Big law firms and their corporate clients are engaging in a kind of data warfare, where each is analyzing massive databases of legal billing data and using them in negotiations. (ABA) Some highlights include:
Lexis Advance MedMal Navigator: This product allows you... to determine in 20 minutes - versus 20 days - if a case is worth taking on... and it gives them analysis on available expert witnesses, including insight into the kinds of cases those witnesses have participated in and the type of testimony they offered.
TyMetrix LegalView: The service aggregates the invoices of tens of billions of dollars of legal spending on an ongoing basis ... Many have used our LegalView data warehouse to compare their rates and understand the best way to position themselves with clients - low-cost provider or high-end value player.
Sky Analytics: (advises) users on whether to approve, reject or reduce increases in hourly rates requested by outside law firms. The primary variables the tool analyzes are an attorney's years of experience, his or her position in the firm, the law firm size and the cost of living where the attorney is based.
In five years, I think the entire legal services ecosystem will look different than it does today. Those law firms that can run themselves like a business will succeed and those that hold on to the billable hour will suffer.
Bloomberg Law has a fantastic interview with Bruce Macewen of Adam Smith, Esq. that should be required watching for every law firms managing partner. Macewen discusses what he calls "suicide pricing", or pricing work at cost, just to meet overhead.
The problems are structural, as the cost structure of most law firms is not in alignment with the realities of the legal services landscape.
InsideCounsel has a nice piece on how law firms are using analytics to cut costs here. Here's the money quote:
The electronic invoice format leaves mass amounts of data to capture and store. With analysis, this data can provide insights into legal spend management and legal performance management. The resulting information leaves corporate law departments in a better position to evaluate cost and make improved decisions on resource allocation through:
Cost-effectiveness: Data analysis allows you to create benchmarks from which to negotiate rates with law firms and predict costs for future matters
Efficiency: Data insights also help identify for which matters to outsource or create alternative fee arrangements
Engagement: Performance management insights allow an organization to identify the best people or location of a law firm to assign to a matter
There is no doubt that the trend away from the hourly rate will be aided by analysis.