This article is the third in a four-part series, designed to help corporate law departments gain new insight into the application of “Big Data” in the legal industry. 

When we hear the word “leadership,” particularly in the business of law, many of us are compelled to think about ways that we as business leaders can take smart chances and apply new and unique best practices to deliver competitive advantage and stellar performance.

One corollary example is the recent Hollywood blockbuster movie, “Moneyball,” inspired by the non-fiction book, “Moneyball: The Art of Winning an Unfair Game,” by Michael Lewis. In many ways, the book and movie provide a playbook for how we—like management for the Major League Baseball Oakland A’s—might use data and statistical analysis to assemble a strong team on a limited budget to better compete with larger market teams.

Developments in advanced analytics over the last 25 years, combined with the explosive growth of computing power (and its capabilities) and the availability of sufficient quantities and quality of granular data have opened up a new way of looking at the business of law. The convergence of tools and technologies with Big Data are further driving innovative ways to track and manage day-to-day legal operations. All of which tells legal professionals that now is the time to embrace rich analytical models, benchmarking, and data-driven insights to help reduce costs and achieve strategic objectives.

Analyzing the business of law

First, we need to analyze several key dimensions—process, resource utilization, cost and outcomes—to understand the performance quality of a corporate law department or law firm.

Deriving the right benchmark involves a combination of data analysis and business acumen. This is neither a pure mathematical exercise, nor is it as simple as making selections at a high level. It is not enough to look at rates, staff allocation, process or outcomes in isolation to determine the performance of a firm or decide which firms to engage. Within these categories, we also need to account for deeper factors that influence performance, such as: demographics, jurisdiction, industry, matter type, availability of resources and economics.

Questioning sacred cows

Just like in “Moneyball,” where baseball scouts clung to comfortable indicators of performance, we need to be mindful of measurement pitfalls. For example, profit per partner is particularly poor as it can be manipulated simply by shedding partners. Similarly, having the lowest rates by role does not make a firm more competitive or cost effective if a disproportionate amount of work is being done by partners that could be done by associates or paralegals.

The goal must be to evaluate the corporate law or claims department’s performance by quantifying and assessing all of these factors simultaneously.

Controlling for exogenous factors

We need to identify and consider the impact of uncontrollable factors on the firm or corporate law department. Financial outcomes are driven by the economy, the labor market, demand for legal services, the availability of sourcing options, etc. This will move profit or legal spend up and down, but may have little or no reflection on performance.

Exogenous factors need to be identified and controlled for so that you can make a fair comparison across firms and improvements can be isolated over time. Without such rigor, you may make poor assessments of performance and, ultimately, bad decisions.

The way forward: Tools, technology, Big Data

Monumental progress has been made in tools, technologies and Big Data. Products like SAS, SPSS and R possess incredible computational power, providing the ability to apply state of the art analytical techniques through stored procedures—so that analysts can focus on interpretation and implementation, rather than programming the models 

At the same time, the drive to automate legal services billing and matter management through intelligent systems has created, in recent years, vast quantities of granular data that now meet International Association for Information and Data Quality criteria for accuracy, completeness, integrity, relevance and timeliness. The availability of this data and advanced toolsets now enable analysis at a depth and breadth that simply was not possible even a few years ago.

…and expertise

To complete the big picture, we need to incorporate statistical and data-driven analysis into our organizations either by hiring an employee specializing in quantitative analysis or a third-party service. For this, a unique combination of technical skills and business expertise is critical to: identify a problem, reduce it to a mathematical model, gather and prepare relevant data, apply the appropriate statistical/mathematical techniques, interpret the results and work with legal service providers and business partners to implement the findings.

Being the champion

As these five steps demonstrate, leadership operates at the strategic level, but is measured daily in the operational details. As illustrated in Moneyball, the trend to augment human decisions with data analysis is where the business of law is also heading.

Companies and firms that take advantage of these capabilities first—making the decision to be a “data pioneer,” to drive data-based decisions and best practices in their corporate law department or firm—will win in the market. Such leaders will have superior information to manage their businesses. Their data based decisions will give them an edge over the competition, and they will stand out as champions in the business of law.