April 03, 2023

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Large law firms must contend with an enormous amount of data – often critical – daily. Consequentially, the success and growth of a law firm requires effective data management, which in turn requires a well-designed data strategy. A sound data strategy helps ensure the proper and efficient collection, availability, retention, and analysis of law firm data.

In keeping with the times, we asked ChatGPT to assist us in researching and writing the following on data strategy.

Decision-Making and Productivity

The greatest benefit of a good data strategy is improved decision-making. By leveraging accurate and timely data, a law firm can make informed choices about business operations, finances, and client management.

A firm that combines real-time data with the right tools and processes gains a significant strategic advantage over firms that continue to fly blind.

According to a McKinsey & Company survey, companies that rely on data-driven decision-making achieve superior business results and are about 5% more productive and 6% more profitable than their competitors. A Harvard Business Review study found that data-driven decision-making increases employee engagement, job satisfaction, and performance. Both findings apply to law firms.

Availability of Relevant Data 

The opportunity to benefit from a sound data strategy is only a reality when relevant data is available for decision-making and managing risk.   Incomplete data can lead to a range of issues in law firms. Firstly, it can hinder decision-making and productivity, leading to inaccurate analysis, miscommunication, and missed opportunities. Lawyers working with incomplete data may provide incomplete advice.

Secondly, incomplete data can increase the risk of legal conflicts and liability; it can hinder the ability of lawyers to provide high-quality legal services to clients. Lawyers rely on accurate and complete data to make informed decisions. Without access to all relevant data, lawyers may not fully understand the client’s legal situation, assess the strengths and weaknesses of their case, or provide effective representation.

Overall, incomplete data can pose significant risks to law firms, including legal conflicts and liability, poor decision-making and productivity, and reduced quality of legal services. Therefore, a complete set of data must be available and accessible by law firms through a sound data management strategy that ensures data is accurate, complete, and accessible when needed.

Compliance

A robust and thoughtful data strategy also improves a law firm’s compliance with data privacy and security laws and regulations. Because virtually all law firms regularly possess and handle confidential information, this is a critical area. A well-thought-out data strategy ensures that a firm has appropriate controls for managing sensitive information and meeting regulatory requirements. Such a strategy also aids law firms in identifying and mitigating compliance risks, avoiding costly penalties, and maintaining the trust of clients and stakeholders.

The costs can be enormous for a law firm whose data strategy fails to address compliance issues adequately. The average cost of a data breach in the legal industry is $4.4 million, according to a study by the Ponemon Institute. Moreover, the EU’s General Data Protection Regulation (GDPR) authorises fines of up to €20 million or 4% of a company’s global annual revenue, whichever is greater.

Cost Reduction

Efficient data management helps streamline law firm operations and reduce costs. A well-designed data strategy enables a firm to automate routine tasks, reduce manual data entry, and eliminate data duplication – all of which free up staff time, increase productivity, and allow law firms to focus on higher-value tasks, such as client engagement and business development. In addition, a data strategy that increases data accuracy and gets the right data to those who need it when they need it means faster payment by clients, better business decisions, and more continuous improvement.

The alternative – maintaining the status quo – means ongoing inefficiencies and unnecessary expense, including those from inaccurate data, missed deadlines, and other costly errors.

According to a study by IDC, organisations implementing data automation solutions enjoy a 45% reduction in data entry errors and a 37% reduction in time spent on data entry tasks. Separately, a study by IBM found that poor data quality can cost organisations up to 20% of their revenue.

Continuous Improvement

A fourth set of benefits of a good data strategy is its impact on operations. Continuous improvement and developing better solutions require data that analysing law firms can use to opportunities where new solutions will enhance operations, service delivery, and the client experience. A well-thought data strategy supports a culture of operational improvement that results in improved outcomes.

Once again, research proves the point:  a survey by Gartner found that, among companies that have implemented data management initiatives, 85% experience a positive impact on their business. A McKinsey & Company study determined that companies that use data and analytics to drive continuous improvement are 50% more likely to achieve above-average financial performance.

All is not lost for law firms that have yet to optimise their data strategy. The first basis for optimism is that many large law firms store key data in a small number of critical database applications, such as systems for time and billing, document management, human resources, critical practice management, and compliance. Second, many times a manageable number of “primary keys” link these key databases together – information labelled, e.g., MatterID/ClientID, TimekeeperNo, and UserID. By synthesising data from core business applications coherently, law firms can better understand their business, leverage real-time data through alerts and dashboards, identify growth opportunities, and reduce risks. These two factors make law firms well-positioned to create and implement a sound data strategy.

In our next article, we will offer examples of large law firms using data strategies to maximum effect and detail key steps for law firms embarking on their data strategy journey. Stay tuned!