Strategic Legal Technology

As law firms try to shift from reverse in 2009 to forward in 2010, they should remember that the easiest way forward is to win more business from existing clients, not get new clients. A new tool, Client Profiles by LexisNexis, is a promising way to help improve growth from existing clients. This product is going into beta testing this quarter. 

Last month I talked to Norman E. Mullock of LexisNexis to learn more about Client Profiling and subsequently read a LexisNexis client profiling white paper. (Note: Vendors regularly offer me demonstrations. I sometimes say yes for interesting ones, for which I receive no compensation. Separately, I have not checked if other products offer similar features or potential benefits.]

Client Profiling comes from Redwood Analytics, which LexisNexis acquired about two years ago (see my post LexisNexis Acquires Redwood Analytics). Redwood is perhaps best known for improving firm profitability through sophisticated business intelligence (BI). With the new tool, Redwood now offers a way to systematize business development.

Redwood conducted extensive background research on law firm business development (BD) efforts. The research identified BD functions that are distinct from marketing and marketing communications:

• Client / prospect research
• Relationship management
• Prospecting
• Pricing
• RFP/pitch management
• Competitive intelligence

I think these distinctions are critical. While marketing and marcom can play a critical role, the enumerated functions are more important to snaring new business, at least short term.

Key features of Client Profiles include:

• Aggregates data from the multiple internal and external sources
• Analyzes the lifetime value of existing clients with a systematic, data-driven approach that creates a quadrant chart segmented by billable hours total on one axis and consistency of hours over time on the other axis.
• Provides a nice software interface to analyze data and help draw conclusions
• Identifies the 100 clients with the most growth potential and focuses analysis and development of an action plan on this subset

Redwood spends six weeks in a consultative approach with the firm to produce the quadrant analysis, then provides software for the firm to use to continue and refine the analysis. The benefit is that firms can focus BD activity where the yield likely will be greatest.

Redwood’s white paper cites examples of how Client Profiling can help a firm:
(1) Identify clients whose billing vary a lot year to year and then focus on the ones the firm has a decent chance of making consistent big billers.
(2) Understand which practices really feed new business and which do not.
(3) Highlight older clients whose work may have dropped off but with potential to grow again

A data-driven, structured approach to BD is a far superior than one based on gut feel or a big rainmaker’s whim. Malcolm Gladwell’s Blink notwithstanding, an emerging body of business literature shows that companies do better basing decisions on detailed, reliable data and careful analysis. To illustrate the danger of the nonchalant approach, consider “share of wallet", that is, the percent of a client’s business the firm has. It provides insight into how a firm stands with a client, independent of the dollar volume of business. For example, a firm may be pleased that client billing has increased 10%. If, however, the client’s total legal budget grew 25%, the firm’s share of wallet has decreased - often a bad sign. Conversely, shrinking billings may not be so bad if wallet share is on the way up and the client will have a bigger budget in the future.

Overall, I am very impressed with what I saw. Some additional comments and thoughts:

• My sense is that, just as with Redwood’s BI tools, it will take firms time to adapt to Client Profiling. This is a comment about law firms, not Redwood. I suspect some firms simply do not have the analytic horsepower in place - yet - to use this tool. Those that do not will suffer long term.
• The market is moving to alternative fee arrangements, which might affect the analysis. I did not have a chance to ask about this but short-term, AFA is so new it seems unlikely to affect the historical analysis. In any event, Redwood can likely adjust the analysis for AFA.
• Last decade, knowledge management, IT, and library professionals in law firms struggled with how to access and integrate relevant legal work product and data spread across multiple systems within the firm. In my view, Recommind changed the playing field as the first widely adopted enterprise / federated search product in BigLaw. I have the sense that Client Profiling can do the moral equivalent for the many databases that BD professionals need to access and tie together.

I have long been a believer in business intelligence and in evidence-based decision-making (see my BI and best practices blog posts). Redwood software blazed the trail with BI software for law firms. I did not ask how Redwood prices this service and software. If I were managing law firm BD, I would want to be among the beta testers for Client Profiling. And if I were a managing partner, the one area in 2010 where I would unquestionably invest more is in systematic, data-driven BD.

[Update 7 Jan 2009:] For a great account of why you should rely on data to make decisions rather than intuition, read The Future of Decision Making: Less Intuition, More Evidence by Andrew McAfee in the Harvard Business Review, 7 Jan 2009. Hat-tip to Mark Gould (@markgould13).

Just when law firms were beginning to master business intelligence (BI), the market goes and changes the rules. Growing volumes of alternative fee arrangements raise the question of what’s next with BI? 

In the old normal, law firms tracked a key few metrics: billable hours, capacity utilization, leverage, realization, and rates. It all seemed so easy. Of course, it was not as simple as it looked and smart firms figured out that BI is a way to dig deeper to understand what levers to pull to juice profits.

As more work moves to AFA, how will firms analyze their businesses and financials? I wish I knew; I’m just beginning to think through the options. Inputs welcome!

I started thinking about this after reading Execs Want Focus On Goals, Not Just Metrics (Information week, 13 Nov 09), which describes how business increasingly monitors real-time performance via either dashboards or scorecards (the former summarize metrics, the latter compare the metrics to pre-determined targets). I’m not sure law firms need real-time data but monthly seems way too long to wait.

Then I read the blog post Performance Measurement – the sequel by James Dunning. He emphasizes the importance of forward- rather than backward-looking metrics as well as providing good general advice about metrics.

In the past, I’ve been impressed by Redwood Analytics approach to BI (Redwood is now a LexisNexis company). Redwood’s Redwood Analytics® Planning Application “is one of the first products in the legal industry that can connect day-to-day matter management with increasing client demands for alternative billing arrangements.” It sounds great but it’s not clear how it works (even when I toggle to “features” at the top of the page). Thomson Reuters Elite also offers BI software; a Google search of the site - site:www.elite.com “alternative fee arrangements” - yielded no hits; in the singular, the only hit is to a conference program.

I don’t yet have a good answer about the right forward looking metrics for a firm driven by AFA but I do know that management should be thinking hard about the answer as firms increasingly use AFA.

Law firms increasingly use business intelligence techniques to improve profits. You can also apply similar techniques to understand the overall business environment. 

Competitive intelligence (CI) is now its own discipline. For example, West offers its Monitor Suite: “Litigation and Deal Monitor provide unique analysis of the marketplace that will inform your business development process.”

BI and CI focuses on what has been. It’s also possible to try forecasting what will be. Business Week (April 10, 2006) in Is That A Lawsuit Blowing In? describes work by Risk Management Solutions and Rand to forecast class action law suits. They will analyze court and insurance records with techniques used to forecast natural disasters.

Plaintiffs’ lawyers are likely to be the first to read the results. BigLaw, which defends both corporations and insurers, should keep up with this research as well. How does this relate to CIOs? I find that when a topic involves lots of math or technology, lawyers often mistakenly assume they can safely delegate it to the CFO or CIO. Many CIOs have a broader window onto to the world than the partners for whom they work. Whether sharing this type of news with partners who should care is a way to win friends is another story.

Can good business intelligence analysis affect a large firm merger? We may find out if Bryan Cave and Squire Sanders merge - a possibility reported earlier this week. 

Bryan Cave may be looking at merger (12/20/05) reports that “St. Louis law firm Bryan Cave LLP is in merger talks with Cleveland-based Squire, Sanders & Dempsey LLP, according to a trade publication.”

I’ve written about the very sophisticated and useful business intelligence program at Bryan Cave. In a merger, it would be interesting to see how the Bryan Cave tools would be applied. If Squire Sanders is like most other firms, I suspect that margins could be improved by systematically analyzing the business and adjusting staffing, rates, leverage, etc. Bryan Cave appears to be the legal market BI leader and any combined firm would likely benefit significantly from the tools and mindset Bryan Cave has developed.

For more on business intelligence at Bryan Cave, see another good article by John Alber. In ERPs or Data Warehouses for Law Firms? (published in LLRX), Alber addresses the question “whether the benefits of ERP outweigh the costs and risks for law firms” and answers it no.

The article provides a rich analysis of Enterprise Resource Planning systems and explains why simpler solutions - data warehouses - are better. This article is probably outside the comfort zone of many practicing lawyers. For lawyers who manage firms, however, it’s critical reading, not just because of costly technology implications, but also because of the insight it provides to the strategic imperative driving BI.

Udpate of 8/3/06: law.com reports that Merger Talks Between Bryan Cave and Squire Sanders Fizzle Out

Yesterday I suggested that improving the process of assigning associates could improve partner profits. In fact, Bryan Cave, with its deep commitment to business intelligence, appears to have done so. 

I asked John Alber, the firm’s technology partner and author of several recent excellent articles on BI, to comment on my prior blog post. John wrote:

At Bryan Cave, we’ve developed an ‘availability’ application that helps lawyers who are staffing a new matter find available associates and counsel. Every Monday, an automated form goes out to associates and counsel, who use it to declare their availability as none, limited, or general. They can also add comments to qualify their declarations.

Lawyers who need to staff engagements use a Google-like advanced search feature to find available lawyers. They can sort results by various criteria and view individual comments about availability.

After more than a year of use, our leverage is up markedly. Certainly the business climate contributes to that, but our increase outstrips anything we’ve seen during prior upturns. I think the availability application and our new Financial Dashboard (which reveals the benefits of leverage to responsible lawyers) have contributed. We are now doing regression analyses [a statistical method for confirming relationships] to confirm this finding.

Is there an easy way to increase per partner profits by $27,000? 

I previously reported that IBM’s global consulting business built a system to match consultants with the right job. Business Week (11/21/05) reports that using it, IBM “with 36,000 consultants in its system… saved $500 million in the first year alone, cutting the time needed to assign the employee by as much as two weeks.” That works out to almost $14,000 per consultant.

Let’s play with some numbers: Assume in BigLaw a blended associate billing rate of $300/hour. If each associate billed 30 more hours per year, that would generate an additional $9,000 in profit (assuming no increase in costs). If leverage is 3 associates for each partner, that would increase per partner profit by $27,000.

Possible? Maybe. Clearly, associates are, on average working very long hours already. But not all meet billing targets. More importantly, opportunities may exist to convert some non-billable time to billable hours via more effective workforce utilization. This is no sure thing but IBM’s win should tempt law firms to think about more effective ways of assigning lawyers to matters.

Business intelligence continues to be a hot law firm management and legal technology topic. The cover story of the current issue of Law Firm Inc. is on BI. And the October ILTA white paper (PDF) has another outstanding BI article by John Alber of Bryan Cave. 

Regular readers may recall that I have cited other BI articles and related comments by John. In Mining for Gold, John explains clearly and persuasively the business benefit and imperative for law firms doing BI. This article, directed at a more technological savvy audience than his prior ones, has an excellent discussion of some of the technology and software architectural considerations of law firm BI. On the business side, it emphasizes data acquisition (assimilation), interpretation, and most importantly, distillation into actionable information. On the technical side, it explains data warehouses and cubes and stresses the importance of data consistency and accuracy. This is an excellent article for any law firm considering its BI options.

I recently posted that SAP appears to be entering the legal market. John Alber, technology partner at Bryan Cave and author of the outstanding article Delivering Actionable Information To Front-Line Lawyers, thinks SAP or any other Enterprise Resource Planning (ERP) system for law firms is overkill. 

“More than one large law firm has now adopted an ERP. I’m not sure how these sales happened–who told whom what, but I seriously question whether these firms looked at the alternatives. Had they done so, I doubt they would have chosen an ERP. First, these firms have no idea how difficult and culturally jarring adopting an ERP can be. IT literature and lore is rife with horror tales of ERP implementations gone bad. They can be managed to a successful completion, but doing so requires looking at your business from the ground up and being prepared to change some fundamentals to make the ERP work. It’s one thing for an ISO 9000 company to undertake such disruption. It’s quite another for a law firm to do so. I don’t know any law firm that has the systems and processes in place to make an ERP work.

A decade ago, you might have been able to make a case for trying an ERP, because there were no alternatives. Nowadays, with the advent of powerful and relatively easy to implement data warehousing tools, I don’t see any reason for a law firm to adopt an ERP. It is far better to rationalize and smooth the data flows from existing applications (accounting, HR, conflicts, new matters, etc.) and then pull them into a warehouse. Modern data warehouses can integrate data from all enterprise applications and afford far more flexibility than an ERP, all at a minute fraction of the cost of an ERP. Our own financial dashboard is a great example of that. Front line lawyers get key performance information about their clients and matters presented in a way they can understand. We didn’t have to spend millions to get that, quite the contrary. Moreover, we now have a powerful and very flexible warehouse that we can use for all kinds of purposes.”

By the way, John took about a decade off from law practice to be CEO of a transportation software company, so he has pretty good perspective on business, law, and systems.

I have previously suggested (here and here) that business intelligence (BI) would become more important in large law firms. The Wall Street Journal yesterday carried an O’Melveny & Myers employment ad for a position where BI is critical. 

I periodically skim the employment ads in the Wall Street Journal (Tuesday editions). Yesterday I noticed O’Melveny is looking for a “Director of Practice Development and Market Information” and a “Practice Analyst.” This is interesting in two respects. First, I don’t recall seeing many law firms advertising in the employment ads. And second, both positions appear to emphasize BI.

The Director position will focus on “competitive intelligence gathering for strategic planning, litigation spotting, competitive firm positioning” and “provide strategic practice development support to practices, offices and key client initiatives, as well as overseeing teams engaged in the collection, archiving and updating of CRM and other marketing-related data.” The Analyst will monitor economic performance and spot trends. I suspect the Director reports to marketing; the Analyst “reports to Practice Managing Director.”

I’m not 100% sure what these jobs entail, but they seem centered on doing more with business intelligence. If this represents a trend, CIOs will have another constituency to support.

With this post, I have created a Business Intelligence blog category and re-categorized some earlier posts

In late 2004, I predicted that business intelligence software would play an increasingly important role in large law firm management. An article in the Toronto Globe and Mail illustrates the value of BI software. 

Lawyers work on taking care of business (May 2, 2005) discusses how several law firms have used BI software. Fasken Martineau used it to identify prospects for an office in a new city; Bryan Cave used it to set a bid to win business in a competitive situation.

Though the article does not identify the software used by Fasken, I suspect it is Thomson Elite’s new Firm360, described in pre-release blog post by Larry Bodine:

“Firm360 searches the West law database of reported cases that have already been decided, so that marketers get client intelligence, market intelligence, geographic information, competitive intelligence and legal trends. This would be used in strategic planning for new practice areas, industries, offices, rates, trends and financial goals and lateral hires.”

It will be interesting to see what Firm360 does once officially released (the web site does not reveal much).

Business intelligence software is likely to be driven by finance or marketing needs but law firm technology managers will need to understand its importance, how to integrate it into existing systems, and how to support it.

Continuing with the end-of-year theme of predictions, commentator Adam Smith, Esq. recently asked a panel of fellow bloggers about the future of large law firms. 

He posed the following question: “"Looking out five to ten years, what will the single most significant change be in terms of how sophisticated law firms (think AmLaw 200) are managed, on the ‘business side’?”

My answer:

“I started in the legal market in 1989 after three years as a Bain & Co strategy consultant. I observed glaring inefficiencies and convinced myself that the legal market would rapidly change in fundamental ways. I was wrong; change has been slow and evolutionary. Chastened, I no longer predict revolution. I think that the next 5 to 10 years will bring increasingly sophisticated financial analysis, particularly wide adoption of more detailed profitability and financial/competitive analysis. Firms will gain deeper insight into profits by practice, office, matter type, and perhaps even lawyer. Some firms may not act on their findings, but over time, the analysis will drive decisions from mergers to compensation to how matters are staffed. If true, this will not be as visible as other developments such as the advent of marketing departments, so observers will have to read the tea leaves closely to confirm this.”

Of course, enabling this profitability analysis will require some new technology, particularly business intelligence software.

For other interesting answers to the question, click here. Note that this is the first in a series of questions Adam Smith, Esq. will pose to his panel of “Savvy Bloggers.”

My friend and former colleague, Jean O’Grady, the Director of Information Services at Wilmer, Cutler & Pickering has written an article, The Importance of Targeted Information in the LegalTimes.

Jean writes a good overview of specialized sources for current business intelligence and legal developments. Her article is also a good reminder that knowledge management is not just about capturing and re-using know-how generated internally. KM should also help lawyers find, analyze, and interpret the business and legal developments that affect clients. The type of services Jean describes should be part of any fully developed KM strategy.