The legal market is not about to change, it is already changing – and fast. Undoubtedly those changes, such as alternative business structures, alternative fee arrangements and new regulation are presenting new challenges to a sector where it seems unrelenting change has become the only constant. To compete amid such a whirlwind of change, firms must be able to anticipate and adapt quickly.
Redbrick Solutions’ market research has highlighted a clear divide between firms which fully grasp the benefits of cutting-edge technology, those who are analyzing firm data and making long-term strategic plans now to ensure they will not just survive but thrive, and those who are adamant that change is not necessary, that offering a ‘personal service’ will be enough.
Now that law firms’ profitability is being squeezed by the economic climate and larger corporations are staking a claim on what once the high street firm would have considered guaranteed income, the benefits of powerful business intelligence solutions in delivering key strategies and measuring success in order to sustain profitability are all the more essential.
Quality of data is key to mining meaningful business intelligence. And meaningful really is the key here, isn’t it? Most PMS, CRM and accounting systems will dump data into Excel for you – but no one bothers doing so because very few stakeholders will have the time to spend trying to make sense of it all. Business inteligence systems need to pull data from all areas of your business and present them to you in an easy to understand yet comprehensive way that means something.
So, back to data quality – as with all software solutions the quality of the output is only ever going to be as good as the quality and quantity of the data that went in in the first place. Data capture should involve a high level of detail to enable objective decision making. The fact is that most firms already have this data – they just don’t have it one place and don’t know what to do with it to make it mean something to them. Some of the larger firms have started employing ‘data tsars’ to oversee and ensure the integrity of the data input. This may sound extreme but if you don’t get the basics right with regards to data input, everything that comes after it is going to be of limited value.
Those firms that think business intelligence systems are unnecessary often don’t appreciate how far reaching they really are (or should be.) Good business intelligence leads to strong strategic decisions in all areas of the business, from business development to finance. Firms are better able to assess and manage risky matters, which is great for compliance and PII, and they can compare how effective individual solicitors are compared to colleagues, which will ultimately feed through to HR planning.
We have found that clients tend to be looking to answer three main questions:
- Which matters/disciplines are our most profitable/unprofitable?
- Why are those areas more (or less) profitable than others?
- What changes should we make to improve our profitability?
To answer these questions you need to be able to analyse historical performance, understand what contributed to those figures and make clearly defined strategic plans for the future based on this intelligence. Putting in place KPIs and targets will allow decision makers to monitor the success of those strategies.
There are other benefits to good business intelligence systems too. Our clients have found that just by implementing integrated practice management and business intelligence solutions they are increasing their profit margin by as much as 50% just by ensuring they are billing correctly, capturing all of their fees for items that are often overlooked such as emails and telephone calls and ensuring disbursements are passed on correctly.
As firms implement increasingly creative alternative fee arrangements to predict and control costs, they need objective data in order to negotiate rates. We discuss transaction volume and pricing with new client firms as a matter of course, as our business model works on a unique pay-per-transaction basis, and you would be surprised how few firms can give a complete breakdown of historical matters! If a law firm cannot easily put its hands on information as basic as that, how can it possibly understand the cost and profit margin of those matters? Or by fee earner? All firms will tell you the hourly sale rate of their fee earners but how many know cost and profit margins per fee earner? Or whether they have the most effective people working in the right departments? To effectively deliver alternative fee arrangements you need to be able to look at historical profit margins to work out how much you can skim from your quotes – many firms just guess and end up finding themselves out of pocket.
The area most firms struggle with the most though, in our experience, is cultural and habitual change. A project manager is critical to the success of the operation and increasingly firms are looking to recruit specialists with strong project management backgrounds to facilitate this. The good news is that once firms get to grips with the wealth of information they now have at their fingertips they can use their business intelligence systems to make strategic plans to ensure they deliver clear competitive advantage that will see them successfully improving services to clients and increasing profitability over the next few years.
