Demands on corporate law departments are increasing. Resources, unfortunately, are not. To help bridge the gap, law departments are turning to sophisticated data analytics to find ways to improve efficiency and lower costs.
In this three-part series, HBR Consulting explores the growing trend of using data analytics and looks at how that affects law department decision making. In this article, we present an overview of why analytics are gaining increased focus in law departments and how they are likely to be used in the future. In Part 2, we will examine how law departments are leveraging data to support outside counsel selection and identify savings opportunities. Part 3 will look at how departments are moving their focus to internal resource allocation and exploring ways to improve their operational efficiency.
According to the 2014 HBR Law Department Survey, 79 percent of respondents are experiencing an increase in legal demands. The virtue of using data analytics to deal with the increasing demands is a concept whose time has arrived. This was quite apparent at LegalTech 2015, held in February in New York, where one-sixth of the panel discussions were devoted to covering various aspects of data analytics.
A related trend is the increasing number of law departments that want to keep more work in-house, which now includes 80 percent of law departments, according to our Survey.
These two trends intersect, as we shall see in Part 2 of this article series.
Progress so far
- E-billing has been the industry standard since the early 2000s. Our survey shows that 72 percent of law departments now use e-billing, and an additional 14 percent plan to implement it within the next one to two years. This creates a wealth of data that can be captured and analyzed.
- Many of these departments have also begun digging deeper into their data, looking for insights, benchmarks and trends. Legal operations leaders, often with years’ worth of data to mine, are moving beyond static reporting and leveraging their data to answer the “So what?” and “Now what?” questions.
- Half of all respondents in the 2014 HBR survey said they are now using analytics to find ways to control costs, an increase of 17 percent from the previous year. We expect the percentage to rise again in 2015.
New opportunities: beyond rates
The first wave of law department data analytics focused on rates. That usage has matured, and we now have good sources of rate benchmarks, such as the ELM Solutions LegalVIEW database.
Following the economic downturn, rates were held relatively flat for several years. Now that the economy has improved, we are seeing more of an increase in rates, as many law departments are loosening the rate freezes previously in place. Given that context, many law departments understand that in order to realize cost savings, their use of analytics must to go beyond rate benchmarks.
Efficiency and value
Given the limited long-term effectiveness of rate-based negotiations, we are seeing more law departments turn their focus to who is performing the work: leveraging analytics to inform data-driven firm selection processes and enforce more consistency and efficiency in matter staffing. Through data analytics tailored to the specifics of a department’s matter profile, prior matters can be analyzed to guide new matter budgets and develop likely scenarios for pricing assumptions. Dynamic scorecards and performance measures provide input that can be analyzed to:
- Compare firms across metrics tailored to the law department’s priorities
- Evaluate performance of firms in a more consistent manner
- Surface improvement opportunities in compliance with billing guidelines
- Provide greater transparency to create tighter partnerships with firms and business clients
Internal resource allocation
Although less than 20 percent of law departments require internal time tracking (per the HBR survey), tracking internal activities provides valuable information. With a continued focus on keeping more work in-house, addressing inefficient internal resource allocation can create capacity for in-house counsel. Department leaders can use time tracking analytics to make better data-driven “make or buy” decisions. We will discuss this in more detail in the final article in this series.
Data capture strategies
Capturing data can present a challenge for law departments because the relevant data is typically coming from multiple systems, and some of it may not even be in electronic format. We believe the next wave in analytics will be creating effective strategies for capturing and managing data regardless of the source. Rapid deployment tools that can collect information from various sources, implemented in a matter of weeks instead of months or years, are attracting interest from law departments and law firms alike.
The downside to using more tools is that it creates a more complex analytics landscape. With the rise of enterprise legal management solutions, there is a corresponding need for enterprise legal analytics, to allow for quick access to pull from various systems to support informed business decisions.
Law departments are joining the trend of using data analytics to solve problems created by increased legal demands and are progressing through the data analytics maturity cycle. As law departments become more sophisticated in their use of analytics, they are moving away from focusing on evaluating rates to digging deeper to uncover opportunities for greater efficiency and value. In the future, improved strategies for data collection and management should make analytics even more useful, as it grows from a hot topic discussed at conferences to a critical discipline in law department management.