With Data Analytics, It's Not Always 'Follow the Money!'

The surge in law firms collecting, analyzing and visualizing information aims quite understandably to increase firm revenue. Why, managing partners ask, should we invest the time and money to do predictive analytics (aka machine learning), if we don't expect to hear the cash register ring? That relatively short-term goal of increased fees makes sense. It also orients the progressive firms to focus analytic tools that pertain to substantive legal analyses.

Even so, this article argues that a number of benefits of predictive data analytics should be recognized in the domain of law firm operational management. All of the alternative exploitations of data ultimately bear on the financial success of the law firm, but they are less immediately instrumental than, say, analyzing cost drivers of lawsuits to make more money on fixed-fee arrangements. As much as managing partners want to grow or increase profitability and bring in more fees and add more lawyers, they may overlook or discount secondary uses of law firm data for running the firm as leaders focus almost exclusively on short-term, return-on-investment business development.

Data handled well can benefit law firms operationally in several ways. This article explores a half dozen of them, some of which bear fruit years down the road.

The Six Big Benefits Beyond Bucks

Recruitment: One benefit of data is when the firm is hiring lawyers. When firm ambassadors make their pitch to lure lateral partners, they deserve to be able to describe the firm glowingly and convincingly. Solid, impressive numbers on growth, revenue, quality and associates, not to mention clients, persuade recruits, especially when proclaimed with effective graphs. As they interview at law schools for new associates or brief search consultants, partners do a better job when they have at hand figures and numeric trends about their firm. Numbers and especially graphs of those numbers go a long as the firm attends recruitment fairs. Stated more broadly, a law firm needs to have its partners and associates conversant with key numbers about the firm.

Information embedded in documents filed in red-weld folders does no one as much good as having the data stored in rows and columns of spreadsheets. In that format, software such as Excel and open-source R can turn the straw of data into the gold of talent.

Facilities: Another use of data arises frequently in infrastructure planning. Should we sublet additional space? Should we move to another location or open a branch office? Sometimes there are questions about installing a larger server or rewiring the existing offices. Should we do anything if we have 150 square feet per lawyer but the industry average is 200? Answers to all these questions, and decisions made thereafter, are wiser when there is data available to support them. Of course, the data has to be available to a computer program that can manipulate and communicate it.

Proposals: Almost every request for proposal (RFP) a firm receives asks for data. The law department that issued the RFP wants to know about diversity, or about practice groups and their numbers of lawyers, or about the size of transactions handled. An RFP may ask for information about the number of matters by type and year, and on and on. Yes, some answers based on data might be resurrected from an earlier RFP response, but it is much more efficient to have the raw data already compiled and curated in a spreadsheet or database.

Surveys: Many vendors and consultants conduct surveys of law firms. They ask for myriad pieces of information. If the law firm chooses to respond and bases its answers on empirical data already kept track of in various formats and repositories, the firm can more readily provide answers to surveys that interest them. In fact, a savvy appreciation of survey data, re-analyzed by the firm perhaps, brings even more value to a firm.

Press: When reporters call, the partner or whoever responds will make points more tellingly if he or she can rapidly cite reliable facts about the firm or topic. "Almost 40 percent of our clients do business in more than 10 countries" impresses reporters far more than getting back two days later with "Lots of our clients are multinationals." The first statement, with its impressive precision and prompt delivery, can only be made if the appropriate numbers have been tracked, analyzed and made available. Journalists are impressed by facts, and data are the epitome of facts.

Vendors: Any time a law firm considers buying something, it will make sounder decisions if it precedes the decision with tallies and tracking. Do we need to buy more user seats under a software license? Have people made sufficient use of the expensive subscription? Does printing double sided make a difference? Research into these kinds of questions pays off; research should be captured as data for decisions.

How These Benefits Are Applied

For all these "benefits beyond bucks," the general point is that insights are available more easily if the law firm compiles data and keeps it readily accessible. If much of its data is in that shape, the firm's staff can apply what is available and create new or better cuts of data.

Data that is at hand and can be worked with throughout the firm improves the operational efficiency of the firm. Doing so also rides the wave of younger people who are more computer-savvy and are comfortable with data analytics. Decision speed, quality of management decisions, consensus that crystallizes around accepted figures, and persuasiveness all manifest themselves over time as a better-run law firm. The six ways law firms can deploy data that are described above each fall into a functional area: HR, infrastructure, selling, public relations, and procurement. When a law firm collects and stores data that those functions can retrieve and analyze, the leaders of the law firms or functions can manage better and provide better service.

Data analytics at a law firm serve as a management tool that will play an increasingly instrumental role in law firms—even more so if they appreciate the longer-term value of a data-collection and data-analysis culture.

Two subtler and broader advantages from number consciousness should be emphasized. First, a data-friendly law firm encourages a different way of thinking about decision-making than traditional approaches. Make it a practice throughout the firm to ground arguments in data and argue with numbers (dare we urge statistics?), or else recognize that a dispute's resolution rests on values and ideology more than quantifiable evidence. If the managing partner feels deep down it is time to open an office in Cuba, you can be sure there are facts and figures that can sharpen or challenge that opinion. Even so, well-marshaled facts can eat away at deeply held beliefs and even, sometimes, change people's minds.

Second, being mindful of data is being mindful of what you do. This is a deeper benefit arising from a law firm's receptivity to data. An awareness of numbers (other than billable hours and fees received) helps lawyers and others in law firms think about their processes, describe them and their output in more tangible, numerate terms ("15 10Ks reviewed this month" rather than "Lots of 10Ks"), and become more aware and reflective about what they are doing. The more there are plots and graphs about activities, the more people think about how they're practicing law and therefore how they might do better.

So, as the data deluge inundates law firms, their leaders ought to recognize that a bottom-line return from data analytics, preferably this quarter, is not the only measure of benefit from data analytics. With enlightened data consciousness, how the firm spends money and how it operates can improve in a wide variety of ways.

Rees Morrison is a principal with Altman Weil.  One of his specialties is data analytics for law firms and corporate law departments.  Contact him at rwmorrison@altmanweil.com

This article originally appeared in Legaltech News, March 2017.   Copyright 2017. ALM Media Properties, LLC. All rights reserved.

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