In-house legal departments have generally been viewed as a cost center, focused primarily on risk management and compliance. However, forward-thinking in-house legal departments are reshaping this perception, resulting in their companies’ recognizing the untapped potential of their legal teams to drive revenue and add further value. This article delves into how in-house legal departments can transition from being cost centers to becoming vital revenue generators.
Rethinking the Traditional Role of In-House Legal Teams
Typically, in-house legal departments have focused on the following areas of responsibility:
- Risk Mitigation: Identifying and managing legal risks to protect the company.
- Regulatory Compliance: Ensuring that relevant laws and regulations are followed.
- Litigation Management: Handling disputes and legal proceedings.
- Contracts: Drafting, reviewing, and negotiating various contracts.
While these responsibilities are important, they are often seen as a cost rolling into General & Administration (G&A) overhead, rather than revenue and profit contributing functions.
Transforming Legal Departments into Revenue Generators
To redefine the role of in-house legal departments, in-house lawyers should adopt several innovative strategies:
1. Marketing
Marketing the in-house legal department as integral to revenue generation is crucial for reshaping perceptions and maximizing its impact. A pivotal shift needs to occur where there is not only a focus on communicating how the legal team mitigates risks and ensures compliance, but how it drives value, supports key initiatives, and is intricately tied to revenue.
For example, key involvement in assisting with closing sales deals should be highlighted within the organization, and a legal department should not shy away from emphasizing that it played an important role in getting to the finish line. In addition, a legal department should advocate for the time and space to highlight its broad role, alongside other departments, such as product, sales and marketing.
This shift in perception from being a cost center to a revenue enabler fosters greater collaboration with other departments, and underscores the legal team’s contribution to the company’s bottom line. Proper marketing will elevate the department’s value and perception within the company.
2. Becoming Strategic Business Partners
Legal teams should integrate more deeply with other business units to support overall company goals. This can be achieved by identifying and leveraging opportunities for business growth and innovation.
For example, legal teams can introduce and advocate for new business models that capitalize on existing legal frameworks or untapped markets.
When a legal team works in conjunction with the business units it can reduce potential legal risks and prevent costly disputes. By implementing proactive legal strategies, companies can save significant amounts in litigation and compliance costs, all of which are quantifiable.
3. Commercial Contracts: The Low Hanging Fruit
In-house lawyers play a key role in revenue generation through their involvement in sales contract negotiations. One of the objective ways to show a legal department’s role in revenue generation is to tie its involvement in sales contract negotiations to revenue generated via closed contracts.
If the deal would not have closed without legal involvement, then that is an objective measure to highlight that the legal department is not merely a cost associated with a transaction. In-house lawyers can be pivotal in not only mitigating risk, but paving the way for smoother transactions and quicker deal closures, directly impacting the company’s bottom line.
This not only safeguards the organization from potential legal pitfalls but also enhances the value of each deal, aligning legal strategies with business objectives. This legal department’s engagement in the sales process transforms the legal team from a perceived cost center into a vital revenue enabler, driving business growth and financial success.
4. Embracing Legal Technology
Incorporating legal technology can significantly enhance productivity and effectiveness. Tools like intake systems, contract management platforms, and legal databases can help legal teams cut costs by automating routine legal tasks and optimizing workflow.
Technologies such as e-discovery tools and automated document review can reduce the time and expense associated with manual processes. In addition, legal technology can allow for the utilization of data and pulling metrics to uncover trends and business opportunities.
5. Become a “Marketing and Sales Person”
A legal department’s vendors, such as external legal providers, can become a new source of revenue for a company. A legal department should view their external law firms not just as key advisors, but potential leads that can be passed along to sales.
There is no harm in stating to an external advisor that partnering is a two way street. If an external law firm can benefit from the applicable product and/or services being sold, then they are a lead. A great way of quickly changing the perception that a legal department is not just a cost center is when the legal department can generate a lead that turns into a sale! In conjunction with this, in-house lawyers can also assist in the sales process by being a bridge between sales and knowing how the product and/or services can maximize value for such applicable customers (as in-house counsel are in a unique position to understand the particular needs of the legal vertical, for example).
6. Maximizing Intellectual Property (IP) Value
IP management can transform IP assets into substantial revenue streams. In-house legal departments can be instrumental in shaping an organization’s IP strategy by being intricately involved in determining when it may make sense to protect IP, such as by filing a patent or trademark application, and more broadly by building out a robust IP program.
This includes not only registering IP but also actively monitoring and enforcing these rights. In addition, a mature IP program can focus on licensing IP to third parties or developing new products from existing IP assets.
7. Leveraging Compliance for Competitive Edge
In-house legal departments can be instrumental in reshaping the perception of compliance being merely regulatory, versus being a strategic advantage. Legal teams can be key in building trust with stakeholders which ultimately creates company value. Organizations that demonstrate a commitment to compliance can improve their reputation and attract more customers and partners, and distinguish themselves from competitors.
With the ever growing importance of Artificial Intelligence (AI), security, and privacy compliance, the legal team can be key in building and distinguishing such programs which will ultimately result in customer trust and streamlining the procurement/sales process.
8. Streamlining Contract Management
Contract management can accelerate business operations and enhance revenue. Legal departments can standardize processes by creating easily accessible templates for frequent uses to expedite agreements. This reduces the time spent on drafting and negotiating individual contracts. A contract management tool can also assist in creating metrics so as to track performance, and identify opportunities for improvement and innovation. Regular audits of contracts can help identify areas for renegotiation or optimization.
9. Building a Revenue-Centric Legal Department
To transform into a revenue center, in-house legal departments need to actively cultivate a business-oriented mindset and shift their thinking from being perceived as just a cost center to being key to driving revenue.
This does not happen overnight! Legal team members should have a strong understanding of business operations and key objectives. Focus should be on enabling the business and constantly adapting to the strategic focus of the business.
In addition, in-house lawyers should raise their hand in assisting with cross-functional projects. Due to being in a unique position to often see the “big picture”, they can add broad value, and this will assist in changing the perception that the legal department’s function is purely to reduce risk and increase compliance.
Real-World Examples
Various companies have successfully turned their legal departments into revenue contributors. For example:
Hootsuite: The legal team has implemented a program where it generates leads from its external legal advisors that are passed along to the sales team. This has resulted in quantifiable revenue creation.
Microsoft: By building a large intellectual portfolio, Microsoft has a licensing division resulting in billions in revenue. Microsoft pursues licensing agreements for its patents and technologies, which generates value.
Blackberry (formerly Research in Motion or RIM): As revenue declined, Blackberry’s patent portfolio came into focus in relation to its value. Blackberry agreed to sell many of its legacy smartphone patents for a substantial amount which strengthened its balance sheet.
Conclusion
Transforming in-house legal departments from cost to revenue centers does not happen overnight and necessitates a shift in mindset and implementation of multi-faceted initiatives. By marketing the role of the legal team’s involvement in revenue generation, whether through being a strategic business partner, adopting cutting-edge technology, managing IP effectively, generating leads, leveraging compliance as a competitive edge, and optimizing contract management, legal teams can play a pivotal role in driving the company’s financial success.
In today’s evolving business environment, recognizing the potential of the legal department as a revenue center is not just beneficial but essential. This shift in perspective can lead to a holistic changed mindset that the legal team is not simply a G&A cost.
By adopting these strategies, in-house legal departments can not only assist with risk mitigation and compliance, but can be positioned as key contributors to business growth and profitability.
Published by: Martin De Juan
