Applying data analytics for in-house legal teams

One constant question in-house legal departments ask is, “How are we doing?” This simple question is fraught with multiple meanings: how are we doing against budget, with turning contracts for the business, with litigation, or with compliance efforts?

Historically, the legal department lacked the data to make an accurate assessment and report on its findings. Increasingly, though, businesses of all sizes expect their legal departments to work with — and report out — data the same way as the rest of the company. This expectation has made the use of data analytics a priority for in-house lawyers.

What is data analytics?

Data analytics is the process of creating, categorizing, and examining data sets to draw inferences and conclusions from them. The data and findings inform business decisions or increase operational efficiency. For in-house legal departments, this cuts across a wide variety of issues, including budgets, spending, and litigation outcomes. 

The role of artificial intelligence in data analytics

Data analytics and artificial intelligence (AI) go hand in hand. While you do not need AI to perform analytics, using AI can help make large data sets more manageable — AI is good at finding patterns quickly. For example, if you wanted to review a few years’ worth of outside counsel bills to look for entries of low value, AI can do it in minutes. Likewise, if you want to know if the data held by the company — emails, financial accounts, Slack messages, etc. — reveals any indications of Foreign Corrupt Practices Act (FCPA) or anti-bribery law violations so you can nip them in the bud, AI can do that, too. The future of legal department data analytics is AI, so it’s time to start figuring out how to board this train.

Why are data and analytics important to in-house legal teams?

The need for in-house legal departments to adopt and use data analytics is clear as legal departments are increasingly asked to report and operate like other business functions. A fundamental truth in-house lawyers need to understand is that numbers drive a business. Executive teams are increasingly making data-driven decisions as they guide different aspects of the business. Therefore, data analytics can help legal departments talk the talk and make the case with accurate numbers for the needs and operations of the department as a whole.

Additionally, data analytics provide visibility and insight, create actionable intelligence, and inform better legal decision making. All too often, lawyers made decisions by guesswork, and firm relationships stemmed from law school connections. Data analytics can help a legal department make and validate informed choices.

When you consider how, in the past, guesswork often drove legal decisions and law firm relationships usually stemmed from law school connections with general counsel, you can instantly see the appeal — and importance — of using data analytics to make and track informed decisions. 

How do you start?

Start with identifying all the data sources available to the legal department. This task should come naturally to most in-house lawyers because it is part and parcel of their daily work — to gather evidence to analyze and draw legal conclusions. Data analytics is essentially the same: find the data, analyze it, and then use it to build a compelling case. 

Locate every piece of data touched by the legal department. Here are some places to start:

• E-billing systems, manually gathering data directly from invoices, or asking your law firms and vendors to provide it
• Matter management systems
• Reports generated by the legal department itself
• Data available from legal-related tools utilized by the legal department
• Data generated by other departments in the company 
• Publicly available data, either free or purchased, like benchmarking data
• Government data

For most legal departments, especially those just starting to dabble in data analytics, the best data source is your e-billing system — or paper invoices — and matter management data, whether electronic or manual. From this core, you can grab some low-hanging fruit without much additional cost. Start small and easy, prove success, then move on to more complex analytics.

What do you want to measure?

Once you understand your data sources, your next challenge is determining what you want to measure. The “what” is the fundamental purpose behind data analytics. Think about questions where the answers could make the department run more effectively and efficiently or reduce risk to the company. 

Categorize measurements into one of four categories: 

• Descriptive – what happened
• Diagnostic – why it happened
• Predictive – what will happen
• Prescriptive – what you should do

Here’s an example of a descriptive measurement: 

1. The legal department set a goal of reducing the hourly rate it pays outside counsel by 10% year over year. 
2. Next, locate the relevant billing data for the prior and current year. 
3. Run the analysis and compare the results. 
4. Is the average hourly rate lower by 10% or more in the current year versus the prior year? If not, take action to reach your goal. 

The ways in which in-house lawyers can utilize data analytics are virtually endless. The only limit is the data you have on hand and your ability to develop uses and questions. 

Go for quick wins

The smart play for those starting out with legal department data analytics is to go slow and find quick wins. No in-house lawyer has time or money to spare. Start with the data on hand now, develop some simple questions to measure, and get into a rhythm of generating simple, helpful reports. Share the results with the department to showcase the good and the bad. For example, if your average hourly rate for outside counsel is way out of whack, your data-informed team can help reduce that number by engaging with outside counsel. Transparency is good for any in-house legal department, even if it hurts.

Don’t feel pressured to share the data outside of the legal department right away unless someone has asked for it. Spend time refining your processes and ensuring you understand the results and how you will utilize them. Throwing out numbers to the business without thinking it through can come back to bite you. As you gain experience and figure out different data sources or questions to ask, you can expand your use of data analytics. The goal is always to use this data to improve the department's operations and keep the company out of trouble.

Reporting the results

One of the cool benefits of using data analytics in a legal department is generating dashboards to share information and results. Businesses commonly use dashboards to give a visual summary of the status of a project, goals, spending, IT systems, or pretty much whatever you would like to show visually. These allow for the discussion of critical points in easily digestible snippets revealed via the dashboard.

Often, in-house lawyers miss out on this trend. Embracing data analytics and measuring goals and questions creates an opportunity to capture those answers in a dashboard. How widely the department uses the dashboard may depend on how it’s required to report out, but a basic dashboard might include:

• Summary of outside spending versus budget — or average hourly rate or legal spend as a percentage of company revenue
• Summary of the number and type of commercial agreements completed
• Discussion on the status of a key case or a legal department IT project
• Summary of the company’s intellectual property 

These are just examples; your dashboard depends entirely on what is important to you, the department, and the C-suite.

Lean on legal operations, if possible

If you have a legal operations person or team, data analytics is the perfect task to assign them. Professional legal operations people are trained and experienced in accessing, using, and manipulating data sets. Why not let the professionals run the process while you refine the questions and draw conclusions from the data? If you do not have an operations person and it’s unlikely you will get one, realistically consider what you can do by yourself or by bringing in others on your team to help — or, if possible, hire someone on a temporary basis to help with the setup. 

Where can I learn more?

Here are a few places to go for more information and resources on data analytics best practices:

• Corporate Legal Operations Consortium (CLOC). The CLOC is one of the two leading bodies for legal operations professionals. Data analytics is a core competency for its members.
• ACC Legal Operations. This is the other main group for operations professionals. Like all ACC groups, it offers tool kits, benchmarking, and other benefits. It also provides an operations maturity model with a specific component dedicated to metrics and analytics.
• Thomson Reuters legal tech blog. This is a helpful resource for lawyers interested in technology. It includes a number of posts on data analytics.
• Your company. If you have seen others in your company use data analytics, invite them to lunch and pick their brain. Sometimes, the best resources are right under our noses and cost us nothing but the time to ask for help.

Data analysis is critical to operations

Using data analytics in legal departments is a no-brainer. Not only will you get deep insights into the department's operations, but you will also be able to provide better insights to the business backed up by data — and not just gut instinct. Start small and simple, and work your way up to more complicated questions. Ultimately, your analysis will start to drive excellence, efficiency, and better decisions.