8 Steps for Legal Spend Data Initiatives That Generate Optimal Results

For almost six years, our team at Legal Decoder has been setting the standard for cutting edge-legal spend data analysis.

The most progressive, strategic and successful corporate legal departments and law firms have already launched, often with our help and guidance, legal analytics initiatives. They now have data that helps them price and budget with greater certainty as well as optimize efficiencies in legal services delivered. This is giving them a competitive edge simply by recognizing how fast the legal industry was going to transform, and proactively making the first move.

In contrast, most of the legal industry is in fast follower mode trying to figure out how to catch up to their more innovative peers and leverage legal analytics just to keep pace. Many legal industry leaders are overwhelmed by the possibilities of what legal analytics can deliver, which leaves them with the sense of not knowing where to start.

Unfortunately, there is no “one-size-fits-all” solution for every legal organization; However, best starting point is universal to everyone in the industry - legal billing data. Billing and eBilling systems house an abundance of raw data which, when transformed via legal analytics tools, provide keen insights into the real cost and efficiency of legal services.

While raw legal billing data offers the best starting point from a data set perspective, we have seen that there is a specific process for legal spend data initiatives that generates optimal results. With this formula, there is no need to feel overwhelmed, intimidated or paralyzed. Our experience can help untangle the perceived web of complexity for industry leaders, resulting in a successful legal spend data analytics project. As with any meaningful initiative, the key is to get started.

Step 1. Identify a Strategic Organizational Goal that Could Benefit from Additional Data Insights

Strategic organizational goals can run the gamut differing widely from organization to organization. Every well run organization has a multi-year strategic plan for growth, development and success which align well with a legal spend analytics initiative. Imagine an organization that is planning future growth by quadrupling M&A activity during the three upcoming years. A smart legal spend analytics initiative for this organization would be to (1) Analyze legal spend data from prior acquisitions to help correlate the extent of due diligence with the severity of indemnity claims; or (2) Estimate how long it will take for a proxy statement/prospective to clear review by the SEC; or (3) Optimally staff and manage outside counsel for excellent outcomes at peak efficiency. For a law firm, a strategically informed legal spend analytics initiative may focus on (1) A practice group that has had extremely high (or low) realization rates; or (2) An over-performing office or department; or (3) Activities and trends shown by under-performing service partners.

The options for the launch of a legal spend analytics initiative are not endless if thoughtfully considered in the context of organizational plans and goals. Dealing with legal spend data in an intelligently scoped launch can easily become scalable over time. 

Step 2. Anoint and Incentivize an Internal Legal Spend Analytics Team to Own and Oversee the Initiative

A legal data analytics initiative is a multi-disciplinary endeavor which requires team members to be creative, persistent and zealous. Ideally, the team will be led by a lawyer, an information technologist and a C-suite executive. All three individuals must have these characteristics. Starting the initiative requires creativity, strategic vision and the ability to imagine how better data can result in vastly improved business outcomes. The initiative starts as a “we don’t know what we don’t know” exercise. It is akin to an R&D effort where an investment must be made to develop new product or service offerings. Members of the team are spearheading an effort which will pay dividends over time, so it is important to compensate or, at least, not disincentivize them from taking on a leadership role. After data is analyzed, strategic insights will follow – the good, the bad and the ugly. The leadership team members must be able to communicate and persuade the organization on how to capitalize and expand upon the good, correct the bad, and eliminate the ugly.

Step 3. Carefully Select Vendors/Technologies/Business Advisors to Collaborate on the Process

Assistance from an outside third-party will be needed about 95% of the time for any legal spend analytics initiative. Make no mistake, the field of legal spend analytics is still in its infancy; be leery of any third-party touting decades of experience in the field. The best and brightest players in the legal spend analytics space are part of the “New Law” movement and have been involved in the field for less than a decade. It also is important to collaborate with a third-party who is committed to delivering strategic insights, not just trying to sell a product or commoditized service. Since there is no “one-size-fits-all” solution for legal spend analytics, look for a third-party that knows the legal industry, understands your specific business drivers, and can help cross the chasm to transform raw data into valuable business intelligence.

Step 4. Getting the Raw Data

You need not look any further than your own time entry, billing, or eBilling system for the raw invoice and billing data. It can be easily exported from those systems by applying a few filters and clicking the “run and export” button. Once raw data is exported, your third-party partner should be able to “cleanse” the raw data. Data cleansing should not involve changing raw data. It is a process that ensures raw data is standardized, stabilized, and ready for analysis by data analytics technology capable of performing sophisticated calculations at scale. Technologically speaking, data cleansing is often time consuming, especially with so-called “dirty” data. Even so, the magic of programmatic analysis of cleansed data is that it is neutral - there is really no way to insert unintended bias or other undesirable patterns into the legal spend data.

Step 5. Analyzing Raw Data to Generate Strategic Insights

This is arguably the most difficult step in the process, but only for your third-party vendor partner. With the rare exception of the legal department or law firm with boundless internal technological resources, responsibility for this step squarely lies with the third-party partner. Ideally, this process is handled 90% programmatically with a “human-in-the-loop,” as opposed to a mostly manual process, so future scalability poses no limitation. Whatever process is used, the end results must go well beyond mere reporting of data. Most existing tools can generate reports from raw data to tell you what happened. The most valuable tools use complex algorithms to transform raw data into a meaningful industry structure that doesn’t just tell you what happened, but more importantly, what should have happened. That point is where strategic insights are generated.

Step 6. Turning Insights into a Visualized Story

If Step 5 is the most difficult step, Step 6 is probably the most educational and enjoyable step in the legal spend analytics process. Because most end-users have not gone through a legal spend analytics project, many don’t know what they want to see or how they want to see it. The best third-party vendors will have “out-of-the-box” visualization tools that surface the most interesting trends and insights. Whether you opt for graphs, charts or histograms, the visualization tool must be able tell a story with data that can be visualized clearly, fluidly and flexibly.

Step 7. Fuel Business Decision-Making with Predictive Analytics

The unmatched power of legal spend analytics is realized when the output of smart algorithms provides decision-makers with insights that improve business strategy by predicting future trends. It is possible to create similar events or clusters to extract the most salient data points and measure them against outcome. For instance, where a client finds itself in similar litigation in multiple jurisdictions, it is now possible to determine that Attorney A at Firm 1 handled four key witness depositions at a cost of $12,000 each, while Attorney B at Firm 2 handled six key witness depositions at a cost of $8,000 each, and Attorney C at Firm 3 handled three key witness depositions at a cost of $10,000 each. A client can then correlate the cost of the key witness depositions with the outcome in each case to determine future litigation strategy.

Step 8. Monitor and Update

One of the biggest pitfalls of data analytics projects is to assume that once a model or a visualization is built, it will continue to give valuable insights indefinitely. This simply is not possible. Tools that are not continuously improved and fed new data will degrade in output quality over time. It is important to recognize that legal spend initiatives and models are dynamic and must continue to evolve in order to produce the most current and valuable results.

Final Thought

The era of legal analytics is upon us and there will be winners and losers. The successful legal departments and law firms will leverage legal spend analytics to give them a competitive edge. Those who do not leverage legal spend analytics do so at their own peril.