“Practice Innovations” is a quarterly, online newsletter that examines best practices and innovations in law firm information and knowledge management with an eye toward better management strategies in the face of a changing legal environment.
The results are in: law firms with highly effective competitive intelligence (CI) functions perform better, over time than their peers, according to a study jointly produced by Acritas and The Tilt Institute.
Not only do the firms with top ratings enjoy faster revenue increases, their profitability — by virtually any measure — grew up to 53% more than peers with less effective CI functions. The secret to their success: the most effective CI teams are centralized, possess a keen ability to connect the dots, include well-trained CI analysts and, perhaps most critically, spend more time on strategic activities — those that help to shape the direction and future of the firm — than tactical (e.g., preparation for a client lunch or pitch).
Last year, The Tilt Institute teamed up with market research leader Acritas to produce a report, The Evolution of Competitive Intelligence in Law Firms, delineating the role and status of competitive intelligence in the world’s largest law firms. At the time, the statistics were a bit grim. Though more than 80% of law firms had resources dedicated to CI, only 52% had a dedicated, formal function. Law firm leaders rated the effectiveness of their CI functions a 6.4 on a scale of 10 (with 10 being highly effective), and common words to describe the CI capabilities included “Basic” and “Reactive.” The bright spots, however, were evident. Law firm leaders were aware of their nascency and ready to change the status quo. More than three-quarters of firms planned to make changes in 2018 to improve their CI function and 1-in-3 specifically planned to add resources.
Which brings us to today. Though we have not had the opportunity (yet) to update the official findings, our ongoing work with law firms globally — as well as powerful, publicly lauded examples such as DLA Piper’s client retention analysis — indicates progress is underway. Interest and investment in better leveraging data and analytics is climbing. The most sophisticated firms are taking CI to the next level through the application of predictive analytics, the use of multivariate regression analyses to isolate drivers of behavior, and more.
Yet as with many advancements in the legal sector, progress is variable and, at times, slow. Even as of last year, competitive intelligence functions were largely reactive and tactical. They focused the bulk of their time and energy supporting client development and notably less on proactively informing strategy and key decisions.
Fortunately, this emphasis is beginning to shift. A combination of forces across the legal industry is combining to pave the way for CI to advance to the next level. Some are industry trends — shifts in thinking and approaches to business that are somewhat outside of a firm’s control. Others are squarely within the realm of what firm leaders can, and should, influence to help drive their firms to the next level.
20/20 Vision: Enhanced Strategy and Planning Efforts
In the face of increased disruption and transformation, law firms are finding new and innovative ways to develop nimble, focused strategies and visions. Though, admittedly, some law firms continue to define strategy by their anticipated increases in revenue, headcount, and profitability, or strive to be all things to all people, more common is the law firm that acknowledges the importance of targeting their energy and investments into fewer specific areas to yield greater returns.
It is at these firms where CI has a leg up. A clearly defined, well-articulated strategy is the backbone to a highly effective analysis. With clear objectives comes the ability to create meaningful approaches and deeper insight. Melding strategy with planning at all levels at the firm — from department to industry, practice, and client — creates alignment to support stronger growth and more positive returns. CI can provide inputs at nearly all levels of planning, offering a road map for some and guard rails for others. It is not difficult to fathom why firms with highly effective CI functions enjoy an average of 17%, 24%, and 53% higher five-year growth in revenue per lawyer, profits per equity partner, and profits per lawyer, respectively, according to Acritas and The Tilt Institute’s jointly produced research.
Data, Data Everywhere: Increased Appetite for Data and Analytics
As in most industries, awareness of, and access to, data has skyrocketed. Propelled in part by macro-discussions of “big data” and, within the legal sector, by client demand for greater transparency into pricing, billing, and staffing, data analytics has taken a rightful place among the core tools a firm can use to enhance performance. Many firms embraced the use of data in finance and pricing as the first frontier; and directors and C-level executives stepped in to bring financial analysis and business intelligence to the next level. Now, firms are extending their application of analytics across the firm to talent acquisition and retention, client development, competitive positioning, and major strategic decisions.
CI can be instrumental in virtually all these realms; perhaps one of the reasons why capacity was deemed the single greatest challenge facing CI in law firms in 2017. In addition, the adoption of visualization tools such as Tableau and Qlik has opened the gateway to allow more widespread access to key insights in compelling, user-friendly charts and graphics.
As demand among lawyers and executives continues to grow, this will only place greater pressure on firms and CI teams to deliver more impactful analysis of even greater amounts of information. This trend, in turn, shines a light on one of law firm’s greatest challenges today — how to ensure the accuracy and integrity of its wealth of data so that analytical insights are accurate and on point. Which, coincidentally, leads nicely to our next point.
According to Legal Executive Institute’s 2018 State of Legal Technology Report: “Law firms that made higher investments in legal technology (3.2% annual increase or more) saw better performance in several key areas compared to firms that allocated a lower amount (especially firms that allocated a 1.2% annual increase or lower).” The report goes on to draw the link between technological advances and better client experiences: an excellent correlation, yet not the only positive outcome from better tech. Typically, technology improvements increase access to, and usability of the data housed within various systems across the firm. This move can be a boon for advanced CI and business development professionals who can then leverage that data to better delineate the firm’s strengths, ideal clients, and more profitable practice areas, clients, and matter types.
Geeking Out II
Plus, better technology tools are not limited to those that law firms are deploying internally. From an industry perspective, investment in legal tech is also climbing, translating to a wider variety of solutions and, in many instances, greater sophistication and applicability to the challenges facing today’s law firms. For example, a partnership between Validatum and Neota Logic recently resulted in a tool intended to use artificial intelligence to predict and support law firm pricing decisions.
This industry-wide trend is playing itself out in the CI arena as well. Lex Machina continues to augment its platform with new litigation types. Manzama added a feature to rate the “temperature” of news headlines about a particular client. MarketLine launched a thought-leadership tracker to monitor key themes and hot topics in various industries. And ALM Legal Intelligence is expanding its Legal Compass platform to project the outcomes of law firm M&A and lateral group hires. These advancements will continue to put more insights and impact at the fingertips of CI and business development professionals (particularly those with the training and analytical prowess to incorporate them into broader strategic thinking and planning exercises).
As these trends coalesce to elevate the role of CI in law firms, it will be incumbent upon the firms themselves to elevate their teams to keep up with their rise in importance. Operational moves to ensure data integrity, the recruitment of highly trained analysts, investments in technology and new data tools, and the breaking down of internal silos to streamline communication are imperatives to making the most of CI today.
Tomorrow will bring even more transformation. Law firm cultures will continue to shift, propelled by younger generations, to be even more data-dependent. This change will, in turn, drive demand for more analytical horsepower, self-service tools, education on how best to interpret and use data, and, eventually, AI-powered tools and forecasting.
Some law firms will reach this next frontier sooner than others (in fact, a few are scratching at the gates now). Where will your firm be as next generation CI emerges?