The Business Intelligence to Competitive Intelligence Continuum

This means that where law firm leaders' “gut judgement” was once sufficient, running the business well now requires solid intelligence (yes, Big Law is a business). Decisions must balance the demands of clients with those of the partnership. Law firms are awash in data, but harnessing it to support sound decision-making is a major challenge. Most law schools still fail to teach how to use “business intelligence,” “competitive intelligence,” “artificial intelligence” and the host of other tools available to law firm leaders. Those terms certainly were not being taught back in the 70s and 80s when today's leaders were studying for the bar.

So, let's sort these terms out and discuss how they can help law firm leaders reduce the risk in some of their most important decisions.

For key definitions, see the chart below. The bottom line, is that Business Intelligence (BI) is based on data internal to the institution, organized and reported to drive decision-making. Competitive Intelligence (CI) is primarily based on external data, again, used to drive decision-making. CI certainly can employ internal data as well.

Data Considerations

The real benefit of both BI and CI is in risk management. Decisions must be made every day, and both BI and CI can inform the decision-making process to minimize risk. Another loose distinction is that Business Intelligence almost always employs quantitative data (numeric), whereas Competitive Intelligence very often includes qualitative (non-numeric) data such as the results of in-depth interviews. It includes competitor intelligence — information about specific rivals.

In today's environment of information glut, certain elements of both BI and CI should be considered table stakes; that is, the competition has access to much of the same CI, and they have the same BI regarding their own organization. But with competitive intelligence, there is opportunity to gain significant competitive advantage through original information; that is, knowledge gained through primary research not available to the competition. Competitive advantage can also be gained through superior analysis of BI and CI data.

In law firms, BI is often housed and managed by the finance team, but includes data from HR and other systems as well. CI is often housed and managed by the marketing team. IT support is required for both.

CRM systems present something of an overlap between BI and CI. Originally little more than computerized Rolodexes, nowadays CRM systems routinely connect to external data sources (CI), and they certainly connect to various internal databases (BI).

Application: BI and CI in Brand Development

Developing a fresh brand position is an excellent opportunity to use CI and BI in synergy to create a differentiation strategy that positions a firm to earn and keep more profitable business.

Developing a brand should not be done in a vacuum, simply based on creativity and judgment. Rather, to be appealing to the highest-value potential and current clients, and to attract the most desirable work, it should set the firm apart in terms of the attributes that matter most to decision-makers and influencers. This requires data of seven classes.

1. Internal financial audit (data from the firm's billing system) [BI]:

a. Industry focus; b. Geographic focus; c. Practice focus; d. Profit (realization, revenue); e. Cross-selling; f. Client tenure; and g. Size of deals/litigation.

2. Client characteristics (data from external sources such as Thomson Reuters and Hoovers) [CI]:

a. Employees (including trends); b. Revenue (including trends); and c. Industry.

3. Client feedback (see next section below for details) [CI]:

a. Strengths; b. Weaknesses; c. Loyalty; d. Differentiators; and e. Competitor strengths.

4. Market research (focus groups, surveys) [CI]:

a. Qualitative/exploratory (what firm and attorney attributes matter most to target markets?); and b. Quantitative/conclusive (how are the firm and key competitors perceived regarding the most important attributes?).

5. Syndicated research [CI]:

a. For example, Acritas brand index, annual surveys by Altman Weil, Citigroup. b. Demand forecasts for services (e.g., patent applications, bankruptcy, international transactions).

6. Directories/ratings (for this purpose, only those with solid research methodologies) [CI]:

a. For example, Chambers, Global Competition Review.

7. Company consumption of legal services and firms used (Thomson Reuters, LexisNexis) [CI]:

a. Share of market; b. Trends in transactions and litigation; and c. Competitors used by client types.

Application: BI and CI in Client Feedback Programs

Ideally, a law firm will employ all three of these client feedback mechanisms, each with distinct purposes, strengths and weaknesses.

Relationship Reviews

These interviews are intended to strengthen personal bonds with clients, and to immediately develop new business. They consist of face-to-face meetings by senior firm management in the offices of senior executives at the client company.

Preparation for these meetings includes creation of a Client Dossier consisting of the client's financial history with the firm [BI], an in-depth profile of the client company (e.g., business strategy, law firms used, profiles of executives), and a profile of the executive hosting the meeting (e.g., schools attended, boards served on, family, employment history, other interests). [CI].

• Deep dives for strategic clients. These are in-depth interviews conducted by third-party interviewers and are intended to identify cross-selling opportunities, to head off possible billing erosion, and to spot competitive threats. Targets are selected by reviewing firm billing records to spot important clients exhibiting trending characteristics correlated with future billing increases or declines. [BI] External data sources are used to identify the other firms being used for legal services of most interest. [CI] These are in-depth, probing interviews in which the interviewer is free to adapt the flow of the interview as-necessary to find out how the firm can best fend off threats and develop new business. The result is outstanding Competitive Intelligence. Employing a third-party to conduct these interviews results in more candid comments than are likely to be received directly by a firm leader. Also, not having to rely on the time and availability of firm leaders ensures greater scalability of the process.
• Generalizable surveys of client loyalty and satisfaction. Client satisfaction surveys have more in common with consumer market research than with the feedback mechanisms described above in that they use third-party interviewers who stick closely to a questionnaire, and they yield much more numeric data than the rich qualitative data discussed above. The purpose is to develop an overall profile of the firm's strengths and weaknesses that can be acted upon and tracked over time. This knowledge is essential to effective strategic planning. Business Intelligence is used to develop the lists of the client firms and individual buyers to be surveyed. The resulting lists include descriptive data about each client to be interviewed (billing trends by practices used, offices used; profitability; tenure, etc.). [BI] Other client characteristics (e.g., industry, size of company, other firms used, legal spend) are collected from outside sources and used to segment the survey results. [CI]

Application: BI and CI In Pricing

Until the past decade, most firms simply billed clients according to their current rate sheet (with occasional discounts) and gave pricing scant thought. In today's demand-driven market, pricing is much more important than in those good old days, not just in terms of the amount charged, but in terms of the billing structure (e.g., caps, collars, fixed fees, contingencies, hold-backs, success bonuses). And with law firm margins thinner than before, it is necessary to understand the profitability of each matter and client.

Effective pricing means structuring fees such that the firm wins the work and that the work is profitable. This is also a marketing opportunity in that optimal pricing helps the client meet their strategic goals (e.g., predictability, and control at each phase of a matter). It is also an opportunity to strengthen client relationships by increasing transparency.

Optimal pricing requires three types of intelligence:

1. Profitability of the matter and the client under various pricing models. [BI].
2. Understanding of the fees being charged by competitors for similar services. Such data is available from vendors such as Acritas and Tymerix. [CI]
3. Buyer price sensitivity. This information is available through any of the client feedback methods discussed above, and from ad hoc discussions with the client. (Most clients are more open to such discussions than billing attorneys expect.) [CI]

Summary

Law firms have a history of being managed by gut instinct. In today's market environment, that won't do. BI and CI, especially when used in concert, can substantially help manage the risk inherent in decision-making.

***** Mark T. Greene is President of Market Intelligence LLC, headquartered in Hendersonville, TN. He is one of the first recipients of the Legal Marketing Association's lifetime achievement award. Reach him at 703-408-0512 or [email protected].