Tuesday, October 23, 2012

The Rise of Legal Analytics, or the First Signs of Big Data in Big Law

Have your heard of "Big Data"?  Basically, it is the mining of large existing datasets to make better business decisions.  There is a lot of discussion on this topic in the business world.  See, e.g., Big Data: The Management Revolution, Harvard Business Review (Oct 2012); The Age of Big Data, New York Times (Feb 11, 2012).  

The first signs of Big Data in the law firm world are the companies that provide electronic billing platforms for large corporations.  These companies have all the data needed to discern the relative efficiency of various service  providers -- name of firm, title of lawyer, practice area, billing rate, office, and a large portofolio of matters uniformly coded by subject matter and discrete technical tasks.  Clients, of course, know the outcomes of matters, which provides the last piece of missing information to not only calcuate cost and efficiency, but also value delivered to the client.

In the video below, reporters from the Boston Business Journal explain the services provided by these new data analytic companies (TyMetrix and Sky Analytics are briefly featured). 

What I love about this video is that the reporters are outsiders to the law world.  They note that the "transparency" and "information" these companies provide  are wonderful developments for clients -- and, of course, they are 100% right.  Nobody wants to overpay, so tools to eliminate this problem are going to be widely embraced.

The obviousness of this point is why the legal services industry is at the beginning, rather than the middle or end, of a massive structural shift that will be wonderful for legal consumers but profoundly disruptive to law firms and law schools.  In the years to come, we will have fewer lawyers and generally flat or declining incomes within the profession. 

The real money will be made at the intersection of law and technology, which has the potential to scale legal work so it can be better, cheaper and faster.  This is the road to commodification of law.  It is good for society, but bad for those of us wedded to a traditional model where lawyers enjoyed more market power.  Those days are fading into the horizon.

[posted by Bill Henderson]

http://lawprofessors.typepad.com/legalwhiteboard/2012/10/the-rise-of-legal-analytics-or-the-first-signs-of-big-data-in-big-law.html

Current events, Data on the profession, Innovations in law, Law Firms, Legal Departments, New and Noteworthy, Structural change, Video interviews | Permalink

Comments

Hi, Bill: as always, you're right on point and right in front on the issues. I completely agree with what you've written, until you get to the end: "It is good for society, but bad for those of us wedded to a traditional model where lawyers enjoyed more market power." Yes, it is good for society, and yes, it will disrupt and displace firm practice models and lawyers wedded to traditional models. But I think it's important to note the silver lining in all this disruption: the rising market power of lawyers who are able to leverage their judgment and expertise as the necessary complement to delivering results that are beyond the capacities of commoditized practices that live at the intersection of law and technology.

Certainly, those who corner the legal commodity markets will do well and I believe that their work will become more and more sophisticated, and that they will handle increasingly complex work. I'm not seeking to deride the value of that movement or its capacity to do a lot more than templated contracts. But I have a vision for the future of practice that includes a substantial and exciting niche for a lot of smart and adaptive lawyers who will capitalize on what it is that clients have always wanted to hire them for most: their legal judgment, their predictive instincts about behavioral responses, and their practical experience. Lawyers at the high end of their fields, who get comfortable with making "executive" decisions in collaboration with clients, will begin to focus their attention on pricing and selling their services to clients in ways that may be facilitated by technologies, but are not necessary "about" the commodification of law.

To illustrate (it's Back to the Future Time) - pull forward all those great old stories about the revered deans of practice who would give a 5 minute answer and send a bill for hundreds of thousands of dollars. The old stories always included a good punchline attached when the client balked because the lawyer only spent 5 minutes providing the advice, and yet the lawyer convinced them that the 5 minute answer was the result of a lifetime of hard-earned experience and wisdom, or their particularly unique network that allowed them to make the critical call to a regular, or whatever.

I think that in small, sophisticated practices that continue to thrive, we will see models built on that kind of practice driving the bottom line of top drawer firms: the WORTH of the answer, or its value to the client, will dictate its price in the market, and in many cases, that will not be commoditizable to the same degree that operational legal work can be routinized. Of course, these new top-end lawyers will have to find ways to develop the expertise, the knowledge, the networks, and the vast experience that affords them the credibility and trust to give a 5 minute answer to a complex and critical question. There will be lots of lawyers who've been given lots of ribbons over the years who think they're good enough to do this, but aren't. Those who succeed will be ever more specialized in their practices: working in boutiques, rather than general practices. And the nice folks at ALAS and other professional liability insurers will likely have a kitten every time these experts put their reputation and viability on the line with a 5 minute answer. But I believe that if this segment develops as I envision it, there will be plenty of people who will make "golden era" legal fees – just not by cranking work through highly leveraged teams of lawyers stacking up large piles of expensive hours. The only folks who will get paid under this model are those providing that kind of bottom-line result: they will price their services at a premium since what they provide will be the highly valued exercise of legal judgment for a defined cost, delivered at the fast pace of business.

How might we find ways to help these savvy lawyers leverage their unique skills and judgment, without suggesting that we're somehow pushing back against the price and service commoditization of the vast majority of repetitive legal work? I think it's in the bar's interests as both a means of demonstrating the continued value of lawyers in the process, as well as providing an incentive and career path to clever entrants to legal practice that encourages them to "make their own path by walking."

After working with sophisticated corporate clients my entire professional career to crack this nut, it is my belief that most clients don't want low-balled service or routinized results for that last 5-10% of work that rises about the operational legal needs of everyday practice, even as they do want outside counsel to understand that the 90 - 95% of legal services they provide are not strategic "A" work, and don't merit the kinds of costs and efforts most lawyers and firms have convinced themselves are necessary. Clients will drive that intersection of law and technology for the 90% of their workload that's appropriate for predictable services delivered at more certain cost and with more certain results. But in that last 5-10% of work? ... therein lies an excellent place for really great lawyers and firms to still enjoy the power of the market.

-Susan

Posted by: Susan Hackett | Oct 25, 2012 6:42:50 AM

Susan (& Bill): Excellent insights and commentary. As you point out, the fundamental problem (to clients) about the way law has been practiced during the "billable hour" era is that a majority of the work that was being billed out at high attorney rates, could actually have been performed by others - whether that be associate, jr. associate, paralegal, legal secretary, receptionist, etc. - at a lesser rate, or at no rate (i.e., overhead). I understand why firms billed this way - how else could you have 25 years of historic growth and increase your average PPP to an absurd $1.4 million per partner! (AmLaw 100.)

BTW, I couldn't agree more that high-level attorney advice can be near priceless. My question to you, Susan, is why sophisticated and savvy business leaders allowed the above overcharging to occur on their watch?

Posted by: The Last Honest Lawyer | Oct 30, 2012 11:22:46 AM

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