Introduction

Electronic billing has now been integrated into the mainstream of the management of outsourced legal work. Although insurers were in the lead in purchasing e-billing systems from e-billing vendors and setting up e-bill management programs for outsourced insurance defense litigation, the corporate legal department community has embraced e-billing as the preferred process for bill management in general. What is often not clearly understood and appreciated by the recently initiated is that e-billing encompasses more than the transmission of legal bills in real time from the law firm to client. The e-bill transmission process is merely the first step, albeit an important one, in a wholesale shift in the dynamics of outside law firm management. The real value to be derived from e-billing is the opportunity to massage data generated from the process and use it as the foundation for practice management applications.

The E-Billing Systems Progression

The fundamental principles that are at the foundation of all e-billing systems are:

• Formatting of all legal bills into the uniform legal electronic data exchange standard LEDES (www.ledes.org.)
  
• Electronic transmission of bills in real time from the law firm to the client.
  
• Creation of a secure communications loop to preserve attorney/client privilege
  
• Construction of an electronic rules engine to monitor conformance with rules of engagement and bill management guidelines.
  
• Electronic validation and/or rejection of bills through application of rules engine.
  
• Electronic submission of approved bills for payment
  
• Data generation

E-billing systems represent a progression that builds upon those foundation principles. There are three levels in that progression:

1. Transmission systems which adhere to the fundamental principles and leave it to the client and law firm to implement their own bill management program once the bill has been transmitted, scrutinized by a rudimentary rules engine and flowed through to the client with no capturing or categorizing of data.
2. Bill review systems which capture and categorize data through application of rule engine, providing the client with an assortment of analytical tools to review the bill in detail in-house or through referral to a third-party external bill reviewer/auditor and, where appropriate, recommend modifications as well as reductions in conformance with the rules of engagement, bill management guidelines and generally accepted principles (GAPs) of bill review.
3. Performance measurement systems which massage the data generated through bill review into data management banks. The client utilizes the data to comparatively measure and evaluate case/matter and law firm performance and develop pro-active bill management programs.

The progression has been evolutionary. The starting point was the transmission stage. The reasons were technology and bill management competency. In its earliest iteration, e-billing capability was limited by technology to transmission. Data, which is the foundation for performance management at the third and highest level in the progression, was being generated, but the systems did not have the capability to categorize and massage it. Nor was there the management competency in place to drive the development of the technology. Legal bill audit/bill review was experiencing its own evolutionary process, with its origin in straightforward bill auditing and graduating to the knowledge management bill review level. It was the emergence of bill review as a knowledge management function in its own right and its subsequent incorporation into e-bill review systems with their sophisticated rules engine that created the impetus for e-billing systems with performance measurement capability.

Process Engineering Produces Incremental Improvements

Many users are more than pleased with the short-term results from installation of a first level e-bill transmission system. They receive bills in real time that are LEDES formatted. They can better manage the e-bill rather than a snail mail invoice once the transmission system is up and running and all of the law firms have been properly oriented to it. There is no question that this is an improvement. But there are two enormous limitations to those improvements. The rate is incremental. In other words, users save pennies and minutes of time per transmission. It is certainly worthwhile, and adds value to the bill management process, but this is not breakthrough practice management by any means. In addition, the improvements are finite. Once the traditional paper bill management process has been converted into an e-format and is flowing smoothly, there are no more efficiencies and cost savings available. Moreover, this is not a learning system that facilitates new thinking and innovation. The users just continue to transmit bills electronically and look outside the system for additional innovations.

E-Bill Review is the Bridge from Process Engineering to Performance Measurement

E-bill review transforms e-billing from a process engineering system to a knowledge management system. With e-bill review, the transmission feeds into a sophisticated search engine that cues bill reviewers into analysis. Whereas at the transmission level the process stops when the bill reaches its destination and the bill is audited, with e-bill review the transmission and analysis are integrated. The e-bill system provides the bill reviewer with a platform and sophisticated rules engine to analyze and evaluate the bill in a value for service context. The data generated from e-billing now becomes visible and is linked to knowledge management. Although the data is still in raw form, e-bill review raises the level of consciousness about its potential for massaging into metrics.

E-Billing Performance Measurement Adds Practice Management Function to Bill Review

Data massaging leads to data management and the generation of metrics, a finite number of which are found through a combination of analysis and rule of thumb trial and error application to have key performance indicator (KPI) capability. KPIs are business intelligence tools. They provide strategic information about what is adding value, what is impeding progress, and where the potential is for continuous improvement. It is this latter measurement, continuous improvement, that gives e-billing performance measurement systems an infinite capability that is missing in e-bill transmission systems.

Metrics Management is the Star Attraction for E-Billing Systems

E-billing systems now have the capability to integrate transmission, bill review and performance measurement into one comprehensive system. It is this latest progression to metrics management that has created the recent surge of interest in e-billing systems within the corporate legal community at large. Last month's Litigation Management Strategy article reported on the Corporate Times Super Legal Conference in Chicago. E-billing systems with metrics management and scorecarding capability were focal points of every litigation management and outside law firm partnering session.

Metrics Management Requires a Methodology, Strategy and Execution to Add Value

That is the good news. The bad news is that, for the moment, there is less than a clear understanding of what metrics management is and how to execute it. Although you need the integrated e-billings technology to put it in place, metrics management is a methodology in its own right. You need a methodology and an application that is consistent with the methodology to achieve best practices execution. Many adherents are buying into metrics management on the mistaken impression that as long as you have the technology the metrics will somehow fall into place and facilitate strategic performance measurement. Blind belief in technology is merely an extension of process engineering. Reams of data and resultant indicators will be processed but they will have little, if any, strategic value because they are not associated with a methodology that has a consistent linkage to KPIs and an execution model that focuses on continuous improvement.

Metric Management Requires Human Engineering

KPIs achieve their "key" status because they provide insight. Insight is not blind luck. Insight is achieved through adherence to a logic that is rationalized on the basis of a methodology that is strategy-focused. In short, metrics management is an exercise in human engineering, not the application of technology. This months Ideas article provides litigation managers with guidance on how to build human engineering systems. Technology is critical to the process but knowledge management of business intelligence that extrapolates data from the process is the key to metrics management and continuous improvement through strategic performance measurement.