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Challenging Analytics Complacency: 4 Key Areas Law Firms Should Be Targeting
As client expectations have changed and law firms face greater challenges to achieve performance and profitability goals, it is imperative that firms challenge their approach to analytics. Moving forward, firms must extend the value of their business intelligence (BI) investments to include different data sets in their analytic framework.
Too often BI is viewed in isolation to meet an immediate need – such as “we need to get a better handle on client profitability”, “we need data to support our review process”, and “WIP or AR seem not to be turning as they used to, why?” Moving beyond a practice management system-centric data view or the technical functionality of reporting widgets, the real BI value is in a modern analytic framework that aligns with the firm’s performance management needs going forward.
Challenging the “good enough” mindset
The needle has not moved too far forward on the BI maturity scale for many law firms since the industry started taking the discipline seriously some 20 years ago. The conversations that are going on today around BI are not very different than the conversations that were happening years ago. I would have thought we’d be in an environment where much more of the firm’s internal content and external content would be used by analytics systems, especially given the advancement of the Microsoft stack of tools.
At Wilson, we’re challenging the mindset of what’s good enough when it comes to BI solutions. We believe that there needs to be a new analytic framework and a new approach to understanding all aspects of firm performance. We’re exploring the metrics that law firms should be measuring to understand performance, the drivers of performance, and the differences from what was expected to happen.
To get this type of information, development around a modern analytic framework should focus on four key areas: operations, profitability, people, and business development.
To deliver client value at greater operational efficiency, firms need insight into their operational processes. A modern analytics framework looks at data to identify the weak links. For example, a firm could perform analysis on business acceptance processes, on joiners and leavers, on actual matter execution, or the ability to comply with client demands in specific work or matter types. It could look at processes to understand where breakdowns occur and at which stage in the process. Carefully looking at each process is critical if firms want to become good at doing more with less.
A number of firms have embraced lean sigma for process design improvements. But how many of those have included the necessary metrics in their regular analytic efforts? Have they mashed them together with their routine performance management so they can know, for example, exactly how much expected revenue for each type of work is at which stage of the approval process by lawyer and by risk evaluation?
Figure 1 Dashboard emphasizing key process milestone metrics
From a profitability standpoint, a modern analytic framework can help firms be less reactive and retrospective. Rather than evaluate profitability after a matter has been closed, the framework should support pricing decisions at the outset. For example, it should support the effort when a firm is evaluating a matter, a client, an industry, or a sector for risk and understanding whether the firm is getting paid for assuming levels of risk. It should help firms understand which questions in the business acceptance process are actually correlated with results. If firms are asking a question that has no analytic value and there is no predictive nature to it, then why ask it?
Figure 2 Profitability analysis by risk question answers in intake
Looking at better cost management, the framework should enable firms to assess resources going into a particular engagement, including client acquisition costs, and help manage it more effectively. Additionally, one should be able to measure the lifetime value of a client alone and in the context of how successful the engagement is.
The traditional model for profitability, drilling down to the collectible margin of the business, forecasting cash against expected value curves still holds. The problem is that this approach has historically missed the front end of the process, where the critical decisions are made and the back end, the connection to client outcomes where lifetime value is created. We need to be able to tie profitability to success criteria identified at the start of the engagement. This means weighing profitability against the risks that were assumed, assessing client acquisition costs, and figuring out whether or not the work, while profitable, was worth the effort of gaining the client. Then during debriefing, one could determine, "Okay, being profitable isn't enough if the client was unhappy because that's not a long-term business model."
We know from client life cycle analysis that it becomes incredibly expensive, even if an individual engagement was marginally profitable, if the firm loses the client and had invested with the expectation of long-term relationship. The problem is worse if the engagement is marginally unprofitable (who among us doesn’t have those loss leader engagements?). Having an analytic framework that supports that effective decision making is all the more critical in managing the client life cycle.
On the people side of things, the single most important element in driving performance improvement is understanding what the firm’s most valuable resource, its people, are actually working. One of the great predictors of how satisfied people are, or of their likelihood of leaving, and whether or not they are going to be promoted is the exposure do they have to the right work, to the right clients and to the right partners. Are they working on career-enhancing activities? Are they stuck in a rut with a particular lawyer? Are they getting exposed to key partners? Key clients? Are they only working on particular tasks or are they exposed to a wide variety of work like writing briefs, doing research, performing discovery work, getting courtroom time or participating in depositions? Do they value these activities? Does the firm? Are they getting client-facing time?
In theory, all of that information is available today, although many firms lack the taxonomy at the phase- task, activity coding level to do a great job at analyzing it. But there are proxy approaches that can be made in the short run. What information is available at the timecard level? What is captured about the matter in intake? How about from performance reviews? What role can workflow and legal project management have in supporting the development of these analytic approaches?
Figure 3 Understanding lawyer performance and flight risk exposure
4. Business development
To support business development efforts, firms need a better understanding of where the work originates and the effort necessary to win it. In essence, this means adopting more of a sales management approach: understanding what's in the pipeline, understanding client costs and campaign efficacy, understanding the nature of the demographics of where the firm is winning the work, what sort of work is being produced in a particular practice, in a particular sector, at what particular stage in their life cycle, and the amount of effort and knowledge that's necessary in order to properly support that client.
Firms benefit by being able to do deep analysis of the market development efforts, the business acceptance process, the nature of the work, and getting early work type trend analysis. For example, is there a surge in the amount of GDPR work that you are being asked to do because of the timeliness of that subject in the UK? Are you able to properly resource that work? Should you be shifting your recruitment efforts or professional development activities by virtue of what you are seeing in this early warning system in your business development activities?
Figure 4 Nimbly managing efficacy of business development efforts
Modifying your analytic framework
Before one can pull the levers to enhance profitability and performance, insight into the metrics that give visibility into the outcomes is critical. As the industry shifts its mindset from manufacturing billable hours to managing client lifetime value and engagement life cycles, firms need insight into a broader data set than just time and billing information. Firms therefore need to think very seriously about rapidly expanding the data sets available through their analytic efforts.
If you’d like to learn more about how Wilson Legal Solutions can help you modernize your analytics framework, please contact us.