Four Data Analyses that Guide Strategy for Practice Group Leaders

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Data, thoughtfully collected and objectively analyzed, helps law firm practice group leaders ponder the strategic direction and financial future of their groups. They appreciate the myriad ways that a group can steer itself and are on the lookout for empirical findings that give them insights into the best course adjustments.

An important component when any practice group takes seriously its responsibility to think down the road and prepare, falls into the broad rubric of data analytics.  Well-plumbed data analysis complements decision-making based on years of experience by group leaders as well as their feel for the economics of their practice group.  People define the capabilities of a practice group, but data can guide and inform those people. 

That’s why practice group leaders need a firm grasp on numbers and an insightful understanding of what to do with numbers.   The fact is, firms sit on gushers of data and numerically-minded staff (or lawyers) can refine those numbers relatively easily.

Among the plethora of data tools available to law firms, this article highlights four1.

1. Top Clients

A fundamental step toward quantifying strategic considerations consists of identifying the top 20 or so clients of the practice group and determining the total fees received for the fiscal year. The data set comes from the time and billing system and makes possible a slew of analyses. 

More precisely, you should request your billing group to create a spreadsheet structured along these lines: 

  • One row for each of the 20 clients that paid the most fees for a practice group in the previous fiscal year;
  • The column to the right of the client’s name should show the number of matters open during the year (not matters started, but all matters pending during the year);
  • The third column should show the hours recorded in total for that client’s matters;
  • The fourth column should show the hours billed in total for that clients matters (after write-offs by the billing partner); and
  • The fifth column should show the amount paid by the client in total.

Practice group leaders will find that many partners, toiling in the trenches of day-to-day service, are not aware of how a few clients dominate billings, or whether billings are distributed across a number of different clients, or any other pattern.

To see the range of total fees among the group’s primary clients helps focus on which clients deserve special treatment.  Or, a group can calculate how concentrated its billings are, such as 20% of clients accounted for 80% of fees paid.  Perhaps the group wants to rely on just a handful of fecund clients, or perhaps it will try to spread the wealth around more.  Third, analysis of the top clients also sheds light on what the fees of those key clients constitute of the group’s total.

More insight can be squeezed from this client-oriented data if the practice group adds additional information regarding each client. For example, the industry of the client or whether it is a subsidiary of a larger company or the level of the person who retains the law firm. Each of these additional pieces of information turns the kaleidoscope of quantification another notch, enables more patterns to show up, and gives more insight. 

The contribution to strategy includes understanding which clients to invest more in, and which clients may not suit the group’s longer-term objectives.

2. Matters

Insightful as it is to focus on the group’s largest clients and changes over time in their flow of work, a practice group might want to start by identifying the number and types of matters that account for those key clients’ fees. The time and billing system of the firm should disgorge such data and make it fairly readily available.  The data request from the accounting department would be slightly different than the one described above. A new column would give the matter name and the same data for each matter that was presented in total for the top 20 clients. It would have a new column for client, which would show the name of the client.

Most practice groups want to hone their expertise and market themselves based on having handled an array of similar matters. To be able to credibly speak at that level, the firm needs to know types and fees by matters over time.

Practice groups that seek a more nuanced understanding of their standout services may wish to categorize matters with more detail, not just by a law school course descriptor (e.g., “contracts,” “litigation,” “real estate”). True, practice groups can learn something if matters are categorized as litigation, environmental, employment discrimination or other broad and typical matter types, but additional insights can be gleaned if partners take a bit of time to add other dimensions.

As with your study of the specific characteristics of the group's most profitable clients, the finer discrimination of matter types can also uncover more fruitful directions to invest in.  For example, class action litigation or antitrust litigation would add depth to the general litigation category; Superfund remediation or state environmental regulatory investigations would add a dimension.  Or perhaps studying number of timekeepers per matter would add new insights.

Additionally, it is straightforward to analyze each matter of the top clients in terms of their margins and profitability.  An even deeper excavation would incorporate metrics on who recorded how much time on each matter, but that level is beyond the scope of this article.

By creating and assessing an array of data at the matter level, a range of strategic questions become clearer and easier to evaluate.  Should we leverage more work on certain types of matters?   Should we use contract staff to supplement our own?  Have our efforts at alternative fee arrangements borne fruit? 

3.  Trends Over Time

If the data collection and analysis extend back three or four years, the practice group can learn from changes in key clients over time.  The spreadsheet data needed to do this would add another column: Fiscal Year.  Again, in the day-to-day bustle of practicing law, partners can lose track of which clients are using the firm or which clients are dwindling away.

This analysis also can spotlight institutional, year-over-year steady clients as compared to those who are one and done – they had a big matter or two, but it was a one-shot affair. Most firms would do well to invest their efforts at client development with the steady Eddie firms.

Trend data is obscured somewhat by the fact that matters may carry over from one fiscal year to the next. Because of this likelihood, firms can also add to the database the year in which a matter began and do an alternative analysis based on years started and perhaps the flow of fees over each quarter.  An 18-month window of fees or a rolling 12-month window present alternative views of the top-client fees paid.

This data analysis tool, coupled with effective graphics, can inform strategy in many ways.   For example, have we exploited our most important clients to the fullest extent?  What factors are causing major clients to spend more on our services, or to lessen their expenditures?   How have our business development efforts fared?

4. Surveying for Data

A supplementary tool for data analytics is a survey. If you ask the partners in a practice group for their views on the different methods of marketing the practice, you will learn first that those views vary widely and second that quantifying those views, anonymously and in aggregate, can animate a more robust discussion than one that simply relies on subjective impressions. If a practice group couples data on marketing methods with data on the characteristics of the firm’s business development methods, that one-two punch is even more potent.

It doesn’t take much to create a confidential survey and to gather rankings or proportional votes or simply “choose all that apply” questions, but to do the task well with methodological soundness requires experience and training.

Many other techniques are available for leaders of practice groups to collect data and analyze it in the furtherance of their management strategies. The four approaches summarized here, however, are all solid and should be in the portfolio of techniques understood by practice group leaders. Each of them depends on figures or facts that are readily obtained and combined, each of them has graphical counterparts that convey a message (such as a scatterplot), and each of them move conversations from subjective impressions to a more empirical fact basis. That is the power of data analytics for a law firm practice group.

NOTE:
1. A later article may include such analytic tools as regression and cluster analysis, as well as data regarding partners and top clients or top matters.

 


Rees W. Morrison, a principal at Altman Weil, Inc., helps law firm and law department leaders make better decisions through data analytics.  Contact Mr. Morrison at (973) 568-9110 or rwmorrison@altmanweil.com.

 

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