Data Analytics

Data analytics, the same data mining and interpretive analysis used for decades in other professions, is bringing change to the core business side of the legal profession ' and in the process, revealing great potential for increased efficiency, cost-savings and new ways of managing risk.

Strategic investing, financial analytics and expense management continue to be themes for law firms looking to maximize profitability. The emerging tools and methodologies used to reach deeper levels of analytics also delve into areas such as legal project management and competitive assessment, which are key to driving long-term value and profitability. But how law firms reach their full profit potential is a topic of conversation and debate among firms' executive leaders.

What relevant competitive analysis exists to help determine billing rates? How should law firms staff a given matter to meet or exceed client expectations while maximizing profits (an especially important topic when working with law departments)? What are the process improvements that firms should implement? How can law firms maximize their use of internal data to drive existing strategic sourcing or procurement initiatives?

Data analytics are answering questions like these and providing an underpinning for a developing business model in the legal industry. Some of the most revealing answers are found through robust data analytics.

Law Departments Use Data To Gain Pricing Insights

Benchmarking and comparative pricing are two areas in which data analytics present a unique advantage. Law departments in particular are driving analytics to better understand and approach spending. With data analytics, law departments gain insight into what firms are billing, how matters are staffed, how the rates vary for a given activity, and how to determine what alternative sources may be available that are not currently in use. All topics that enable better discussions with law firm partners.

Darryl Hair, vice president of Legal Operations at DaVita HealthCare Partners Inc., explains how law departments are using advance tools to study their spending and reach into how matters are managed, how to staff them internally, and how to best disperse work to external providers. “Data provides us with the fact-based analysis to make the right decisions,” Hair says. “It helps us determine which options make better financial sense in matters such as whether or not to utilize in-house or outside counsel. We can determine the quality of the outcome and leverage legal spend in the best way possible.”

The principles of data analytics are fundamentally changing how law departments view outside counsel costs and will continue to put pressure on firms to ensure they can measure how the work is handled on their end. “Analytics allow us to define how much a matter costs,” Hair adds. “We are able to negotiate from a position of better knowledge. It lets us know what work costs have been historically vs. relying on law firms to tell us.”

Another key area from the law department perspective is e-billing, which provides mountains of data resulting in powerful information. However, most e-billing platforms are limited in the way they supply information to the law department buyer and are more focused on the transactional nature of the platform.

“We're getting better with e-billing which, looking ahead, will have a greater impact in how we determine spend,” Hair adds. As law departments make further progress in benchmarking facts from e-billing data, they will possess even greater leverage in determining pricing and alternative fee structures.

Legal Project Management

Data analytics enables law firms to harness existing data collections that will guide them on everything from finding profitable efficiencies to making important decisions in case strategy. The data can provide detailed assessments of prior matters, help support billing arrangements, predict the viability of new cases, and monitor workflow ' all of which are central to developing a progressive legal project management plan.

Toby Brown, director of Strategic Pricing and Analytics at Akin Gump, says that modeling fee structures for profitability is a key component of its client evaluation process. After running their due diligence and building out a budget and scope, they build models to assess profitability, which involves a certain degree of analytic evaluation. “If we change x or y, we determine whether or not we can be more profitable,” Brown says. “Monitoring can take many different shapes and forms, but it helps keep a close eye on leverage.”

Firms continue to implement business intelligence models that gather, aggregate and export expansive amounts of data. “We're rolling out a dashboard that's a high-level profitability tool,” Brown says. “It can point at any data source and show real-time profitability.”

In fact, tools such as this are becoming vital to the LPM practice. A firm with offices and attorneys in multiple cities benefits from having a centralized data repository that includes everything from attorney names, rates and third-party costs, to technology and real estate expenses associated with the firm's cases. The resulting output provides executives (or senior leadership) with holistic, evidence-based data to determine the types of cases resulting in the highest profitability.

Changing Dynamics

While some embrace what data analytics has to offer, others remain on the fringe. Historically, law firms focused on the top line. It wasn't a sector that was built on economies of scale or operational efficiencies to create a sustainable competitive advantage. This can be traced back perhaps to two drivers: 1) expense composition was highly comprised of people and mostly revenue generating individuals; and 2) operating margins and growth relative to other sectors.

As dynamics in the market over the past decade have changed, firms seek to adjust strategies, expectations, and operating models to match current market realities. As Brown sees it, clients are more aggressive about pursuing alternative pricing and are trying to gain a better understanding of existing data. “Clients are trying to come up with numbers to validate costs,” Brown says. He suggests that law firms need to better meet the expectations through data analytics: “We're not going to get better unless we have analytics.”

Profitability, Procurement And Analytics

Data analytics should not be misinterpreted as the only driver to improved profitability. Rather, it should be viewed as a strategic advantage, and a way to continue to drive value after initial rounds of expense management efforts have taken place.

An example of data analytics solving profitability concerns is derived from insights into cost-savings measures. It is often surprising to hear that non-salary, third-party costs compose 25% to 35% of gross revenue. These costs span everything from standard office supplies, technology and equipment to real estate. Firms are now starting to take a more critical look at cost containment by deploying tools, technology, metrics, and dashboards to monitor spending and stay within budget.

Operating expense tools is an area that has been underserved in the legal space. Most business intelligence tools in the legal space have historically been focused on matter management ' revenue and pricing. Today, there are more data-driven tools available and more firms use them in areas such as contract management, budgeting and usage tracking/commodity metrics. These tools not only help ensure that prior efforts are sustained, but also help identify new opportunities.

Firms have reported using such tools to identify all the third-party contracts the firm had with early pay discounts. With all of the contract and spend data being collected in a central platform, they are able to immediately value the benefit of taking advantage of these terms. In the past identifying opportunities such as these would have been cost prohibitive.

Conclusion

Law firms, and the legal industry as a whole, continue to implement data analytics and business intelligence as a means to improve operational efficiency and develop legal service logistics. Analytics offers a powerful advantage to law firms that invest in the right approach, particularly in the areas of legal project management, overall profitability and benchmarking.

Increased competition, commoditization, legal outsourcing and pressure from clients to cut costs have led law departments and law firms to seek better insights into their own businesses. These findings have begun to change the way both view and use resources, expertise and human capital.

The entire industry has started to shift its focus and a lot of progress has been made. That said, firms of all shapes and sizes all along the expense management continuum are looking for opportunities to discover what data analytics can do for them.

Christopher Petrini-Poli is Chief Executive Officer of HBR Consulting. He oversees the firm's practice groups, the development and execution of its growth strategies, and its operational support functions. Scott Springer is a director in the Global Strategic Sourcing and Business Operations Practice at the firm.

Data analytics, the same data mining and interpretive analysis used for decades in other professions, is bringing change to the core business side of the legal profession ' and in the process, revealing great potential for increased efficiency, cost-savings and new ways of managing risk.

Strategic investing, financial analytics and expense management continue to be themes for law firms looking to maximize profitability. The emerging tools and methodologies used to reach deeper levels of analytics also delve into areas such as legal project management and competitive assessment, which are key to driving long-term value and profitability. But how law firms reach their full profit potential is a topic of conversation and debate among firms' executive leaders.

What relevant competitive analysis exists to help determine billing rates? How should law firms staff a given matter to meet or exceed client expectations while maximizing profits (an especially important topic when working with law departments)? What are the process improvements that firms should implement? How can law firms maximize their use of internal data to drive existing strategic sourcing or procurement initiatives?

Data analytics are answering questions like these and providing an underpinning for a developing business model in the legal industry. Some of the most revealing answers are found through robust data analytics.

Law Departments Use Data To Gain Pricing Insights

Benchmarking and comparative pricing are two areas in which data analytics present a unique advantage. Law departments in particular are driving analytics to better understand and approach spending. With data analytics, law departments gain insight into what firms are billing, how matters are staffed, how the rates vary for a given activity, and how to determine what alternative sources may be available that are not currently in use. All topics that enable better discussions with law firm partners.

Darryl Hair, vice president of Legal Operations at DaVita HealthCare Partners Inc., explains how law departments are using advance tools to study their spending and reach into how matters are managed, how to staff them internally, and how to best disperse work to external providers. “Data provides us with the fact-based analysis to make the right decisions,” Hair says. “It helps us determine which options make better financial sense in matters such as whether or not to utilize in-house or outside counsel. We can determine the quality of the outcome and leverage legal spend in the best way possible.”

The principles of data analytics are fundamentally changing how law departments view outside counsel costs and will continue to put pressure on firms to ensure they can measure how the work is handled on their end. “Analytics allow us to define how much a matter costs,” Hair adds. “We are able to negotiate from a position of better knowledge. It lets us know what work costs have been historically vs. relying on law firms to tell us.”

Another key area from the law department perspective is e-billing, which provides mountains of data resulting in powerful information. However, most e-billing platforms are limited in the way they supply information to the law department buyer and are more focused on the transactional nature of the platform.

“We're getting better with e-billing which, looking ahead, will have a greater impact in how we determine spend,” Hair adds. As law departments make further progress in benchmarking facts from e-billing data, they will possess even greater leverage in determining pricing and alternative fee structures.

Legal Project Management

Data analytics enables law firms to harness existing data collections that will guide them on everything from finding profitable efficiencies to making important decisions in case strategy. The data can provide detailed assessments of prior matters, help support billing arrangements, predict the viability of new cases, and monitor workflow ' all of which are central to developing a progressive legal project management plan.

Toby Brown, director of Strategic Pricing and Analytics at Akin Gump, says that modeling fee structures for profitability is a key component of its client evaluation process. After running their due diligence and building out a budget and scope, they build models to assess profitability, which involves a certain degree of analytic evaluation. “If we change x or y, we determine whether or not we can be more profitable,” Brown says. “Monitoring can take many different shapes and forms, but it helps keep a close eye on leverage.”

Firms continue to implement business intelligence models that gather, aggregate and export expansive amounts of data. “We're rolling out a dashboard that's a high-level profitability tool,” Brown says. “It can point at any data source and show real-time profitability.”

In fact, tools such as this are becoming vital to the LPM practice. A firm with offices and attorneys in multiple cities benefits from having a centralized data repository that includes everything from attorney names, rates and third-party costs, to technology and real estate expenses associated with the firm's cases. The resulting output provides executives (or senior leadership) with holistic, evidence-based data to determine the types of cases resulting in the highest profitability.

Changing Dynamics

While some embrace what data analytics has to offer, others remain on the fringe. Historically, law firms focused on the top line. It wasn't a sector that was built on economies of scale or operational efficiencies to create a sustainable competitive advantage. This can be traced back perhaps to two drivers: 1) expense composition was highly comprised of people and mostly revenue generating individuals; and 2) operating margins and growth relative to other sectors.

As dynamics in the market over the past decade have changed, firms seek to adjust strategies, expectations, and operating models to match current market realities. As Brown sees it, clients are more aggressive about pursuing alternative pricing and are trying to gain a better understanding of existing data. “Clients are trying to come up with numbers to validate costs,” Brown says. He suggests that law firms need to better meet the expectations through data analytics: “We're not going to get better unless we have analytics.”

Profitability, Procurement And Analytics

Data analytics should not be misinterpreted as the only driver to improved profitability. Rather, it should be viewed as a strategic advantage, and a way to continue to drive value after initial rounds of expense management efforts have taken place.

An example of data analytics solving profitability concerns is derived from insights into cost-savings measures. It is often surprising to hear that non-salary, third-party costs compose 25% to 35% of gross revenue. These costs span everything from standard office supplies, technology and equipment to real estate. Firms are now starting to take a more critical look at cost containment by deploying tools, technology, metrics, and dashboards to monitor spending and stay within budget.

Operating expense tools is an area that has been underserved in the legal space. Most business intelligence tools in the legal space have historically been focused on matter management ' revenue and pricing. Today, there are more data-driven tools available and more firms use them in areas such as contract management, budgeting and usage tracking/commodity metrics. These tools not only help ensure that prior efforts are sustained, but also help identify new opportunities.

Firms have reported using such tools to identify all the third-party contracts the firm had with early pay discounts. With all of the contract and spend data being collected in a central platform, they are able to immediately value the benefit of taking advantage of these terms. In the past identifying opportunities such as these would have been cost prohibitive.

Conclusion

Law firms, and the legal industry as a whole, continue to implement data analytics and business intelligence as a means to improve operational efficiency and develop legal service logistics. Analytics offers a powerful advantage to law firms that invest in the right approach, particularly in the areas of legal project management, overall profitability and benchmarking.

Increased competition, commoditization, legal outsourcing and pressure from clients to cut costs have led law departments and law firms to seek better insights into their own businesses. These findings have begun to change the way both view and use resources, expertise and human capital.

The entire industry has started to shift its focus and a lot of progress has been made. That said, firms of all shapes and sizes all along the expense management continuum are looking for opportunities to discover what data analytics can do for them.

Christopher Petrini-Poli is Chief Executive Officer of HBR Consulting. He oversees the firm's practice groups, the development and execution of its growth strategies, and its operational support functions. Scott Springer is a director in the Global Strategic Sourcing and Business Operations Practice at the firm.