This blog is flush with posts that touch on law department productivity. Productivity has to do with how much output results from a given amount of input (See my post of April 27, 2006 on 20 economic terms.). For our purposes, it is a measure of how efficiently a law department turns out advice and work product with a fixed set of resources. If three in-house lawyers can handle all the legal needs of a billion-dollar company and stay within normal bounds of total legal spending, they are productive.
Capacity, by contrast, has to do with total output (See my post of March 26, 2006 for other economic concepts applicable to law-department management.). In other words, any law department can increase its capacity by hiring more law firms or adding more law department staff. Productivity, however, would decline as capacity rises (See my post of May 16, 2007 on law firms and their presumed capacity.). No matter how much capacity comes online, a company can absorb more (See my post of Dec. 12, 2006 on the unquenchable needs of companies for legal guidance.).