’s Varying Legal Needs Without the Right Incentives: Making “Segmentation” Work


The Point

My posts of February 16, 2022 and February 19, 2022 quoted Microsoft’s Jason Barnwell on how to allocate — or “segment” — law function resources:

First Class: “There will always be a slice at the top that is premium work, and it’s always going to make sense to go to the law firms for that.”

Economy Class: “We need to get lawyers out of the middle of stuff when it’s a low-value thing.”

In-between: “Success for me is not getting limousine service for every task and need that Microsoft has.”

Sound advice from Mr. Barnwell. But unlikely to work without the right incentives.

This Matters to Your Business

I once asked Ben Heineman, Jr., the legendary General Counsel of GE under Jack Welch during the years I served as an executive at GE: “What’s the one key to managing resources in a company’s law function?”

Heineman’s unhesitating reply: “Segment! Segment! Segment!”

Here’s how he elaborated on that answer in his book, The Inside Counsel Revolution, calling it “The Primacy of Segmentation”:

  • “In thinking about what resources to use on a corporation’s legal matters, a first and fundamental step is to segment the type of work according to the degree of expertise and judgment required and degree of complexity and risk / opportunity presented.
  • “This segmentation analysis … has at least two dimensions. First, what is the type of work? And second, what are the component tasks of that type of work?
  • “Decisions about what mix of resources is appropriate and how to manage them stems from sophisticated segmentation.”

Because …

The above description of “segmentation” has an objective and analytical connotation. But that “analysis” will be performed by a human being who is not “objective” at all. Instead that human being is likely to conduct his or her thinking in very personal terms:

  • “How will these resource choices affect the law firm I work for?”
  • “How will these resource choices affect the company law department whose budget I have to defend as a general counsel?”
  • Ultimately: “How will these resource choices affect me?”

Sanjay Kamlani, lawyer, founder & CEO of legal tech company MAKER5, and co-founder of the iconic legal services outsourcer Pangea3, recently described how the legal profession’s prevailing business model disincentivizes the efficient allocation of law function resources when it comes to process efficiencies and related tech adoption:

“If you think about how most firms are focused 100% on the billable hour, and then you start thinking about what technology achieves … that ends up reducing billable hours, you immediately start to realize that there’s a big contradiction … Unless you have an incentive structure that is consistent with the notion of efficiency and better, faster, cheaper, you’re not going to get adoption. Everyone’s going to run in the opposite direction of that tool.”

“Show me the incentives and I will show you the outcome.” 

         Charlie Munger, Berkshire Hathaway

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