Harvard Business Review has an in-depth look at “big data” this month with a feature by Andrew McAfee and Erik Brynjolfsson, the principle researcher and director of MIT’s Center for Digital Business (subscription required for the full article). The term “big data” refers to the enormous amounts and variety of analytical data now available thanks to technological advancement, and it has been on our radar for some time now. For companies like Amazon, which McAfee and Brynjolfsson describe as having been “born digital,” big data is part of their DNA. Yet many older, traditional businesses, including law firms, are only now encountering the concept and trying to figure out what to do with it. McAfee and Brynjolfsson wanted to study the adoption of big data within companies, and find out whether or not it actually improves performance.
Through a study conducted at the Center for Digital Business and in partnership with McKinsey’s business technology office, the authors conducted interviews with executives at 330 publicly-traded, North American companies. The interview results were coupled with performance data from annual reports and other sources in order to see how corporate attitudes and decisions regarding big data matched up with financial performance.
The results are not necessarily surprising, unless you are a data skeptic:
The more companies characterized themselves as data-driven, the better they performed on objective measures of financial and operational results. In particular, companies in the third of their industry in the use of data-driven decision making were, on average, 5% more productive and 6% more profitable than their competitors. This performance difference remained robust after accounting for the contributions of labor, capital, purchased services, and traditional IT investment. It was statistically significant and economically important and was reflected in measurable increases in stock market valuations.
In short, McAfee and Brynjolfsson found that by measuring performance, companies were better able to manage performance. Airports using big data to obtain more accurate flight arrival times were able to create more reliable schedules, reducing conflicts and delays. Sears Holdings used clusters of data to assess brand performance in order to create promotions that were more effectively timed and targeted. Perhaps more importantly, the study also showed that the use of big data can, in some cases, alter the culture of decision making, by shifting the emphasis away from intuition towards measurable evidence.
Why should any of this matter for law firms? After all, law firms are very different businesses from retailers or airports. What can big data teach a business that is focused on client relationships, not the quarterly sales performance of a particular product? I would argue: a lot.
The first reason law firms need to pay attention to the growth of big data is because law firm clients are already paying attention. As businesses begin embracing, and benefitting from, the use of large data sets, they will become increasingly suspicious of anyone who doesn’t use data in this way. By finding ways to measure their own performance via data, firms can make a stronger case for themselves to current and prospective clients.
But big data offers law firms more than just a sales pitch. It has the potential to improve performance across the board. Imagine if law firms could find a way to better measure the performance of lawyers, in order to make better decisions when it came to staffing cases and deals or promotions to partnership.
Big data also has the potential to help solve one of the more persistent problems law firms are currently facing – rising expenses. If law firms could measure the impact of expenditures on performance, they could make smarter choices about the money they spend on offices, travel, new hires and a myriad of other line items.
This is not to say that big data is a panacea for everything that ails law firms. As McAfee’s and Brynjolfsson’s findings help illustrate, data alone does not improve performance. Strong leadership and smart decision making are essential to implementing any useful change. Big data is simply information, not profits in a bottle. But in this increasingly competitive landscape, more (and better) information is almost as valuable.
Posted by Emily Fisher