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Editor's Note: This story is adapted from ALM's Mid-Market Report. For more business of law coverage exclusively geared toward midsize firms, sign up for a free trial subscription to ALM's weekly newsletter, The Mid-Market Report.

Businesses in just about every conceivable industry, from baseball to breadmaking, are using data analytics to a gain a competitive edge. The legal industry is no exception, but a lot of midsize law firms are behind the curve in that regard, according to James Goodnow, president and managing partner of Fennemore Craig in Phoenix.

Goodnow said his firm has seen “a huge uptick” in the use of data analytics by its clients to measure the cost-effectiveness of outside counsel. That, in turn, has prompted Fennemore Craig to “heavily invest” in its own data analytics tools to gauge efficiency and productivity within the firm.

Lawyers are still in the relationship business, but the relationships are getting more complicated.

While just about every midsize law firm prides itself on the “value” it offers clients, likely far fewer could readily present data to back up the bravado. But the insights gleaned by drilling down into the information that most firms already have access to—how long matters typically take to complete, competitors' rates, the number of partners and associates needed to appropriately staff a matter, etc.—can be used to both to improve internal processes and to transform the concept of value into something less nebulous and more concrete for clients, according to firm leaders and consultants.

“I think if midsize firms, in particular, don't get with the program and start understanding pricing and efficiency, work is going to start going away,”  Goodnow said.

But he also acknowledged that it can be difficult to convince partners at smaller firms that spending significant money on data analytics technology is a worthwhile investment. At Fennemore Craig, he said, getting internal buy-in has been the result of “an important education process” aimed at explaining how the technology will ultimately help grow market share, revenue and profits by improving efficiency and client service.

It's potentially an even tougher sell for firms whose clients haven't already signaled an interest in a more data-driven approach to purchasing legal services. However, those are the firms that may also stand to gain the most by giving their clients information they never knew they needed.

While some midsize firms, like Goodnow's, have witnessed their clients relying more heavily on data to make legal spend decisions, Rees Morrison, a principal at legal consultancy Altman Weil who advises legal departments on cost control, said that's not the norm.

Morrison acknowledged a gradual upswing in the use of data analytics among some in-house counsel. But he said it's been his experience that the majority of legal departments in the U.S., and particularly those at mid-market companies, are not spending much time crunching numbers to find the best value available in the legal services marketplace.

“Most of the law departments in the U.S. have five lawyers or fewer,” he said. “They don't have the data analytics [capabilities]. They don't have much data, in some ways.”

For midsize firms, that creates a marketing opportunity, Morrison said. A firm can differentiate itself from the competition by doing its own analysis of the marketplace to show current and prospective clients how it stacks up to competitors on metrics like price, staffing and results, he explained. Firms can use that data in their responses to requests for proposals from potential clients as well as to strengthen and possibly broaden existing client relationships, according to Morrison.

And, Morrison added, legal departments appreciate that quantitative approach.

An emphasis on data can give law firms the competitive upper hand in an industry where marketing still mostly involves “beating your chest and saying, 'We handled this matter and that matter and we're really good at handling matters,'” Morrison said.

For midsize firms, and especially those competing in more niche practice spaces, a data-driven approach to demonstrating value, as well as expertise in a given industry, “may be a more targeted arrow to shoot,” Morrison added, “and they need that.”

“They cannot just say, 'We are good at garbage recycling litigation,'” he said.

And if competition from other law firms isn't enough to convince firm leaders that they need to pay more than lip service to the concept of value, the rise of alternative legal service providers, whose business models are predicated on efficiency, should be more than enough motivation, Goodnow warned.

Those firm leaders who continue to underestimate the threat posed by ALSPs have likely either already lost work to them or are on the verge of losing it—they just haven't realized it yet, Goodnow said.

“When a client diverts work to another firm or ALSP, they're generally not emailing you about it,” he said. “The work is diverted and if you're not paying attention, you don't even know it.”

As Morrison said, data analytics can give midsize firms the “targeted arrow” they need to do battle in an increasingly competitive legal services market—but knowing where to shoot that arrow is another matter. Next week's installment will look at the importance of practice and market focus in avoiding a midsize firm “identity crisis.”