A recent post describes a multi-column chart that color codes a law department’s metrics against key benchmarks (See my post of Sept. 22, 2009: three comparisons on nine benchmarks.). It reminded me that I have long felt the most meaningful benchmark comparisons to be with companies in the same industry. The data described in that post gave me an opportunity to see how well benchmark metrics correlate to each other across industry, revenue, and number of in-house attorneys.
As to total legal spending as a percentage of revenues, this company was median in its industry, second quartile in its attorney size group, and first quartile among companies of similar revenue. A similar dispersion across three columns occurred with inside legal spending as a percentage of revenues and outside legal spending as a percentage of revenue. Hence, for three basic spending metrics, the three groups showed very different benchmark figures. The correlation was low.
At the other extreme, the three groups – industry, revenue, and headcount – must have had very similar figures for inside and outside spending per lawyer because this company was in the same quartile (column) on all three. Note that each of those benchmarks is normalized by attorney count.
The three metrics that were normalized as a percentage of revenue (total legal spend, inside spend and outside spend), had the greatest dispersions. The three metrics that normalized per lawyer (total legal spend, inside spend and outside spend), the dispersions were each by two columns (an overlap of two groups in one column, in other words).
My lesson learned confirms my original assumption. Legal departments compare differently to peers when the peer group consists of companies in the same industry, revenue bracket, or number of attorneys. Which benchmark comparison makes more sense still remains, I believe, industry but this data can neither prove nor disprove my hypothesis (See my post of April 23, 2006: golden apples to apples.).