What You Know, What You Don’t Know, and Why Your Invoice Data Is Important

The following post is an excerpt from Taylor Smith’s article Knowing What You Don’t Know: Practical Considerations for Picking the Right Legal Spend Management Partner available in its entirety in our Experts’ Corner.

Tom Brokaw once asked a series of candidates in a town hall debate, “What don’t you know and how will you learn it?” This funny question is actually a good way of thinking about how to tackle many issues around which we don’t have complete knowledge. We know that we want to be expert enough to ask the right questions, but we may lack sufficient expertise to know what they are.

Donald Rumsfeld, during a Department of Defense news briefing, once famously broke down the world of “unknowns” in to three categories. There are, he said, “known knowns.” These are the things we know that we know. However, there are also “known unknowns.” These are things we know that we don’t know. And lastly, there are “unknown unknowns.” These are things we don’t know we don’t know.

The challenge for some claims executives who are looking for the right business partner is that they may have a fair number of unknown unknowns. In other words, they may not be sure what to ask about, what to look for, and how to flush out the philosophies and practices of their potential new business partner.

An Industry Evolution

My first exposure to traditional legal spend management solutions in the insurance industry was as a buyer of legal services in the 1980s. I was an insurance claims litigation manager, which meant that I had lots of legal work to dole out. Picking the "best" firms was mostly a function of which attorneys I believed would keep the organization "out of trouble." That is, I wanted lots of reports and no surprises.

When it came to how much we paid attorneys, there was a fair amount of eye rolling about the cost of legal work, but no real focus on guideline compliance or the amount of the bill. To be fair, we really didn't issue guidelines to comply with. In the 1990s, we began issuing increasingly detailed and complex billing and process guidelines to our outside firms. And logically we began to recognize the need to review each firms’ compliance with these guidelines. This spawned an entire industry of legal auditors and the software required to support those auditors.

As counsel pushed back hard against the legal auditing industry, the software originally designed to support the auditors was elevated to a new plane. E-billing software, and the formats and standards created to support that software, was promoted as able to do what auditors used to do. The industry no longer needed auditors, it was argued, because the software could do “all that.” Clients spent hours and hours writing business rules for their e-billing software. Law firms spent hours and hours figuring out how to submit invoices in certain formats and trying to figure out what the business rules were.

Today, law firms no longer push back against the use of human invoice reviewers. In fact, some would prefer it over a software-only review of their invoices. Most importantly, we have transcended from the world of business rules to a land of deep analytics, artificial intelligence, machine learning, and big data. We are a long way away from looking at whether copies were charged at 25 cents.

We know that legal invoices are rich with information and not just cost data. Invoices tell us how the firm practices, how it staffs cases, how it tries to create value, where the firm focuses its time, how quickly it moves cases to resolution, whether it churns time, reinvents the wheel, and much more. There is no better way to decode a firm’s DNA than through its invoices. Why is this brief evolution of the industry important? Because the known knowns, the known unknowns, and the unknown unknowns are contextual to that evolution. We know more about what we want as buyers now than we did 10, 20, and 30 years ago. We know more about how to create value with our firms and with the invoices they send us. We have tools we couldn’t have imagined that long ago.

To continue reading about how to identify the right Legal Spend provider to partner with, download the full article.


About The Author

Taylor Smith

Taylor Smith serves as the president of CLM Advisors. Prior to this role, Taylor was Founder and Managing Principal of two successful businesses: Revere Advisory, a litigation management consulting firm, and Suite 200 Solutions, a company that connects claims, legal, and insurance executives with products and services that improve their businesses. Taylor’s areas of specialty include legal spend and vendor management, market intelligence studies, talent acquisition, sales and marketing, and other operational areas of opportunity for industry executives.