In many firms, analytics are employed to make choices on a smaller scale. How to price a matter; or to determine the likelihood of winning a case. However, where executives engage in data analysis to guide the firm strategically, firms show increased profitability and agility in the market. Unfortunately, the use of data analysis by executives is an exception and not the rule. So we look at everything an executive needs to know to take advantage of analytics to better their firm.
Why does data analysis matter for executives?
According to a study of over 400 companies by Bain & Co, those who employ advanced data analytics are more likely to have a larger market share. In addition, they were twice as likely to be in their sector’s top 25% for profitability, and five times more likely to make swifter decisions than competitors. In the legal sector, Altman Weil’s 2018 Law Firms in Transition Survey noted that firms using profitability for management decision making are outperforming firms that do not. But the crux of the problem is highlighted in another of the Altman Weil statistics:
“Most firms are developing data on their cost of services sold, but relatively few (29%) have seen it translate into significant improvements in firm performance. We see this as a huge missed opportunity” Law Firms in Transition 2018
Many firms are collecting data across multiple sectors, but are not translating that information into real positive change at the firm. Why? Because change starts at the top. Many executives still fail to understand or take advantage of the significance of data to a firm’s overall profitability and success.
For those who fail to understand its significance, we would like to refer to the previously mentioned studies as a case in point. However, for those unsure how to begin implementing and using firmwide analytics as an executive, we would like to offer this guide as a starting point.
Analytics categories and key insights
What follows is a short breakdown of all of the areas we will be covering under our ‘firmwide analytics’ series. Data collection in all of these areas will contribute to more accurate and successful strategic decisions for the firm. For each area, we have included some sample strategic questions this data collection and analysis can answer for you. For a more detailed look, head to the individual blogs themselves.
1. Client satisfaction and client value
- Who are our most profitable clients?
- How can we increase the value of our relationships with our clients?
- Should we narrow or broaden our client offering, based on the relative profitability of the activities we perform?
2. Succession planning
- Who are our most valuable fee earners – both in terms of pure profitability and in terms of client relationships?
- Do we have any ‘single points of failure’ within valuable client relationships?
3. Legal project management
- Which new technology or software would represent the best investment in reducing matter costs?
- Which practice group is most efficient and why?
- Which activities or practice groups are the most profitable?
- Has introducing a new technology improved the profitability of our matters?
- What high volume, high-cost activities are ripe for automation, thereby improving the firm’s bottom line?
- What is the likelihood of a successful outcome in litigation for this matter?
- How long is this litigation likely to take, given a specific judge?
- Which arguments are statistically most likely to be successful?
- What unique insights can the firm generate to leverage our competitive advantage?
- How can we share data and learnings between practice groups to improve firm-wide efficiency?
Note that these questions are not exhaustive. Importantly, the information needed to answer all of these questions already exists within your firm. From timecard data to client surveys, to your general ledger. The only thing preventing you from answering these questions is a lack of organisation in your data and a lack of analysis.
Best practices for data analysis
Having established that data analysis is positive for the firm, and covered some of the questions you can already answer, it is time to look at another pressing question often asked by executives. “What do I, as an executive, need to know about data collection and analysis?” We’ve put together some best practices to allow you to lead from the front.
- Begin with a data governance policy. We have written a handy guide to data governance here. Importantly, this should include everything from what you want to know; what your data analysis goals are; to how you will keep your data safe and avoid using confidential data unless absolutely necessary.
- Understand the principles of good analytics. This includes how to collect and ‘clean’ your data. It also includes information on how to avoid data fallacies. Again, we have prepared a handy guide for you here.
- Integrate data collection and analysis within the firm culture. If you care about data analysis, then everyone else in the firm will. Consider introducing your own best practices, to ensure that data-driven decisions become the standard in your firm.
- Hire with these new goals in mind. If you value data collection, hire people who can bring about this culture change in your firm. Ensure they are supported in these aims and give them sufficient decision-making power to effect real change.
A final word with some practical tips
Being data-driven should be as stress-free as possible. After all, change is incredibly hard to bring about, and neigh on impossible if it is inconvenient. As such, we recommend you build a dashboard to make your life easier. As an executive, consider which figures, reports or analysis is essential in the day to day running of your job. These data streams can be cobbled together into one place using APIs.
Understand that data is not the enemy, nor is it a magic wand. Data analysis cannot replace lawyers, nor can it make your choices for you. However, it can inform you and ensure you no longer have to guess.