Data-Driven Law

Data Analytics and the New Legal Services

Edward J. Walters

• Publisher: CRC Press
• Year: 2018
• Print ISBN: 9781032095004
• eBook ISBN: 9780429892066
• Edition: 1
• Topic: Computer Science
• Subtopic: Data Mining
• Index: Computer Science

For increasingly data-savvy clients, lawyers can no longer give "it depends" answers rooted in anecdata. Clients insist that their lawyers justify their reasoning, and with more than a limited set of war stories. The considered judgment of an experienced lawyer is unquestionably valuable. However, on balance, clients would rather have the considered judgment of an experienced lawyer informed by the most relevant information required to answer their questions.

Data-Driven Law: Data Analytics and the New Legal Services helps legal professionals meet the challenges posed by a data-driven approach to delivering legal services. Its chapters are written by leading experts who cover such topics as:

• Mining legal data
• Computational law
• Uncovering bias through the use of Big Data
• Quantifying the quality of legal services
• Data mining and decision-making
• Contract analytics and contract standards

In addition to providing clients with data-based insight, legal firms can track a matter with data from beginning to end, from the marketing spend through to the type of matter, hours spent, billed, and collected, including metrics on profitability and success. Firms can organize and collect documents after a matter and even automate them for reuse. Data on marketing related to a matter can be an amazing source of insight about which practice areas are most profitable.

Data-driven decision-making requires firms to think differently about their workflow. Most firms warehouse their files, never to be seen again after the matter closes. Running a data-driven firm requires lawyers and their teams to treat information about the work as part of the service, and to collect, standardize, and analyze matter data from cradle to grave. More than anything, using data in a law practice requires a different mindset about the value of this information. This book helps legal professionals to develop this data-driven mindset.

Chapter 1

Introduction: Data Analytics for Law Firms

Using Data for Smarter Legal Services

Ed Walters

Contents

Big Insights from Small Data

Data-Driven Legal Marketing

Using Data to Provide Higher Quality Assistance

Managing a Better Law Firm with Data

Conclusion

An essential part of legal services is to help clients understand and manage legal risk. However, when clients ask lawyers their most important questions, lawyers often answer with educated guesses based on limited experience. In law, this is often called professional judgment, but in other industries, these judgments would be called hunches—opinions formed without the benefit of data.

Clients ask their lawyers important questions—what are their chances of winning custody, how much legal exposure does their company have, how much they should offer to settle the litigation, what’s the market for a particular provision, should they accept a plea deal, or whether a certain provision is standard in a contract. For clients, these can make or break families, business relationships, or whole companies.

The answers to these client questions are in data, and lawyers don’t have that data.

Lawyers are not only answering these important questions with hunches—for the most part, lawyers aren’t even giving clients the right kind of answer. The question, “How much is my case worth?” isn’t answered with a number—the answer should be a distribution of outcomes in similar cases. “How much should we offer in settlement?” shouldn’t be answered with a number—it should be a decision made probabilistically, with information about past settlements, costs to try the case, and likelihood of a successful outcome.

These are some of the most challenging questions facing families or businesses. Where possible, especially in business, clients answer these questions with data. Companies invest in identifying and tracking key performance indicators to hold managers accountable and to set budgets. Even individual clients track their fitness or set step goals with fitness trackers. For clients, data is a part of everyday life. Except when they have a legal question.

So for increasingly data-savvy clients, lawyers can no longer give “it depends” answers rooted in anecdata. Clients insist that their lawyers justify their reasoning, and with more than a limited set of war stories. The considered judgment of an experienced lawyer is unquestionably valuable. However, on balance, clients would rather have the considered judgment of an experienced lawyer informed by the most relevant information required to answer their question.

A data-driven approach to legal services may sound like a challenge for lawyers representing clients in the financial industry—large firms based in financial centers. But it’s not. Lawyers in small firms handle more of these matters, and there is a lot at stake in matters handled by small law offices. According to the Legal Executive Institute, small law firms account for more revenue in the legal services market. Firms with more than 175 lawyers make $95 billion per year, a staggering number. But firms with fewer than 29 lawyers bring in $108 billion in annual revenue. There are opportunities to provide better legal services with data—in large firms and small ones.

Big Insights from Small Data

What keeps the manager of a small firm awake at night? From a solo practitioner to the managing partner of a boutique firm, the answer will not be legal tech or artificial intelligence, although both topics garner a lot of attention.

Law firm managers are more likely to be focused on day-to-day operational issues at their firms. According to the 2016 State of U.S. Small Law Firms Study from Thomson Reuters, the top three concerns of small firms are (1) acquiring new clients and new business, (2) clients demanding more service for less money, and (3) wasting too much time on administrative tasks.

Although these issues challenge many firms, lawyers can start addressing them with small, relatively inexpensive systems. They do not need exabytes of billing data or a bank of servers running the IBM Watson Developer Cloud. Although more data is normally better, the challenges facing most law firms, such as finding new business, better service, and administrative efficiency, are small data problems.

Data-Driven Legal Marketing

Legal marketing—finding new business for your law firm—is one of the most vexing challenges that law firms face. In years past, lawyers might have found new clients from Yellow Pages advertising, informal networking, or community advertising. However, even at their best, these forms of advertisements require investments, and the returns from them are unreliable and virtually immeasurable.

Call centers, sponsored search, print or TV advertising, or social media marketing can be effective ways to find new clients, but without data, it is hard to know which methods are most effective. Legal marketing managers may sympathize with the old adage, “I know that half of the money I spend on advertising is wasted—I just don’t know which half.” New business tracking based on anecdotes will lead to wasteful investment (or worse, wasteful underinvestment).

Two related problems with ads are that they are overinclusive and underinclusive. Ads are overinclusive because advertising reaches many more people than it needs to in order to reach prospective clients. Ads are underinclusive because advertising often does not reach enough prospective clients. Advertising in any form is expensive and inefficient. Any one of these ad channels is expensive on its own, but without careful targeting and tracking, it is easy to spend a lot of money without knowing whether it’s driving new business.

Data should tell law firms which advertisements work. Verification can be as simple as asking all new clients how they heard about the firm. On the other hand, law firms have begun taking cues from consumer marketing, using marketing automation tools, targeted discount codes, and customer relationship management (“CRM”) tools.

Seth Price, the managing partner of Washington, D.C., firm Price Benowitz LLP, says that his firm uses Salesforce as its CRM system to keep track of potential clients, especially which lead source they came from, to maximize advertising where it’s most effective. “We can run all sorts of reports which help us determine how to allocate resources,” he said. CRM systems can help determine which ad campaigns were most effective in driving new business. They can measure return on investment for marketing expenses and even help determine which practices and clients are most profitable for the firm.

The challenge of finding new clients is not just about increasing revenues—it is also about identifying which clients are most profitable. Figuring out which clients create the most profitable business for the firm requires linking revenues and expenses for different clients, practice areas, and even lawyers at the firm in the firm’s billing system. It’s great to add revenues for the firm, as long as the added expenses aren’t greater, and that the work isn’t crowding out more profitable clients. But these are management challenges that can only be addressed with data.

Erik Mazzone is the senior director of Membership Experience for the North Carolina Bar Association, but before taking that role he consulted with lawyers as the association’s practice management advisor. Mazzone recommends that phone calls and consultations are a good place to begin collecting data about the effectiveness of marketing. “Lawyers should know where the consultations come from—the firm’s website, referrals from other lawyers or advertising. And they should track how many of those consultations result in an engagement letter.”

Mazzone says that lawyers can track profits and revenues all the way back to lead sources, and they can do that without the benefit of software (although he advises lawyers that practice management software is the simplest way to do this kind of tracking).

Using Data to Provide Higher Quality Assistance

In addition to the pressures of finding new business, law firms also report that clients are expecting more work and better results for lower, more predictable fees. When corporate counsel are achieving more in house using technology, and starting to bring more work back from outside counsel, there is more pressure for firms to deliver results, understand their costs, and control prices.

Clients are not only looking for lower prices—they also want deeper understanding of their issues and better results. Clients, even individual ones, are making more decisions based on data. Businesses measure the return on investment down to the click, use A/B testing to measure the right messages, time of day, audiences, and images for advertising messages, and analyze data to make good business decisions. They use analytics to maximize their investments and purchasing power and to make hiring decisions. They manage inventory to reduce warehouse costs, and where possible, maintain just-in-time supply logistics. Businesses create personas for their customers, and when they hire employees, they use sophisticated data about the characteristics of their best performers.

For the most sophisticated clients, the only thing they do not purchase using data is legal services. Not because they don’t want to, but because they can’t.

Now clients have started to take matters into their own hands. BTI Consulting estimated that, in 2016, companies brought $4 billion worth of legal work back in house. Because they have tools that automate workflow, and in many cases, deep stores of their internal company information, corporate lawyers are choosing to do more work themselves, instead of employing outside counsel. When in-house lawyers can subscribe to the same research databases and e-discovery tools that their law firms use, they are finding that they can achieve comparable results with less uncertainty and risk. In short, it’s time for law firms to handle legal matters with the same rigor that their clients do, or prepare for clients to handle the matters themselves.

It’s no longer the case that data analysis is only for large firms with data scientists on staff, sophisticated knowledge management systems, marketing managers, and proposal writers. Firms may expect that only the most sophisticated clients want data-enabled decision making from their law firms. That may have been true in the past, but it isn’t true any longer.

Even individual clients make decisions with data. Individuals, not companies, are responsible for the growth of services such as Mint, which consolidates diverse financial accounts such as checking, credit cards, mortgage, savings, investments, and bill payments into a single dashboard. Individuals track their fitness goals down to the step with fitness trackers such as Fitbit or Apple Watch. Small companies and individuals use data more than ever, and their expectation is that their law firms will as well.

In addition, consumer-focused legal services such as Avvo, LegalZoom, or even TurboTax are more accessible. These services are commoditizing many legal and tax services with document automation and expert systems, and because they are venture backed, they often have a scale and an advantage in consumer marketing. That means that commoditized legal services are in the reach of more clients every year.

For highly customized legal work, only law firms (and only certain law firms) will be capable of doing the work. But for the vast majority of legal services, clients may care very little about which firm provides the service. As Jordan Furlong has pointed out in his book of the same name, law is a buyer’s market, and many types of legal work are becoming more commoditized. That means law firms won’t present a unique advantage in providing the service, over each other, over peer professionals, or over software services. This commoditization will certainly lead to further erosion of the price of legal services, especially the billable hour.

Commodity pricing does not mean that the price of legal work must trend to zero, but it does mean that the most successful lawyers will have to find a way to differentiate their services. One easy way to do that is fixed-fee legal work—maybe not for all kinds of work, but at least for predictable, commoditized work. Fixed fees shift the risk in legal work from clients to law firms, and as the market becomes increasingly competitive, clients will more frequently insist on fixed-fee engagements. The law firms who insist on billing hourly in this environment will become less competitive.

One of the biggest challenges to offering fixed-fee work is that lawyers and law firms simply do not know what the costs are for their services. They don’t know the distribution of costs, the mean or median, or what factors take costs outside of the norm. Law firms over the next 20 years will face the challenge of either winning less work (or lesser work) because they bill hourly, or losing money on mispriced legal services, because they do not have a financial understanding of their work for clients.

These problems of fixed-fee legal work are solved with data. Firms can collect and standardize the information about their time, expenses, and billables for different types of work. Even with limited data, firms will have a better understanding of the services they offer. More experienced lawyers and firms may be able to access some of the time and cost information from their practice management or billing software. New lawyers, or lawyers without practice management software, may have to find different means of collecting information from paper files or from other sources.

Artificial intelligence may open some data sources that previously have been out of reach. Firms that have been in business for many years may have extensive stores of digital and paper records—information that would be abundantly useful if it could be converted, standardized, and metadata collected from it. Today, that information isn’t very useful, in paper files or unstructured billing information.

However, tools to extract metadata from unstructured data are better than ever, allowing firms to identify which documents are attached to certain matters, who the author of certain documents are, or when they were worked on. The IBM Watson Document Cloud Developer suite of application programming interfaces are more accessible than ever, and can be used to digitize and extract information from old paper or digital files, allowing late-adopting firms to extract insights from legacy data.

Practice management software and artificial intelligence tools can help lawyers better understand their business. The pricing pressures for fixed fees are greater in some regions of the country and in some practice areas more than others. Data can illuminate where the pressures are most intense. Each year, practice management software provider Clio compiles a Legal Trends Report that anonymizes and aggregates information about what firms bill, how they collect, and where the trend lines are heading.

The 2017 Legal Trends Report from Clio aggregated anonymized data from more than 60,000 active users of its practice management software to identify national and regional trends. The report shows, for example, that bankruptcy lawyers and corporate lawyers on average have the highest billable rates, while criminal, personal injury, and insurance lawyers have the lowest billable averages.

The Clio survey also ranked metropolitan areas in which its users reported the highest and lowest billable hour averages, with New York City ($344), Los Angeles ($323), Chicago ($312), Miami ($310), and the District of Columbia ($304) at the top. Survey data such as the Legal Trends Report can help lawyers set a competitive hourly rate, including different rates for different practice areas in the same firm, in order to deliver services at a competitive price. Other data in the report, such as seasonality data for certain practice groups and information about the distribution of flat fees versus hourly billing for different practices, can help firms to budget more effectively and bill clients more competitively.

Clio’s Legal Trends Report is a good example of external data that firms can use to better understand their practice. But lawyers can also collect “small data” inside the firm to better understand client costs and firm profitability. The best example of this is firm billing, personnel, and accounting information—these include a wealth of information about costs, timing, scope, and historical trends.

One recent idea that shows promise is uniform standards for legal tasks—a standardized vocabulary that lawyers, law firms, corporate legal departments, and clients can use to describe legal services performed. Using standard task IDs, Individual firms can compare how long it takes, for example, to draft a research memo, using a standard code. This would allow a firm to compare time and billing by different lawyers on different matters to complete the same task.

Because the task names would be harmonized across many different legal departments, it would be possible for the first time for corporate counsel to benchmark the average time and cost of common tasks across firms. Firms could use these common task standards to see where they outperform regional averages for the same work or where they need to become more competitive.

Especially for clients who employ many outside law firms (think insurance companies or large retailers), the ability to compare the work of law firms should establish well which firms are providing the best value. One additional benefit is that benchmark data from other firms will help law firms to better price fixed-fee legal work, with less risk that matters will require more than the estimated amount of work. In addition, published, anonymized information about the tasks and stages of different legal matters will help law firms better understand workflow and project management, and lead to industry best practices among law firms.

Standard legal task ID...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Author
• Contributors
• 1 Introduction: Data Analytics for Law Firms
• 2 Mining Legal Data: Collecting and Analyzing 21st Century Gold
• 3 Deconstructing Contracts: Contract Analytics and Contract Standards
• 4 The Big Move Toward Big Data in Employment
• 5 Computational Law, Symbolic Discourse, and the AI Constitution
• 6 Quantifying Success: Using Data Science to Measure the Accuracy of Technology-Assisted Review in Electronic Discovery
• 7 Quantifying the Quality of Legal Services: Data Science Lessons from Avvo
• 8 Uncovering Big Bias with Big Data: An Introduction to Linear Regression
• 9 Data Mining in the Law Firm: Using Internal Expertise to Drive Decision Making
• 10 Can Intrapreneurship Solve the Innovator’s Dilemma? Law Firm Examples
• Index