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Practice Innovations — Managing in a changing legal environment
Gray Rule
March 2015 | VOLUME 16, NUMBER 2
Gray Rule
Using Big Data to Develop Client-Centric Understanding
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»A Revolution in Legal Services
»Using Big Data to Develop Client-Centric Understanding
»What Got Them Here Won't Get Them There: Your PD Toolkit For Helping Junior Partners Become Successful Contributors
»Experience Management: Build, Buy, or Abandon?
»Empowering Professional Staff in a Changing Legal Environment
»Pipeline to Success—Law Firms Finally Embracing CRM for Business Development Tracking
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Using Big Data to Develop Client-Centric UnderstandingEvan Parker, Director of Analytics at Lawyer Metrics, LLC and Christopher Zorn, Cofounder and Managing Partner of Lawyer Metrics, LLC, and the Liberal Arts Research Professor of Political Science at Pennsylvania State University
By analyzing industry data, and synchronizing it with the firm's existing practice strengths and geographic footprint, a firm can obtain new insights into strategic business development.

Introduction

Clients have always been the heart of the modern law firm. Today, with external legal spending on the decline and heightened competition over market share, firms have redoubled their focus on client service. At the same time, clients' expectations about what law firms should know and do continue to grow. Among other things, and in addition to practicing law and managing relationships, corporate clients now expect outside counsel to understand their business, and their industry.

Acquiring this "client-centric" understanding is valuable because it allows for a distinctive brand of client service. It also presents a challenge, because lawyers are accustomed to viewing their client relationships through the lens of practice areas, while clients themselves rarely do so. Put differently, clients focus on what they are doing vis-à-vis their industry competition. Their outside counsel, in contrast, tend to focus on the particulars of current client matters.

In this article, we describe how "big data" on corporate organizations can be used to generate a client-centric understanding of a firm's client base. We also explain why the upside of leveraging such data goes beyond the ability to provide distinctive service offerings. In brief, a firm that understands its clients' industries can use this same information to assess internal performance, and can link this information with external client data to inform business development and set strategic priorities.

It is worth noting at the outset that data on corporate clients are plentiful. Thus, what is possible with related data far exceeds what we can describe in a short article. To maintain focus, in what follows, we consider two broad dimensions. The following analysis facilitates client-centric understanding by disaggregating data on corporate clients by industry and geography.

Client Industry and Geography

The first step in building a data-driven approach to client service is to assemble and organize the relevant data. On the industry front, this requires at a minimum assigning each corporate organization to a specific industry category; assignment to a second, more specific subindustry category is also recommended. For example, in our work with law firms, we have developed a classification scheme that draws on federal NAICS codes to assign each organization into one of 12 broad industry categories and one of 204 subindustry groups.

Several examples are immediately apparent. Calculating conventional firm-level metrics (revenues, leverage, profitability, etc.) by industry can reveal unanticipated insights about the firm's performance. Cross-categorizing matters by industry and practice group provides a picture of which practice areas are most highly concentrated among clients in particular industries, and conversely which industries have more or less diverse "practice area profiles" at the firm. Such information is valuable as firms move from a practice area focus to one organized around client industries.

The second dimension that is an essential part of building a client-centric understanding pertains to geography. Although many law firms' corporate clients have global reach, their legal departments tend to be located at or near the company headquarters. By geocoding the corporate headquarters location, firms can visualize their "client footprint" and begin to survey the corporate client landscape in a targeted fashion.

By integrating facts about these organizations with geographic data and our proprietary industry classification system, our results provide insights about legal markets across various regions and industries. To demonstrate the value, we provide a stylized example.

Example

The client analytics we describe are derived from data on thousands of publicly- and privately-held corporate organizations. For simplicity, we focus here on revenue-based metrics; other relevant measures might include company counts, employee headcounts, or other financial indicators. It is also important to present results using easy-to-understand visual displays. One technique that we have found useful is to summarize the data using combinations of location- and sector-specific visual summaries and maps.

Consider a hypothetical Chicago-based firm interested in better understanding the industry conditions of its local clients. Examining data on all large (> $50 million revenue or sales) public and privately-held companies in the Chicago metro area allows us to understand the "economic DNA" of the region. In particular, the top panel of the figure below shows the proportion of industry activity in each of our 12 sectors, relative to the entire U.S. Industries at "par" are those for which the proportion of economic activity in the Chicago area are the same as for the U.S. as a whole; sectors above or below "par" are relatively over- or underrepresented, respectively. So, for example, revenues of Chicago-area manufacturing companies are roughly twice as large as they are in the country as a whole. Similar analyses (not shown) can be conducted for subindustries within each broader industry category. Summaries of total annual revenues and company counts in each area provide information about the absolute significance of each industry for the region.


The relative importance of manufacturing, transportation, utilities, and health care for the Chicago-area economy suggest that a focus on those sectors is of particular value. The second panel locates each of the 333 companies in those four sectors on a map of the Chicago area, along with the location of each firm's headquarters. Orange symbols denote companies that are clients of our hypothetical firm, while blue symbols are companies, which are not (yet) clients.

A figure such as the one here integrates data on companies (both clients and nonclients), industry sectors, and geography to provide an easy-to-grasp, compelling overview of the local market conditions in four key sectors. Moreover, the flexibility of this general approach allows for analysis at the local, state, or national level, and for a focus on any or all industries or subindustries of interest to the firm.

Extensions

There are a host of extensions to the analysis we have outlined above. For example, a firm with a strong focus on labor and employment matters may find that analyses based on employee headcounts are more informative than one based on revenue. Alternatively, a firm might want to categorize organizations by capitalization size (small, mid, large); among other things, such a categorization allows the firm to develop distinctive approaches to large cap industry giants and small cap "up-and-comers."

Finally, note that while industry classifications are likely to be important for the range of a firm's clients and practice groups, the relevance of geography is more variable. Some clients' business models are more geographically dependent than others; similarly, some matters are likely to have a strong geographic component (e.g., labor and employment, tax) while others are not.

Summary

An analysis of large corporate organizations can help relationship partners and firm leaders understand basic facts about their corporate clients. An emphasis on metro area geography and industry sectors together yields a client-centric view of the corporate legal market. The results of such an analysis not only highlight the market conditions that current clients are experiencing, but also point to strategic opportunities for client development. For these reasons, the results can be used by firm leaders for more than educating partners about client service—and might actually serve as part of a data-driven approach to business development. By analyzing industry data, and synchronizing it with the firm's existing practice strengths and geographic footprint, a firm can obtain new insights into strategic business development. The results can also serve as a persuasive tool, bringing empirical evidence to bear on the arguments that sustain law firm business strategy. In the largest sense, the client results allow firms to understand their clients using data, and in turn make strategic business decisions.

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