From Questions to Forecasts

A: The use of business intelligence tools within law firms is likely to continue to increase at a rapid rate. As firms continue to grow in both size and complexity, the need to analyze large amounts of data to support effective decision-making becomes increasingly critical, and the use of traditional tools such as spreadsheets becomes more of a constraint. Large firm mergers will only exacerbate this, requiring more analysis and more levels of analysis.  In fact, the merger process itself creates a huge need for informed analysis to support the merger decision. Only with robust databases accessed via BI software can firms hope to provide this level of financial analysis.

As firms start to focus more on practice group performance, as opposed to the traditional geographic emphasis, this also increases the need for a BI tool. Partly because geography remains the foundation for much of a firm’s financial data, sophisticated tools are needed to allocate and aggregate existing data on a practice group basis. This creates a growing need to look at, for example, financial performance on a more granular level, down to the client and, sometimes, to the matter-specific level. This can only be efficiently achieved with the use of a BI tool.

Use of BI tools is also likely to expand significantly, beyond the obvious applications such as budgeting and profitability modeling into other needs (e.g., timekeeper performance analysis, marketing analysis) that are not well served by existing tools and which do not warrant the creation of custom applications.

The operating systems that firms use to process their transactional data are not designed to effectively perform this kind of analysis, and standalone BI tools provide a level of flexibility in building models that is not otherwise available.

We are increasingly using TM1, from Applix Inc., which we acquired a couple of years ago, to perform new kinds of analysis and to improve on existing processes. We are also using Microsoft Corp.’s Analysis Services. One example of a use to improve client service is developing analytical data to support the development of effective and creative responses to increasing client requests for non-standard fee arrangements.

— Robert Meadows*
Chief information officer
Heller Ehrman
San Francisco

A: One of the interesting byproducts of the emergence of BI software is an increasing awareness of both the power and limitations of these tools. Products from Redwood Analytics, Serengeti Law (Legal Systems Holding Co.), Satori Group Inc., and Thomson Elite, among others, provide a powerful framework to analyze and deliver financial and performance information from a firm’s existing systems. Clearly this is an enormous improvement over periodic financial reports as a way to deliver management information.

As firms become more sophisticated in their management goals and objectives, they find the usefulness of BI tools limited by weaknesses in the underlying data available for manipulation. For example, the data available from financial systems is constrained by the system’s inherent focus on tracking billable time and expenses.

When a firm begins to assess the profitability of specific matters or clients, it asks questions like, “What was our cost of winning this client or this specific piece of business?”

In most cases, BI tools are of limited use because the underlying financial systems often do not contain information on the time and expenses associated with non-billable activities, such as business development (e.g., meetings and entertainment), developing a proposal, delivering a pitch, and closing a deal.

While some firms try to work around this limitation by setting up non-billable charge codes for these types of activities, these are sub-optimal work-arounds, and most firms acknowledge that much information is not captured in these codes.

Similarly, some firms are beginning to respond to market trends ratcheting up competition for legal talent. Clients are looking for higher levels of service from the most talented lawyers. Associates want to see opportunities to do interesting and challenging work, and to be assured that their career goals will be taken into account. Firms focusing on diversity want to assure that all associates get fair and equal treatment in staffing opportunities and career development.

To respond to these trends, firms need systems that can capture information about attorneys’ personal training and career development goals, skill levels, and assignments (both future and past). Only after this information is captured can BI tools analyze and report that information in ways that support management decision-making.

The lesson progressive firms are learning is that, if they want to get the greatest competitive advantage out of their BI software, they must focus equal or greater attention on understanding the business information that the firm really needs — and ensuring that the firm’s business processes and information systems capture that information so that the information can be delivered.

— Sally Gonzalez*
Shareholder
Baker Robbins & Co.
New York

A: We use Aderant’s (Solution 6) data warehousing tool, Aderant Expert (previously called Solution 6 Professional and Enterprise). Thomson Elite’s Business Objects is an option.

While BI tools identify performance trends using past indicators, they are not definitive and they cannot be accurately relied upon to predict future productivity and profitability because we can never be sure what the future holds.

It is my opinion that business intelligence tools as currently used by law firms influence lawyer compensation more than business decisions.

At most, the results of these tools are quantitative and not qualitative. They tell you if you are bad but they cannot immediately tell you that you are improving.

— Linda Adele*
Manager of Practice Support
O’Melveney & Meyers
Los Angeles

A: Coming from a mid-sized firm (70 attorneys), it is probably not on the radar like it is for some of the larger law firms, but the slicing and dicing of financial information is always an important aspect to any firm. We all like to know what we are going to make money-wise, how successful we are, and what the year holds out for us.

While we do not have BI software such as Redwood Analytics, etc., we do use Aderant’s CMS, and have developed many of our own tools and scripts to slice and dice our own data. Whether we have interest in other tools such as those listed I think will change in the very near future.

— David Clark
IT Director
Jones Waldo Holbrook & McDonough
Salt Lake City

A: As you know, there are many vendors with BI tools. Some of these vendors only provide BI software, such as Business Objects (Crystal Reports), Cognos Inc., Intellera, SAS Institute Inc., etc., and others offer BI software tools as an add-on to their core functionality (Thomson Elite, Bridgeway Software Inc., Aderant, et al.). Vendors often tout the many reports that are offered “out of the box.” These reports are a good starting point, but the reality is that users typically need to write custom reports to get the more sophisticated data required to run their business.

Corporate law departments are taking financial reporting to the next level. When evaluating outside counsel, law departments need to know more than just rates, year-to-date spending and budgets. They want to understand the level of service, performance of staff and outcome of matters/cases.

This type of analytical approach helps with selection of outside counsel.

For example, they may be willing to spend more money with a firm that has a success rate of 90 percent with respect to certain types of litigation, etc.

— Michael Kraft*
General Counsel
Kraft Kennedy & Lesser Inc.
New York City

A: It will make the ordinary practicing lawyer’s life in big law firms that can afford the software even more hellish than it is now!

— Martha Fay Africa
Managing Director
Major Lindsey & Africa
San Francisco

A: BI software will change law firm marketing at a fundamental level, and will change the emphasis to business development.
Consider how competitive the market is:

• There is one lawyer for every 272 persons now, versus one lawyer for every 572 persons in the U.S. in 1970. (Source: The American Bar Association and U.S. Census). This includes adults and children.
  
  The revenue law firms generate has not kept pace with the number of lawyers.
  
  Gross Domestic Product of Legal Services
  (In billions of dollars)

  Year	Dollars	Real 1996 Dollars
  1990	$82.7	$108.8
  1995	$101.1	$105.1
  1997	$108.5	$103.8
  1998	$116.5	$107.1

  (Source: Statistical Abstract of the United States: 2000)