Peter Drucker’s famous quote — “If you can’t measure it, you can’t manage it” — has slowly evolved into a “Moneyball” strategy that is now employed in various degrees by virtually every professional sports team.
Therefore, it is not surprising that the legal profession — which throughout the past 10 years has seen the collective revenue of the AmLaw 200 rise nearly 80 percent to roughly $90 billion — is now driving strategy with intelligence and analytics. But while the overall revenue is rising, the share of that revenue that is going to the “bottom 150” (numbers 51-200) of the AmLaw 200 continues to decline, from 48 percent of the total revenue in 2003 to slightly more than 42 percent in 2012. This means that 75 percent of the AmLaw 200 is getting a decreasing share of an increasing market, which creates the most complex of competitive environments.
Throughout the past decade, as technology continued to develop, law firms have been increasingly embracing various forms of intelligence. There are five basic points of intelligence that firms can use to power their strategy, limit exposure to risk and drive revenues: market intelligence, which includes the litigation, deal and IP aggregators; relationship intelligence, which is driven mainly by the relationship strength metrics generated by enterprise and customer relationship management (ERM & CRM) systems; internal intelligence, which primarily consists of experience records and knowledge management; financial intelligence, which consists of both external financial market intelligence and internal profitability analysis; and finally, social intelligence, gleaned chiefly from listening platforms and other social media monitoring programs.
Like a “Five Tool Prospect” in baseball (hits for average and power, speed, defense, arm strength), each of the Five Points of Intelligence are valuable on their own, but when combined with the other points, can be very powerful. Competitive intelligence commonly referred to as “CI,” is often mistaken for both “commoditized information,” as well as “client intelligence.” Information such as dated news articles, company profiles on public companies, as well as historical representation trends for litigation, IP and deal is fairly easy to ascertain, and is readily available to the market. It is when this type of information is generated without any analysis or suggestions on how to leverage the intelligence that it becomes good-to-know, commoditized information.
Law firms can use the market intelligence platforms in a variety of ways to serve a variety of purposes. For business development, benchmarking the legal activity of clients or prospects against their industry or key competitors is a great way to identify potentially valuable trends, create powerful questions that engage,and demonstrate knowledge of both the client and their market.
Firms are also able to gather valuable insight into litigation and transaction representation patterns, which assist in helping to understand, in part, why clients buy. Are individual firms representing the client in multiple practices and through multiple office locations? Are the attorneys based in high cost markets performing rather commoditized legal work? Are smaller firms with limited capacity handling the repeatable, basic transactions
and matters, while the larger firms handle the more valuable, complex matters?
When professional sports leagues expand, there will often be an “expansion draft,” allowing the new teams to “draft” players not specifically protected by their current teams. As law firms begin to expand their footprint, intelligence becomes a key aspect of this strategy. Several of the intelligence platforms now feature the ability to create custom groupings of companies, firms, attorneys, investment banks, etc., allowing users to perform targeted macro analysis.
For example, the Houston market has seen a surge in new office openings in recent years as firms look to primarily expand their energy practices. In an effort to identify potential threats to both key clients as well as key talent, a firm could load their top 50-75 clients into one report, and then filter the results only to the firm that is expanding into Houston. This will help identify which of the firm’s key clients are also represented by the rival firm in various markets and practice areas and may also indicate the firm’s attorneys currently representing those clients that may be lateral targets for the rival firm. Conversely, firms can use those key client lists to identify potential markets for expansion as well as their own lateral target lists.
When professional athletes become “free agents,” they are free to sign with any team they’d like, and teams are hoping they’ll bring with them the assets and production to “outperform” the contract value. For law firms targeting laterals, and hoping for a similar result, it is important to leverage intelligence when evaluating the scope of representation in a book of business. Rather than concentrating solely on the attorney and their representation of particular clients, focus on the attorney’s firm and the firm’s representation of the client. The greater the firm-client relationship, the higher the counsel switching costs for the client, and as a result, the lower the portability of representation.
Game plans are a staple of sports. Teams will look for ways to create favorable mismatches, aligning their strengths against their opponent’s weakness. Law firms are able to do this as well, especially for firm, practice, industry or client team plans. By using intelligence platforms to identify historical needs, as well as the prior or current representation, firms can align their strengths and experience to effectively approach opportunities.
One of the oldest traditions in sports is attempting to steal signs, especially in baseball. In a sport where failing 70 percent of the time throughout a career will get you into the Hall of Fame, a batter knowing which pitch is coming no longer has to account for variable change, and now has the advantage. The rise of digital publishing, as well as social media, such as blogs and Twitter, has helped create the social intelligence function, which is driven by “listening platforms.”
While the traditional market intelligence platforms aggregate primarily historical events, such as lawsuit filings, patent applications or M&A transactions, the idea behind listening platforms is to discover what is about to happen. While this sounds more like something from a government spy movie, law firms that can react the fastest to emerging market opportunities often benefit from their speed. Gone are the days of the big eating the small; it’s now the fast that eat the slow.
Finally, professional sports teams are always looking at pricing. Tickets for athletic events in New York and Los Angeles will be more expensive than in Milwaukee and Oklahoma City for the same event. It’s similar for law firms. Rates tend to be higher, on average, in certain markets. Financial intelligence tools provide firms with the ability to benchmark rates by timekeeper, industry, practice, market and more, while also understanding the costs associated with delivering those services. This intelligence is critical for firms in a number of ways, both from the assessment of which opportunities to pursue to the creative structure of fee arrangements.
The use of intelligence in the legal profession is not that much different from the use of scouting reports in sports. Like athletic teams, law firms are constantly looking for a competitive edge that provides a clearer path to success.
Patrick Fuller is the founder of The Deductive Intelligence Group and is currently a senior consultant with LawVision’s Client Growth Strategies Practice.