Data science and analytics are relatively new to the legal industry. While companies across almost all sectors are investing heavily in analytics, legal organizations are very much in the early stages of learning and adoption.
That situation is changing, however. Through the work we have done with clients and as we observed at ILTACON 2018 and other industry gatherings, there is tremendous interest in legal analytics. HBR Consulting is beginning to see new, creative uses emerge and an expansion in the field of play for analytics in law. The reasons for change are many but expanding business expectations for law departments, an increasingly competitive landscape for law firms (including new non-firm competitors) and the noticeable adoption outside the legal industry are three drivers of note.
As momentum builds and legal organizations explore how analytics can most benefit them, we believe it is worthwhile to add a layer of categorization to current efforts to provide clarity and guidance. While the nomenclature is still forming in the market, we divide legal analytics efforts into three broad areas: (1) spend and revenue analytics, (2) operational analytics and (3) practice analytics. The lines between these areas can be blurry and some efforts certainly overlap these constructs, but we believe conceptual separation is of value. Each of these constructs is briefly discussed below, exploring its context within the legal industry and how each is beginning to manifest.
Spend and Revenue Analytics – The Common Starting Point
In the legal industry, most analytics activity to date has focused on some variation of spend or revenue analytics. Financial metrics are and will continue to be a natural and direct area for investment for legal organizations. For instance, in the 14th Annual HBR Law Department Survey, corporate law departments listed “Legal Spend Analytics” as their second-most common technology initiative being considered for the next one to two years (behind only “Workflow”). The 2018 survey results are being compiled now, and we are interested in seeing if and how that changes. As law departments continue to pressure outside counsel through mandates for better control, decreased spend and enhanced predictability, law firms are increasingly crunching their own finance-related data to understand and maintain margin. HBR’s SpendConnect and CounselCommand products are examples of spend and revenue analytics solutions. Most spend analytics solutions are descriptive in nature today, manifesting in summary reports of historical data, but we are keen to see more sophisticated, forward-looking techniques applied in this area.
Analytics focus and investment is now extending beyond thoughtful financial analysis, however. Across our client relationships, HBR is seeing legal organizations use data analytics in support of operations and legal practice.
Operational Analytics – Supporting the Business and Service Delivery
“Operational analytics” is the term used to define efforts applying quantitative methods to functions that play a supporting role in the delivery or receipt of legal services. Our definition of operational analytics is narrower in focus than the broader discipline of “Legal Operations” found in many corporate law departments (and an emerging trend in law firms). Following are some current examples of operational analytics:
- A law firm hiring an analytics resource for their HR department to further optimize the hiring process and secure the best talent;
- A corporate law department creating a quantitative method to objectively rationalize the consolidation of outside counsel;
- A law firm quantifying and exploring attributes of their diversity and inclusion initiative to provide more awareness and transparency to team makeup and staffing practices; and
- A law firm reviewing client retention through an analytical lens, attempting to predict risky accounts and identify ways to reduce client turnover.
These are valuable efforts that impact the effectiveness of a legal organization’s support apparatus, from talent to professional services optimization. In time, discrete areas within this category will likely develop into fields of their own, as talent, marketing, diversity and inclusion and other teams develop core competencies and routinely leverage analytics in their work.
Practice Analytics – Informing and Enhancing Legal Practice
Practice analytics is the term we use for efforts that apply quantitative methods to the practice of law itself. Exploration of this type generally requires focus on a given area of practice and some degree of legal domain expertise. The objectives of this analysis vary, but this work often seeks to inform matter strategy, refine legal advice, enable experts to make better determinations of risk or forecast possible outcomes.
This space can be complex and nuanced. However, to give basic examples, we often start with core questions lawyers receive from their clients, including:
- What does a case like this typically settle for?
- Is this contractual provision “market”?
- How long will it take to resolve this matter?
- How have you fared against this opposing counsel in the past?
- What are the chances that this deal will close before the end of the quarter?
- What are the odds my case will go to trial?
Lawyers generally answer these questions based on their subjective experience and individual expertise. These answers are not necessarily “wrong,” but are they grounded in collective experience? Do they incorporate an empirical element or draw from statistical analysis? Are they as “good” as they can be? Almost invariably, the answers to these follow-on questions is “no.” Practice analytics efforts are designed to arm lawyers with data that can inform their responses to key client questions, that can complement their extensive experience, and that can generate insights that might have otherwise been hidden.
Though probably the least explored area of analytics in law, practice analytics is an emerging point of emphasis for innovators and progressive leaders. The best work in this area is highly contextual to an area of law, a category of risk or a specific organization. The following are a few loose examples to further characterize this type of analytics effort:
- A corporate law department marrying internal HR hotline data with dispute data to look for trends, activity relationships and “hot spots”;
- A law department comparing matter outcomes with patterns in lawyer activity, looking for possible signals of over-lawyering or areas for process improvement;
- A law firm defining practice data for a specific category of litigation and then mining that data for insights to support settlement strategies or make better risk determinations early in the lifecycle of a matter in that category;
- A law department mining data related to certain repeat plaintiffs’ counsel to identify trends and patterns that may lead to lower defense costs; and
- A law firm tracking clause-level data to inform the construction of new deals and to support negotiation.
Generally, law departments are better about collecting practice-oriented data than law firms (partially stemming from longstanding use of case management systems). Law firms rarely capture much structured data beyond what they need to open matters, bill clients, pay taxes, compensate partners and retain matter records. And neither law departments nor law firms regularly collect data with an eye toward using it for predictive analytics, preventative analysis or sophisticated mining. This should and will change. Legal organizations that regularly handle of a particular class of matter should ask themselves two questions:
- Why do they not collect key matter attributes (e.g., settlement amount, opposing counsel, claims asserted, deal type, closing date, counterparties) systematically, as a part of their standard operating procedures and processes? and
- Why are they not using that data to buttress or augment individual lawyer advice and strategy?
Targeted data collection and thoughtful analysis are core ingredients to the future of legal practice. Eventually the extent, quality and utility of data collected by an organization on a given subject will materially inform perceptions of the entity’s “expertise” and “experience” in tandem with lawyer talent.
Practice analytics efforts are strategic initiatives that speak directly to the nature of legal risk, the delivery of legal services and the precision of advice and decisions. As is the case in other industries, not all innovative and exploratory efforts will succeed on the first attempt. Even so, organizations can capitalize on their investments in this area through learning and follow-on insights from these efforts. Ultimately, practice analytics is an area with significant latent value for both law departments and law firms. As a bonus, forward-thinking law firms that use analytics strategically have multiple opportunities to differentiate themselves in the current competitive market.
However categorized, HBR Consulting is excited for the future of analytics in our industry. We formed our Digital Services and Analytics practice partly because we recognized that (a) the use of analytics offers significant latent value and (b) the legal community needs strategic and technical assistance to capture that value. Our fundamental position is this: there are no analytics projects; there are only business projects.
We are excited to support legal organizations as they navigate these waters and seek to create new insights. Together, we can work collectively to transform the practice of law.
Be on the lookout for future content from HBR Consulting focusing on:
- Data analytics, digital services, digital transformation, and law
- Exploring the analytics maturity curve
- Building analytics muscles and getting off “go”
- Voices from the market
For more information about the intersection of law and data, please contact Andrew Baker.