Law Firm Intelligence: Researching the Economy

In recent months, headlines have been dominated by bleak economic news. Credit markets are nearly frozen, the Dow is seemingly at a new low every day and companies ' and law firms ' are announcing mass lay-offs. As the situation unfolds, law firm managers are understandably concerned about the future and are tasking researchers with locating and analyzing economic information to help them better understand the challenging business environment.

Although few CI professionals can claim the lofty title of economist, they can be of assistance in contextualizing the effects of recent economic events and situating their firms within the larger economy. With the right tools at their disposal, the researcher may be able to provide trending information and possibly revenue forecasts. At the very least, CI pros can evaluate their firms' position and highlight areas for further consideration.

However, the goal of the researcher is not only to shed light on these concerns, but also to determine actions that he or she may recommend to firm management. As a CI pro, his/her job is to provide intelligence that will lead to risk-minimizing and advantage-exploiting actions. While answering each question requires firm-internal, client and economic research, the best work product will also factor in competitor firms' actions and their consequences.

This is the first in a series of articles designed to provide researchers and marketers with tools to gain a degree of clarity and insight into how the economy will affect their firms. A future article will address client, competitor and economic research, while this article concentrates on phrasing the research topics and firm-internal research avenues.

The Research Question

Although requests for economic research are increasing, the questions posed are often too vague to result in actionable intelligence. The typical, “How will the economy affect my practice/practice group/firm?” is too broad, too open-ended to provide a solid framework for conducting research and analysis. It would be impossible to answer with any certainty or confidence.

The research team ' consisting of all interested parties ' should work to refine its inquiry and define the scope of the research. Focusing the research topic will ensure that the researcher chooses the correct information in the most time- and cost-efficient manner, as well as satisfies stakeholders' needs.

If the original request is, “How will the economy affect my firm?” then breaking the request into manageable topics might lead to the following questions:

• What economic factors are affecting my key clients' businesses and their needs for legal services?
• How has my firm been affected? What can my firm expect in the next year?
• When can I expect a more amenable business environment?

Firm-internal research can provide a framework for the firm's current situation. By looking at firm analytics, the research team will learn how much ' and how quickly ' clients are paying, as well as how this has changed over time. While most research can be consist of a study of firm analytics, anecdotal information should also be included in the research process. Interviews with the relationship partners can provide insight into clients' perspectives.

Internal Research

It is said that all politics are local, and it would seem that economic data, too, is local. Ultimately, any question about the economy is actually a question about its effect on the firm or its practice groups. Therefore, the researcher should work closely with the finance department to determine the financial data that will answer the following questions appropriately. Some typical questions that a quick query in the firm's analytics software can answer include:

• How have practice group revenues changed year-over-year? Month-over-month?
• Firm-wide, have downward trends in some practice areas been balanced by increases in others?
• How have key client revenues changed year-over-year? Month-over-month?
• How has billing and collections realization changed in the past year, quarter and month?
• Has the time between billing and collection changed?
• How do client billing and collections realization rates compare to changes in the client's revenues? [To be more fully discussed in a future article ' Stay tuned!]

Studying billings and collections, while a main focus of partners, does not provide a full view of the firm's revenue stream and is not forward-looking. Collections have already been gathered; they show how the firm has performed to date. Furthermore, although the attorneys may be focused on revenues, revenue changes can be misleading. For example, it is safe to assume that the decline in capital markets work has affected corporate practice groups, and that this will, unfortunately, continue. However, other revenue declines may just be a temporary lull in legal work. Thus, studying billings and collections alone will not answer the research questions listed above.

For a fuller picture, the research team should turn to realization rates. These reflect how many hours worked were actually billed to the client, as well as how many dollars billed to the client were actually collected. Realization rates can provide a more holistic view of how firm revenues are trending. Together with a historical study of the number of days to pay, realization rates give a straightforward picture of how clients are reacting to the firm's fees. “Looking at not just how much the firm is collecting, but at the client's ability to pay,” will give insight into revenue trending, according to Erin Remschak, a financial analyst at Quarles & Brady.

Revenues and realization rates should be compared year-over-year and month-over-month. When looking at year-over-year and month-over-month data, the researcher should determine which spikes or dips are cyclical and which are red flags. For example, if, in the month of February, a client is always late with its payments, then that can be noted. However, if collections realization remained steady for two years, then declined over the past year, the relationship partner should be informed and this situation should be studied further.

One last note on financial data: Care should be taken when commenting on such data, especially if the numbers are not exactly promising or flattering. Nothing riles partners more quickly than inaccurate or misrepresented numbers, and often the way the question is worded to the finance department will result in subtle differences in the meaning of the numbers given. For example, if revenues are broken down at the office and practice group levels, it is critical that the researcher ' and the final presenter ' understand exactly how those collections were determined to be in a specific practice group or office. Was it according to the practice group of the matter or billing attorney? The attorneys will expect the presenter to know this and be able to justify the rationale for presenting the revenue this way.

Shannon Sankstone is the Marketing Research Analyst at Quarles & Brady, where she is responsible for the marketing and competitive intelligence research function. She can be reached at [email protected] or at 312-715-5251.

In recent months, headlines have been dominated by bleak economic news. Credit markets are nearly frozen, the Dow is seemingly at a new low every day and companies ' and law firms ' are announcing mass lay-offs. As the situation unfolds, law firm managers are understandably concerned about the future and are tasking researchers with locating and analyzing economic information to help them better understand the challenging business environment.

Although few CI professionals can claim the lofty title of economist, they can be of assistance in contextualizing the effects of recent economic events and situating their firms within the larger economy. With the right tools at their disposal, the researcher may be able to provide trending information and possibly revenue forecasts. At the very least, CI pros can evaluate their firms' position and highlight areas for further consideration.

However, the goal of the researcher is not only to shed light on these concerns, but also to determine actions that he or she may recommend to firm management. As a CI pro, his/her job is to provide intelligence that will lead to risk-minimizing and advantage-exploiting actions. While answering each question requires firm-internal, client and economic research, the best work product will also factor in competitor firms' actions and their consequences.

This is the first in a series of articles designed to provide researchers and marketers with tools to gain a degree of clarity and insight into how the economy will affect their firms. A future article will address client, competitor and economic research, while this article concentrates on phrasing the research topics and firm-internal research avenues.

The Research Question

Although requests for economic research are increasing, the questions posed are often too vague to result in actionable intelligence. The typical, “How will the economy affect my practice/practice group/firm?” is too broad, too open-ended to provide a solid framework for conducting research and analysis. It would be impossible to answer with any certainty or confidence.

The research team ' consisting of all interested parties ' should work to refine its inquiry and define the scope of the research. Focusing the research topic will ensure that the researcher chooses the correct information in the most time- and cost-efficient manner, as well as satisfies stakeholders' needs.

If the original request is, “How will the economy affect my firm?” then breaking the request into manageable topics might lead to the following questions:

• What economic factors are affecting my key clients' businesses and their needs for legal services?
• How has my firm been affected? What can my firm expect in the next year?
• When can I expect a more amenable business environment?

Firm-internal research can provide a framework for the firm's current situation. By looking at firm analytics, the research team will learn how much ' and how quickly ' clients are paying, as well as how this has changed over time. While most research can be consist of a study of firm analytics, anecdotal information should also be included in the research process. Interviews with the relationship partners can provide insight into clients' perspectives.

Internal Research

It is said that all politics are local, and it would seem that economic data, too, is local. Ultimately, any question about the economy is actually a question about its effect on the firm or its practice groups. Therefore, the researcher should work closely with the finance department to determine the financial data that will answer the following questions appropriately. Some typical questions that a quick query in the firm's analytics software can answer include:

• How have practice group revenues changed year-over-year? Month-over-month?
• Firm-wide, have downward trends in some practice areas been balanced by increases in others?
• How have key client revenues changed year-over-year? Month-over-month?
• How has billing and collections realization changed in the past year, quarter and month?
• Has the time between billing and collection changed?
• How do client billing and collections realization rates compare to changes in the client's revenues? [To be more fully discussed in a future article ' Stay tuned!]

Studying billings and collections, while a main focus of partners, does not provide a full view of the firm's revenue stream and is not forward-looking. Collections have already been gathered; they show how the firm has performed to date. Furthermore, although the attorneys may be focused on revenues, revenue changes can be misleading. For example, it is safe to assume that the decline in capital markets work has affected corporate practice groups, and that this will, unfortunately, continue. However, other revenue declines may just be a temporary lull in legal work. Thus, studying billings and collections alone will not answer the research questions listed above.

For a fuller picture, the research team should turn to realization rates. These reflect how many hours worked were actually billed to the client, as well as how many dollars billed to the client were actually collected. Realization rates can provide a more holistic view of how firm revenues are trending. Together with a historical study of the number of days to pay, realization rates give a straightforward picture of how clients are reacting to the firm's fees. “Looking at not just how much the firm is collecting, but at the client's ability to pay,” will give insight into revenue trending, according to Erin Remschak, a financial analyst at Quarles & Brady.

Revenues and realization rates should be compared year-over-year and month-over-month. When looking at year-over-year and month-over-month data, the researcher should determine which spikes or dips are cyclical and which are red flags. For example, if, in the month of February, a client is always late with its payments, then that can be noted. However, if collections realization remained steady for two years, then declined over the past year, the relationship partner should be informed and this situation should be studied further.

One last note on financial data: Care should be taken when commenting on such data, especially if the numbers are not exactly promising or flattering. Nothing riles partners more quickly than inaccurate or misrepresented numbers, and often the way the question is worded to the finance department will result in subtle differences in the meaning of the numbers given. For example, if revenues are broken down at the office and practice group levels, it is critical that the researcher ' and the final presenter ' understand exactly how those collections were determined to be in a specific practice group or office. Was it according to the practice group of the matter or billing attorney? The attorneys will expect the presenter to know this and be able to justify the rationale for presenting the revenue this way.

Shannon Sankstone is the Marketing Research Analyst at Quarles & Brady, where she is responsible for the marketing and competitive intelligence research function. She can be reached at [email protected] or at 312-715-5251.