by Ken Lopez
Founder & CEO
These are times of economic uncertainty - or are they?
I believe that litigation support consultants and lawyers, especially leaders of medium and large law firms, can use a simple economic forecasting tool to better plan staffing and business needs. If you use this tool, you will likely know when business is going to turn up, and when it is going to turn down, well before most of your peers.
Steve Jobs, my business idol, famously quoted hockey player Wayne Gretzky when he said, "I skate to where the puck is going to be, not where it has been." Obviously, Apple has done that better than any other firm in the world.
But if you are running a practice group or even a global law firm, how do you know where the puck is going to be, in a time when everyone seems to be asking fundamental questions about the billable hour, lockstep compensation and the use of associates on big cases? Part of the answer lies in accurate business forecasting.
I earned an economics degree before law school, and ultimately that passion was part of the reason I founded A2L Consulting 17 years ago. While I love the litigation consulting work that we do, as it is an honor to work side by side with the best in the legal industry on a daily basis, I also love business. To win at business, you have to know something about predicting the future.
Managing partners and executive committee members at large law firms rely on excellent legal industry analyses such as those from Hildebrandt and Citi's Law Watch. This recent article in the AmLaw Daily quoting the team at Citi does a great job of summing up current economic conditions.
As great as these tools are, answering the simple question of whether business is going to get better or worse is difficult for most - principally because there is just too much data and too many variables to consider.
So, what if I told you there is a free and easy-to-use tool that both law firm managers and litigation support consultants could use to accurately predict economic conditions six to nine months from now? When I say accurate, I mean it. The Economic Cycle Research Institute is widely considered one of the best economic forecasting groups in the world. The tool that I am encouraging you to use is their Weekly Leading Index of economic growth rates.
I use this tool weekly and find it so valuable because of the nature of our business - which happens to be highly correlated to broader economic conditions.
While A2L serves law firms and cases of all sizes, the majority of our work involves consulting with the top litigators at the top law firms with their top clients. For the most part, these clients are Fortune 500 companies. And, are you ready for this shocking statistic? Fortune 500 revenues make up about 73% of the total economy!
Thus, if you know where the economy is headed, you know where Fortune 500s are generally headed, and if your business is closely tied to Fortune 500 performance (like, for example, a large law firm), you can look at ECRI's Weekly Leading Index of economic growth rates to know where your business is headed.
Let's take a look at ECRI's free chart covering one year of data to understand how it works. If you happen to be looking at this article well after the publication date, click on the chart and you'll be taken to the page with the most current version from ECRI.
The green line is the prediction tool (a leading indicator) that you want to focus on if you plan to watch this in the future. It tells us that for the date shown at the bottom, economic growth will be some degree of positive (above zero) or negative (below zero) six to nine months in the future. The further from zero, the more significant the growth or contraction.
The blue line shows what actually happened for the date shown. This is called a coincident indicator. So, looking at the blue line, as the Citi report suggests and as my managing partner friends confirm, most large law firms have experienced a mild downturn beginning in April of this year.
Turning back to the green line, where the real magic happens, this leading indicator suggests that beginning 6-9 months from July 2012, we will see a distinct upturn in economic growth. So, whether that is January or March, it turns out that 2013 is really looking up for the broader economy - regardless of who is elected in a few weeks.
To put this mini-upturn in perspective, take a look a much longer time period to understand whether this will feel like a significant upturn.
If you squint at the green line, you can see this growth upturn at the far right of the chart and compare it to other upturns since 1975. So, I can't say how sustained it will be or how high it will go yet. However, there is a strong and noticeable trend here that suggests brighter business conditions for law firms and litigation support consultants alike.
How does all this work, and how can you trust this information? Well, I suggest you read ECRI's very compelling and unusually accessible book, Beating the Business Cycle, that describes how hundreds of economic statistics are combined into one composite leading indicator. If future economic conditions are important for you to know about, I promise you'll love this book.
Other valuable information for litigation support consultants and litigators from A2L:
- Download one of our free litigation e-books
- Hiring a courtroom litigation support consultant - here's how
- Are you a litigation support consultant, grab this free e-book
- Claim a free subscription to our blog, you might win an iPad
- Do you lead litigation teams, read this
- Have a look at Hildebrandt's great blog on legal trends