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Still Relying on Gut Instincts? Why Now Is Really the Time for Data-Driven Business Decisions

Posted to Services on Mar 16 2016 by Russ Haskin, Director, Business of Law Consulting

When it comes to the practice of law, attorneys are taught to leave no stone unturned within a case. That same principle should apply to the business of law, but this is not always the case.

When it comes to making decisions about running the practice, many top-performing law firms see the value in using data to inform decisions. But a surprising number of firms are still relying on perception and gut instinct. With the amount of data available to law firms and the tools in the market that simplify analysis, now is truly the time to switch to a data-driven decision process. Still not convinced? Consider this example.

California dreaming versus reality

The managing committee of a regional law firm in California was discussing whether or not to disband a practice group. There had been growing frustration over the low-rate work within the group as well as the lack of “sex appeal” it brought to the firm. Every member on the committee was steadfast in the belief that this group was tearing apart the fabric of the firm by its clearly “unprofitable” practices. To be fair, realizations were lower than the firm average across the group’s client base. In addition, this group did not service any big-name clients. The group was comprised of a few partners who were supported by a significant number of associates and paralegals.

After analyzing the numbers, the committee was able to see that the group they were ready to kick to the curb was more profitable than 70% of the rest of the firm. How could there be such a disparity between perception and reality? The firm wasn’t looking at or even tracking the right data to properly evaluate the group. Their assessment was based on how they felt about the practice.

Many of the firms’ partners looked poorly on the group’s low realizations. What the partners neglected to do was analyze the cost base. That base was far lower than the firm average. In addition, utilization within the group was high. By looking more closely at the right metrics, the managing committee was able to see that although the group’s clients were not big names, associating with those clients had enabled other groups to secure big deals from sought-after names. In essence the firm had a very profitable group running on cruise control whose presence increased work for the entire firm. Disbanding the group would have been a very costly mistake.

The secret sauce for strengthening your business practices

Sound business practices and talented timekeepers should be the cornerstone of any legal practice. Having one without the other is a recipe for failure. Data analysis is the secret sauce that can strengthen your business practices. Any firm decision can be enhanced by using data. For example:

Looking to merge with another firm? Data analysis allows you to evaluate staffing decisions, client bases, cultural perspectives, and profit expectations.
Has a sought-after lateral potential hit the market? Data analysis can help you project if the lateral fits in with your firm’s strategy, goals, standards of work, and profitability.
Afraid of another recession and are looking to cut costs? Data analysis can reveal which are the right costs to cut, not the easiest ones.

If your firm is still relying on gut instinct and not using all levels of data to inform decisions, you are likely in a world of hurt or confusion. Partners are owners of the firm. They are also the primary drivers of the firm’s wealth. The avoidance of data analysis is simply a path to erosion of that most important driver – profitability.

Author: Russ Haskin, Director, Business of Law Consulting, Wilson Legal Solutions

Russ leads Wilson Legal Solutions’ business of law consulting effort. The practice focuses on using data to drive change in all the areas of law firm business operations including profitability, partner compensation modeling, succession planning, and lateral analytics. He also provides insight to assist in the development of the company’s analytics software.

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