Centralizing Management to Control Costs Case Study

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Problems/IssuesGlaxoSmithKline (GSK) has an inefficient procurement process in the legal department. The traditional procurement methods were not suited to the unique needs of the legal department. In short, standard procurement practices were not working. The lawyers were skeptical about having to use the same procurement processes as other departments, and their skepticism led to resistance.Another issue was the high legal spend. GSK’s litigation exposure was to the hundreds of millions of dollars. The legal department spent a lot on outside counsel. There was no budget for individual lawyers, which contributed to the high legal spend—an unnecessary cost.Plus, a lack of a central management made it difficult for the company to monitor and control its legal spend. It also meant that the company was not totally aware of its potential spending power, which it should have been leveraging so as to get better rates with other firms.Possible SolutionsOne possible solution could be to introduce a new system with a reverse auction mechanism. In a reverse auction, law firms would bid for GSK\'s legal work (Horlen et al., 2005). This would allow for direct competition among the bidding firms, and it could help GSK to get the best legal services at the lowest possible cost.Another possible solution is to use Alternative Fee Arrangements (AFAs).

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AFAs would let GSK pay a fee structure based on the value of the services rendered (Corrigan, 2021). This could include flat…

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…doing—capital that could then be deployed elsewhere more profitably.Additionally, centralizing the management with the Global External Legal Relations Team would let the company better identify areas for cost reduction, negotiate more effectively with law firms, develop a more transparent approach to legal spend by ensuring that all funds and budgets are tracked and managed centrally.Finally, the new procurement process and AFAs would also help GSK to obtain good legal representation while controlling costs. The reverse auction system would draw attention from law firms looking to offer their best lawyers at competitive prices. AFAs would ensure that law firms are compensated by what they deliver (a merit-based system, in other words). All in all, GSK’s legal representation would improve,….....

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