The Four Levels of Law Firm Business Intelligence Savvy and How to Improve Yoursaderantuser
by Elan Emerson, Senior Director, Global Solutions Consulting and Account Management
The purpose of business intelligence (BI) in a law firm is to sift through data and information in new ways to find opportunities to drive profitable business. It has many useful applications in the pursuit of new business and solidifying relationships among existing clients.
In the case of new business, this might include re-categorizing matters the firm has worked by industry to analyze which projects were most profitable. It might involve finding gaps such as identifying clients that fit that industry profile but where the firm has yet to develop client relationships.
For existing business, it might mean identifying clients that are potential flight risks to intervene before they leave. A proven way to do this is to identify clients with fewer partner relationships because clients with more partner relationships are far less likely to leave.
These are just a couple of the ways BI technology enables an analyst to sort, manipulate, and analyze law firm data to uncover opportunities the firm hadn’t previously considered. This isn’t magic. To get the most out of BI, you need people with data and analytics skills.
The quality of the data matters too – poor data can’t be used to produce a good analysis. For many law firms, this is a cultural, rather than technical, issue. If the inputs are sloppy – everyone codes all their time entries to L100 for example – the best data scientist in the world will struggle to surface insights.
The Four Levels of BI Savvy in Law Firms
The quality of data, and the culture necessary to yield quality data, got us thinking about the organizational maturity of law firms with respect to BI. We find many firms are stuck in preliminary phases of BI and have so much more to gain.
We hope if we can articulate this notion, firms will be able to see where they are relative to other firms and begin charting a course for improvement. To that end, we find most law firms can be grouped into one of four levels.
Law firm BI Level 1: Descriptive
The descriptive phase of BI answers this question: What happened?
Finding what happened is mostly a function of reporting, which like legal work itself, is investigatory and backward facing. That’s the hitch too because reports are a snapshot in time and the data starts going stale the minute these reports are published.
Law firms tend to have lots of reports. Often these are converted into PDF files that get emailed around the firm with little, if any, feedback. The team that produces the reports may start to wonder if anyone reads them. In a bid that’s equal parts joke and litmus test, we’ve heard that team members will wonder aloud if they should stop sending a particular report around solely to see if anyone notices.
To be clear, good reports are important tools in law firm management. The caution is these reports aren’t always actionable, and in terms of BI savvy, it’s an entry-level activity.
Law Firm BI Level 2: Diagnostic
The diagnostic level of BI answers this question: Why did it happen?
Law firm reporting tells us something happened, but it’s just a symptom. A diagnosis tells us the cause of that symptom – that is why it happened. If you have a runny nose, it could be allergies, a cold, or even the flu – these are all different underlying causes that require different treatments.
In a law firm, diagnostics examine a subtotal or total in a law firm report and apply some condition – a threshold for a client budget, for example. The diagnostic level begins to build activity into a report that helps a law firm understand “the why” behind a report.
This is often how dashboard projects are initiated with the intent of providing lawyer self-service. This means anyone in the firm from staff to managing partner can get the information they need without relying on an analyst to pull it for them.
Law Firm BI Level 3: Predictive
The predictive level of BI answers this question: What will happen?
This is the part of BI that really pays off for a firm and begins to shift from a reactive to a proactive approach. For example, the prediction level tells a firm, practice or partner, that if you continue logging these types of hours, this is how your year will end up.
With a large data set, BI predictions become far more valuable. For example, based on the last three years of data, BI can tell a firm what percentage of work-in-progress (WIP) or accounts receivable (A/R) they are likely to collect. That’s actionable intelligence. A managing partner can see those predictions and tell his or her team to get their time entered sooner so they can influence the outcome.
This is also the point where the level of BI sophistication begins to challenge the status quo and law firm culture because instead of just fulfilling a reporting request, analysts start to understand why. Why does a partner need a report? If the analyst understands this, he or she can conduct an opportunity analysis.
Law Firm BI Level 4: Prescriptive
The prescriptive level of BI strives to answer this question: How do we make it happen?
This is the ultimate goal in BI. At this point, it’s no longer just about what we think will happen based on the data trends, but also revealing a way to make it happen. It’s where firms are using data to drive decision making rather than merely relying on instinct or the last conversation a partner had with a client.
Many firms don’t have the strategy or culture to do this because this type of insight requires details in the data. For example, if your firm permits block billing, or doesn’t enforce proper time coding, then you won’t be able to understand the economic factors underneath workflow and pricing.
How Law Firms Can Move Up the BI Levels
If improving BI savvy can lead to new opportunities for profitable growth, what can a firm do to step forward? Here are a few practical steps:
1) Start by asking “why?”
The pivot from reactive reporting to proactive predictions or prescriptions starts by asking “why?” When an analyst gets a request for a list of clients or matters that meet a certain criterion, they should ask why the requestor needs it.
Knowing why gives the analyst the direction they need to do what they do best. Instead of producing a long list of client names, they can aggregate and visualize data to identify opportunities the firm hasn’t seen before.
2) Reconsider BI staffing
Firms have grown accustomed to staffing BI initiatives with personnel from finance or IT. The person who can expertly troubleshoot network connection issues isn’t always the best person to slice and dice data. Adding analytics or data science talent dedicated to BI can have an immediate impact on business intelligence.
3) Experiment in practice groups
Change in any organization often requires small and achievable steps. A firm striving to transition from block billing to accurate coding, while worthwhile, will find this challenging. A good approach is to experiment with one practice group willing to lead innovation.
4) Relook at compensation models
Law firms and baseball teams may be the most analyzed organizations in the world. There are metrics and statistics for everything in a law firm. However, an important consideration here is whether a firm is compensating the right metrics. Compensation models are an important way to drive culture change and by extension, quality data.
5) Executive support.
Executive support is required for most new initiatives. That ought to mean more than a signature on the bottom of a memorandum. The leadership must be actively involved throughout the process, and it’s worth their while because BI in a law firm is about profitable growth.
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Within law firm circles, there’s an old saying that firms tend to look back and around and forget to look forward. This is the quintessential black hole of law firm reporting. We’re suggesting the path to get ahead rests in leaning forward and supporting BI as it strives to make predictions and prescriptions that lead to a more profitable firm.