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Balancing Your Legal Scorecard - Part 2

by Richard Hall

The Balanced Scorecard Perspectives

The four perspectives of the Scorecard provide a balance between short term and long-term objectives, between desired outcomes and drivers for those outcomes and between objective and subjective performance measures.

Many measurement frameworks advocate a balanced range of measures. The Balanced Scorecard is prescriptive about this range, and about how one perspective defines the drivers for the next.

Financial Perspective:
The Balanced Scorecard encourages legal departments to identify their specific financial objectives as relates to the financial objectives of the entire organization. Thus, the legal department embraces the organizations financial strategy. As such, the financial objectives serve as the focus for the legal department's objectives and measures of the other three perspectives.

Every measure should be part of a cause-and-effect relationship that culminates in improving long-term sustainable financial performance. The Balanced Scorecard is an illustration of the strategy, starting with the long-term financial objectives of the organization and then linking them to other initiatives such as the operational processes of the legal department and its investment in employees, systems and outside resources that combine to produce the desired economic performance.

Clearly it is important to get the ‘right' measures. Although it is people, decisions and actions that change performance, measures set the goal, and the old adage "what gets measured gets managed" is still true today.

Leading organizations are now finding new financial measures, as well as the non-financial measures. Rather than simply considering the obvious financial measures of revenue, profit, share value or dividend cover, consideration is being given to a recently developed measure: Economic Value Added. This expresses the amount of value added by the efforts of each department (the legal department for our purposes) in the organization and how those efforts help the overall financial objectives of the organization.

The Organizational Perspective:
One of the key drivers for an organizations success, except in a few rare cases, is organizational efficiency and cost effectiveness. As such, how an organization performs from a bottom line point of view is clearly a top priority for management.

With that in mind, all organizations have their marquee departments, the ones that deliver the maximum contribution to the specific type of financial measure that matters most to them. All organizations also have their average departments and the departments that cost them lots of money, but that they just can't operate without (many times the legal department, which is seen as a drain on the bottom line).

To maximize financial return, it is the operational efficiency and cost effectiveness of the ‘marquee' department that should be addressed. Departmental measures that reflect the issues that really matter to the organization need to be developed. From these, the key objectives and measures for how the other departments (such as legal) should operate can be established.

In this way an even more powerful link can be established between organizational focused objectives and improved financial performance.

The Legal Department Perspective:
Delivering added organizational satisfaction can be achieved through the operational activities of the legal department. Through the Balanced Scorecard framework organizational focused measures can be supported by measures of the legal management processes that are most critical in meeting the organizations expectations. The objectives and measures for this perspective thus enable a focus on maintaining and improving the performance of those processes that deliver the objectives established as key to satisfying the organizations financial objectives, which in turn satisfy stakeholders.

With this approach, the Balanced Scorecard offers a vehicle to focus on a complete value chain of integrated business processes. It is this that represents one of the major opportunities for the benefits that the Balanced Scorecard can provide over traditional departmental performance measurement systems.

This top-down value-chain process can reveal entirely new areas, within the legal department's business processes, where an organization can gain additional advantage.

The effect can be phenomenal; a reduction in process costs of 1% when combined with an identical reduction in wastage can typically deliver an increase in profits of over 15%.

The Innovation and Learning Perspective:
The adage "our people are our greatest asset" has been honored more in breach than the observance in all too many organizations. It is an issue managers cannot afford to ignore, however. The operations of the organization are undertaken by the people within it. The ability, flexibility and motivation of staff are the foundation of most financial results, organizational objectives and departmental activities that are measured in the other quadrants of the scorecard.

Organizational expectations are always changing and legal departments are, as a consequence, required to make continuous improvement. This relies heavily on the department's ability to innovate, learn and improve, which collectively delivers better results for the whole organization.

The idea that everything else eventually depends upon the staff of an organization could suggest that the ultimate single indicator of long-term sustainable success, if there were such a thing, would be the speed at which the organization can learn to do new things successfully. Used in this way, the Balanced Scorecard framework gives consideration to the importance of investing for the future. Not just in traditional areas of investment such as R

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