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Troublesome specters regarding cost-reduction obligations of legal departments

At a recent panel, a general counsel told the audience that his department was under a mandate to reduce costs from its 2005 baseline at a rate of two percent each year, year after year. That is a Herculean task. Beside that vapid comment, two prickly issues trouble my mind.

Does a law department strive to achieve all the savings it can in one year, even though its managers know or suspect they will be called upon to deliver more savings in the following years? Humans being human, managers will probably strive to meet the goal this year, but not consume next year’s savings. Something like smoothing out quarterly earnings prevails.

As to the second issue, is the goal of a law department to meet the budget-cut numbers for the year, or to effect more radical, longer-term changes? For example, a legal group might transform its relationship with its law firms, restructure internally, or invest in knowledge management. What if it takes money this year to save money next year and in subsequent years?