Big data for law firms: An opportunity or a risk?

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Law firms are increasingly turning to big data to extract more value from the thousands of briefs, memos, pleadings and legal records they produce every day, allowing them to develop a more joined-up approach between research, case workflow, pitch preparation and sales, according to OC&C research quoted by Legal Week.

But while there are clearly opportunities for the legal industry to find efficiencies and add value for customers through the use of big data; in an industry that often still relies on chargeable human hours, it also opens law firms up to competitive risks. In this post, I’ll be looking at some of the big data issues for law firm managers to consider.

What is big data?

First, let’s examine what we mean by big data. Wikipedia defines big data as “an all-encompassing term for any collection of data sets so large and complex that it becomes difficult to process using on-hand data management tools or traditional data processing applications.” A further examination of what big data means and the inherent issues in its collection can be found in this Forbes article by Gill Press.

How can big data help law firms?

As management information system suppliers, we are big advocates of the importance of making management decisions based on good, accurate operational data. But there’s no point in collecting data for data’s sake. To be useful, raw data needs to be converted into management information that can help law firms leaders make good business decisions. This process is explored in my post on transforming raw data into useful management information.

So when it comes to big data, where the wealth of opportunities can be mind boggling, what areas should law firms be focusing on?

There are a various ways that big data can help lawyers and law firm managers. Three examples are given below.

(1) Using transactional legal data analysis to improve operational efficiency

The legal industry is full of transaction-based processes. With the correct data collection and monitoring systems in place, there are opportunities for the legal industry to responsibly leverage the data that is a by-product of these transactions to improve decision-making and streamline operations.

However, the amount of internal data that law firms generate is small in comparison to many other professional services organisations. Lawyer and Inside Counsel blogger David J Walton has written extensively on the topic of big data. He suggests that law firms are unlikely to use internally produced big data to drive client outreach or management strategy. Instead, he says (in his post on how law firms operate in a big data world) that big data is likely to have more effect on the practice rather than the business of law. I think this plays down the opportunities for operational improvements – what do you think?

(2) Legal data mining for case preparation and solicitor storytelling

If we’re talking about opportunities for big data to influence practice, then reducing time spent on case preparation is a key area. It is now possible to mine and analyse huge amounts of online data (including, for example, connections and views expressed on social media) to build up a picture of clients and defendants. Whereas previous background research may have taken many days of painstaking research, online analytics tools can generate immediate results.

“Big data is already influencing the kinds of arguments made in class actions and other lawsuits that typically invoke statistical sampling”, explains Walton. “There can be no doubt that the use of big-data analytics will create many opportunities for lawyers to tell a much richer and more real story than they have in the past.”

According to the OC&C research quoted in Legal Week, the e-Discovery market is worth an estimated $1bn (£623m). “Typically, the discovery phase of a case is estimated at about 15% to 20% of litigation costs, so the size of the prize for companies to reduce costs is significant.”

Should big data be a concern for law firms? What are the risks?

As well as opportunities, big data also presents some risks for legal firms. Or, at the very least, issues to consider and mitigate appropriately. It should be remembered that while law firms have access to big data, so do their clients. As Walton explains, “some clients are vetting law firms based on meta-analyses of bills; others are holding reverse auctions and using requests for proposal heavily based on law firm use of technology. Some clients, especially insurers, are using extensive relational databases to supervise litigation and manage costs. On the backend, clients are using big data to analyze their bills. They can determine whether there were any violations of client guidelines, and reject fees and expenses that violate set parameters. They can also do comparative analyses to make sure that attorney tasks are being billed in line with market trends and historical precedent.”

OC&C Strategist Fergus Jarvis went as far as to suggest that big data threatens the business model of even the elite law firms” in his article in Legal Week last year. Law firms should be aware of the competitive risks over pricing that big data can bring, yes. But I think it’s more useful to think of this as an opportunity rather than a threat.

(3) Business model and pricing policy analysis

If clients are using big data to find the most competitive law firm pricing structure on the market, then law firms can use this data too. Regular competitor benchmarking and operational efficiency monitoring can help ensure they don’t lose clients to “cheaper” competitors – or can help law firms illustrate how and why their business model or expertise offers better value and thus should command a higher price, for example through analysis of long-term case success and complexity per £ spent.

How is your law firm using big data?

I’m interested to hear how law firms are using big data in practice. Have you embraced its potential in your own practice? Or is it something you would consider looking at in future?

How much does your current management information system allow for effective raw data conversion into useful management information?

You can tweet your thoughts to @KatchrData

If you’d like to discuss how your law firm could be gathering data and using management information more effectively to inform business decisions and make operational efficiencies, contact us by email or call 0845 6806 843.

Find out more about our Katchr management information software.

Blog post by Graham Moore, Managing Director, Katchr

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