NEW YORK — At the recent COO/CFO Forum, we had the chance to sit down with Dr. Evan Parker, founder of Parker Analytics, and a true pioneer in the art and science of using data analytics to help law firms make more informed decisions.
Dr. Parker shared with us how he and some fellow researchers analyzed law firm data to determine where the strength of a particular firm lies. The project we discussed looked at profitability as an indicator of law firms that are better at running their organizations. In particular, the researchers looked at practice concentration as a driver of profitability. What they found was that firms with a greater focus on a smaller number of practice areas, other factors being equal, tended to be more profitable than firms with a disparate focus on a wider number of practices.
This is an interesting finding, particularly for midsize firms who are more likely to fall into the category of general services law firms who may be more tempted to try and be all things to all clients. Many of these law firms are loathed to turn away work of any sort, because work equates to revenue. What this can create, however, is a system of small, nearly autonomous units within a law firm that are run by individual groups or sometimes even individual partners. The fiefdoms are too often driving toward their own goals without necessarily benefiting the law firm as an enterprise.
This, in turn, can lead to some difficult conversations for law firm leaders. But those conversations become easier when based on a solid understanding of the data underlying the law firm’s performance, says Dr. Parker. For example, an examination of a firm’s data may show a nexus between two different practices that are actually serving the same client industry. This could lead to an organically developed connection between these practices that was otherwise not readily apparent. At the same time, seemingly isolated practices may be isolated for a good reason based on the client industry they serve and where it’s located.
At bottom, though, a meaningful examination of a law firm’s data can help develop a more streamlined and focused practice mix that will help to ultimately create a more profitable firm.