24 April 2013

Baseball Stats and Law Firm Performance

I am a huge baseball fan. I have been so since the 80s when the greatness of Don Mattingly tormented me on an annual basis because of his not-so-great Yankees' supporting cast (especially oh those pitchers!). A pennant never materialized for me back then, but through it all, every stat, pitching AND hitting, was etched in my brain. I thought that if I only studied the stats enough, I could show everyone -- even those Mets fans -- that the Yankees (and every player on the team, even third baseman Mike Pagliarulo) was the absolute best at his position in the major leagues. Of course, the stats to which I had access were only those in the newspaper and the backs of trading cards, namely the big ones: ERA, batting average, RBIs. My ground-shaking epiphany on how it all fit together never came. 

Then came Billy Beane. Beane is a former professional baseball player and current front office executive for the Oakland Athletics. Beginning in the mid-90s, Beane began to apply statistical analysis to player evaluations. Beane was the subject of Michael Lewis' 2003 book on baseball economics, Moneyball, which was made into a 2011 film starring Brad Pitt as Beane. Not too shabby.

The essence of Moneyball was an emphasis on the numbers:

The central premise of Moneyball is that the collected wisdom of baseball insiders (including players, managers, coaches, scouts, and the front office) over the past century is subjective and often flawed. Statistics such as stolen bases, runs batted in, and batting average, typically used to gauge players, are relics of a 19th century view of the game and the statistics that were available at the time. The book argues that the Oakland A's' front office took advantage of more analytical gauges of player performance to field a team that could compete successfully against richer competitors in Major League Baseball (MLB). Rigorous statistical analysis had demonstrated that on-base percentage and slugging percentage are better indicators of offensive success, and the A's became convinced that these qualities were cheaper to obtain on the open market than more historically valued qualities such as speed and contact. These observations often flew in the face of conventional baseball wisdom and the beliefs of many baseball scouts and executives.
The publication of Moneyball ultimately led other teams to reconsider how they evaluated players. But as other teams begin mirroring Beane's strategies, especially his emphasis on on-base percentage, the Athletics' advantage not only diminished, but the utility of certain statistical approaches came under criticism.

That was the point made by Tom Verducci in his article for Sports Illustrated today entitled "Virtue, and victory, no longer synonymous with patience at the plate." Says Verducci:
The proliferation of measurables in baseball is helping a generation of hitters turn offense into a passive aggressive pursuit. While batting average rightly has lost much of its inflated value, the flip side is that ubiquitous pitch counts, pitches per plate appearance, walks and on-base percentage are influencing how hitters go about their jobs. 
As Yankees outfielder Vernon Wells told me in spring training, "Everything is measured these days, and players know it. There's so much attention on pitch counts and how many pitches you see. Players are aware of it. . . .
Cubs president Theo Epstein said it best when he observed, "In the information age, things that are precisely measured are rewarded disproportionally relative to impact."
In a nutshell, its not the fact that you are looking at supposedly objective data analyses that will make an ultimate difference. It is the types of data you are looking at that count. And if everyone is looking at the same types of data, no one really has any advantage. In such a scenario, the team with the most money buys what it wants and then appears to be the most successful (see the Yankees since 1999), even if, in the long run, its success is unsustainable.

Now what does all of this have to do with law firm performance?

Well, for the last dozen years, it seems like every legal consultant has been pushing the mantra of specific metrics for measuring law firm profitability and performance, such as leverage, productivity, rates, realization, and expense management. The U.S. News rankings use these metrics to come up with profits per partner (PPP) and revenue per lawyer (RPL), set up as the gold standard to measure and rank the biggest law firms. And the trickle down effect now has small and mid-sized law firms looking for ways to increase leverage and rates and revenues. These metrics are used to measure law firm performance, and ultimately make personnel decisions.

Everyone is therefore looking at the same metrics for the legal profession. And does this make such metrics meaningless? (or, at least less meaningful?) I would posit yes, as today the accepted belief is that for any law firm to have any real advantage, it needs to have the most money so that can spend other law firms into the ground (even if such spending results in its own demisesee, e.g., Dewey). Indeed, in the 00s, the main driver of law firm PPP and RPL growth was the ability of certain law firms to raise billing rates, which required that these law firms have the right client bases to pay those increasing rates. 

We are now seeing what happens when clients push back on those rate increases and highlight how few productivity, leverage, expense management, and realization gains law firms actually have made in the last decade -- all at the expense of other success indicators such as law firm culture, civility, and values. Says Steven Harper, a former partner at Kirkland & Ellis, one of the nation's largest and most prestigious law firms:
[In] "Big Law," where lawyers come and go like free agents in professional sports[, t]he revolving door, he said, is a reflection of the prevailing business model that is too focused on short-term profits and other metrics at the expense of other considerations and values that are not easily measured. The myopic quest for growth has made corporate lawyers wealthier but created more dissatisfaction within megafirms, he said. 
"When an institution becomes the sum of what it measures, it risks valuing only what it measures," Harper said over a recent lunch at the Noyes Street Cafe in Evanston. "Tell me what the metric is for a lawyer's satisfaction with his law firm? What's the metric for collegiality? What's the metric for a shared sense of purpose?" 

Sound familiar? So does Theo Epstein have it right for today's information age? Are the things that are precisely measured rewarded disproportionally relative to impact? Have existing legal industry metrics outlived their usefulness? Is this why we see law firm attorneys with an attitude of "churn that bill, baby!" If not, what explains the hand-wringing in the legal profession? If yes, what metrics could/should replace the ones that have been in fashion for the last decade?

I have some ideas ... . Contact me. I would love to have the conversation.

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