The Real Wealth of Law Firms

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“Its time we stop confusing the practice of moving money around with generating real wealth”
 (Florida, R, 1997, The Great Reset, 1st ed.,HarperCollins, NY)

By: Erika M. Negrin

What images come to mind when you think about wealth? Gold bars, paper currency, a big house?  Indeed, many modern authors, thinkers, pundits and other industry experts have written abundantly to challenge these common perceptions of wealth. Consider the following from an article that was posted in The Economist back in 2009:
“At the heart of the current crisis is a fundamental confusion about the nature of wealth. Think about it from the perspective of a Martian. Were an extraterrestrial to be shown a room full of gold ingots, a stack of twenty-dollar bills or a row of numbers on a computer screen, he might be puzzled as to their function. Our reverence for these objects might seem as bizarre to him as the behavior of the male bowerbird (which decorates its nest with shiny objects to attract a mate) seems to us.
Wealth consists of the goods and products we wish to consume or of things (factories, machinery, an educated workforce) that give us the ability to produce more such goods and services. Financial assets arise from the desire to postpone consumption so that money can be saved, either for precautionary reasons or to invest so that more goods and services can be consumed in the future. Looked at in that way, financial assets are not “wealth” but a claim on real wealth.”    (Buttonwood, 2009, The Nature of Wealth, The Economist Newspaper Limited)
There are many different paths we could pursue at this juncture to analyze the above statement. We can examine the illusion of fractional banking and the Federal Reserve. We can apply it to the Great Recession and the housing market. We can apply it to generational views on wealth and how the Baby Boomer’s perspective is so vastly different from that of Generations X and Y. However, let us frame it by considering what the real wealth of professional service firms is. There is only one answer to that-their people! In fact, Peter F. Drucker (writer, professor, management consultant) recognizes this and has been proposing for years that the future belongs to “knowledge workers”. (Drucker P.F., Management Challenges for the 21st Century, 1999, Butterworth-Heinemann, Oxford)
This plays right into competitive advantage. Competitive advantage will increasingly depend on intangibles such as knowledge and expertise rather than tangibles such as plants and equipment. So if that is the case, then firms need to take greater care of their people. That is, “the people you pay are more important over time than the people who pay you”. (Lorsch, JW, & Tierney, TJ, 2002, Aligning the Stars: How to Succeed When Professionals Drive Results Harvard Business Review Press, Boston). “Stars” are what give a firm its competitive advantage. Without these harbingers of knowledge and talent, a firm will not have any clients. No clients- no work- no firm; it is that simple.
What are professional service firms doing to attract and retain the very best talent available? This should be an ongoing priority and not something that is addressed during hiring peaks or visits to universities. The people who comprise a firm are ultimately responsible for perpetuating the very brand of the firm; its reputation and thus its ability to attract clients. Therefore, careful consideration should be given to mentoring within firms; the tendency to consider mentoring as a side-project and not the “real work” of the firm should be avoided at all costs. This is especially true now, as sources of talent are global; there are no borders within the Internet and there is nothing hindering talented people from all over the world from researching and seeking out opportunities at top level firms.
Perhaps some professional service firms may take the stance that talented individuals will simply come their way because of the firm’s long-standing reputation, thus they may tend to be reactive rather than proactive. However, not all of the individuals in the available pool of talent will be aligned with the firm’s strategy, ideals and culture. To select the best-suited professionals who match the firm’s normative environment, the firm will have to expend time, money and administrative resources to seek out those who are most likely to continue the firm’s success far into the future. Consider what Lorsch and Tierney say about talented professionals:
“The general marketability of professionals further skews the balance of power in their favor. These are highly educated and mobile individuals. They can switch firms or decide to hang out their own shingles. The nature of their work builds a strong network of personal contacts, including clients who may be interested in recruiting them. As any successful firm well knows, you can never take these people for granted.” (Lorsch, JW, & Tierney, TJ, 2002, Aligning the Stars: How to Succeed When Professionals Drive Results Harvard Business Review Press, Boston).
Of course, the flight risk of stars is an ongoing issue. A company can spend valuable time and money to train these individuals, only to have them leave after a short period of time. The high risk/high return on the investment of these coveted individuals is difficult to circumvent. However, there are proactive measures that a firm can take to increase the retention rate of stars. For example, rather than waiting for an exit interview to try and ascertain what motivated a key individual to leave, why not try periodic interviews throughout the course of their employment to find out what is working for them and what is not? This way, issues that arise can be addressed before they reach a level which results in losing a key individual. Also, consider ongoing education and professional development (both important to stars). Firms that sponsor seminars, webinars, and newsletters can remain attractive to their top talent while simultaneously marketing their brand to other businesses and networking with them.

BIG DATA IN LAW FIRMS

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By Nestor Holynskyj

The world of IT is blessed (cursed?) with innovation and every year yields another hot technology that generates buzz for IT departments, technology media, tech geeks, and, ultimately, business users.  So, with discussions about “the cloud” and BYOD (bring your own device) still fresh in everyone’s mind, “big data” and the technology to mine it have emerged as the topics de jure.  And apparently none too soon.  According to Eric Schmidt: “Every two days now we create asmuch information as we did from the dawn of civilization up until 2003”.  And that was a quote from 2010.  And many industries are finding themselves with petabytes of data that they would like to turn into useful information that can improve many aspects of their business.  Law firms are not immune to this phenomenon but as much as the lawyers may feel often overwhelmed by the amount of information at their disposal, in truth, the numbers created by corporate entities dwarfs the volume of data generated even by the largest firms.  Consequently, the highly sophisticated and expensive tools needed to manage and manipulate the structured big data stores of these behemoths aren’t needed for the average law firm.  However, the processes and objectives of the big data leaders are of immeasurable value and here is where the attention of the law firm CIO should be focused.

Typically the largest concentration of data in a law firm based on sheer storage requirements tends to be in its litigation support area.  But the information captured there is case related and an entire generation of mining tools specific to this purpose has emerged through the e-discovery industry.  The “big data-like” challenges for law firms is to mine the multiple silos of apparently unrelated data scattered throughout the organization that when viewed with appropriate prisms can yield new strategies in pursuing new clients, optimizing operations, creating new lines of business, identifying new recruits, improving marketing campaigns, etc.  At the same time, there are numerous third-party services who indeed have “big data” sized information banks that can provide invaluable information to complement the internal analyze. And while law firms are looking at these data sources to identify new business opportunities, they should be very aware that their clients are studying these same data streams for information on to how select and/or manage their outside counsel!

So while “big data” may seem like a great opportunity to dabble in something new and exciting, the truly business-minded CIO will always remember that the more prudent sequence of events is: people, process, and then — technology!

 

 

 

Data Quality Council: Distributed Responsibility, Collective Reward

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By Lynn K. Oser

We have all entered the world of Big Data, seeing the value of bringing together volumes of internal and external information to paint pictures of our markets, our clients, and our businesses. Effectiveness of the information making up the Big Data universe is dependent upon quality data that is managed over time. The key to the management of internal data is shared responsibility. Formation of a Data Quality Council distributes both ownership and understanding of potential uses of the data.

Often when installing and configuring a new system to manage information, a small project team of business owners and information technology implementers leads the way. The team focuses on the immediate needs of the business owner group, rarely considering the value of the information as part of the Big Data picture within the organization. The team makes decisions regarding fielding, pick-lists, and data imports without necessarily considering integration with other systems or of the possible uses of the data beyond their original intent. This results in siloed systems that often require interpretation from an expert in the business unit that owns the data.

Creation of a Data Quality Council, comprised of business unit subject matter experts, brings order to data and positions it for use by the business as a whole. Representatives gain a voice in the collection, use, and re-use of data within systems and can identify integrations that would otherwise be missed. They also have the opportunity to take ownership of data, taking responsibility for data quality and harmonization of data across systems.

Shared ownership of data via establishment of a Data Quality Council enables a collective understanding of the organizations major data repositories and sets the stage for expanded use of Big Data in all aspects of business.

Conference Book – IM Evolution 2013

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imevolutionpdfOur first annual Information Management Evolution Conference has completed, and access to the 2013 Information Management Evolution Conference book is now available including:

  • Presentations from the sessions
  • Checklists
  • Best practices
  • Immediate opportunities for improvement
  • Reference materials to support getting started on the future of information management.

For those of you who were unable to attend, also consider reviewing the conference twitter feed which includes the conference “live tweets” from Jeffrey Brandt as well as photos and insights from other attendees throughout the day.

I really enjoyed Integrated Management Services’s First Annual Information Management
Evolution conference. If you couldn’t attend you missed some great conversation in-between and after
the excellent presentations.  […]  You should plan to attend next year’s Evolution.”
- Jeffrey Brandt

If you would like to view the materials for a single session, please use the links below:

2013 Sponsors:

Mitigating Economic Risk

Posted ago by Gillian Neer

Over the past 5-10 years the legal industry, especially in the U.S., has seen a 3-5% decrease in revenue on a regular recurring basis. When revenues do pick up, collection rates are still decreasing.*

*Note the chart to the right here: this is the 2013 Report on the State of the Legal Market from Georgetown Law.

Despite the fact that this ACTUAL risk is regularly occurring, rather than proactively investing in mitigation strategies the way we do for Business Continuity Plans and Disaster Recovery, law firms largely seem to take a reactive approach such as investing more in business development or after-the-fact project management training. We can chalk this up to Risk Bias:

Work that we used to charge hourly for — is increasingly becoming automated, and more difficult to bill at standard rates.

  • Clients are either pushing back, bringing work in house, or simply going to a lower-cost provider.
  • Legal outsourcing companies have popped up all over the United States, China, and India to name a few.
  • Decision Support, Workflow, and Document Automation technologies are decreasing the cost of services without sacrificing quality – and in some cases improving quality through the regular application of standards.

So how do you prepare an economic risk mitigation plan in the face of these challenges?

To boil it down to the main components:

  1. Understand your options for entering new markets — either different industries, different types of work, or how to provide existing services at different price points
  2. Evaluate the process and technology options your firm would require to enter that market
  3. Put a “failover” plan in place — so that the technology and key stakeholders are prepared in the event that your firm needs to esecute on this contingency plan.

Examples of Economic Risk Mitigation initiatives can include Automated Document Review & Assembly Tools, Intelligent E-Discovery, Workflow Standardization Tools, and more!

Build Your Collaboration Model

Posted ago by admin

New technologies over the past decade have allowed firms to develop vast global networks, with hundreds of offices, thousands of employees, and complex system needs. Collaboration within these networks has risen in priority and the needs of the industry have created even newer technologies – ones focused specifically on legal collaboration.

The reverse is true as well: the increase in collaboration tools in the legal world has, in turn, prompted law firms to begin reevaluating the way they consume (and produce) information. Tools for document collaboration, workspace collaboration, and information rights management are highly efficient at automated tracking, reporting, and streamlining the massive volume of information generated by the legal industry.

Incidentally, the legal industry is notoriously not one typically aligned with values of collaboration and cooperation – let alone cross-departmental coordination. Perhaps we have the efficiency of these legal collaboration tools to thank for the slow (but sure!) cultural changes that law firms are beginning to observe internally. What is important to note, however, is that new technologies depend very much on their firms’ business practices supporting and encouraging collaboration.

In their post, David Bilinsky and Garry J. Wise take a look at the importance of collaboration in a law firm environment and caution inaction. They note:

“There is no doubt that the world is changing to more of a collaborative model.
We are facing the fact that we have to change or the world will change without us.”

John Chambers  Cisco CEO and Chairman, perhaps said it best:

“I believe that companies and leaders who do not change will be left behind. And so I had to move from being a command and control leader. You have to learn that you make better decisions through collaboration.”

Bilinksy and Wise approach the successes to be achieved in adopting a collaborative model and outline some steps to take towards creating such a model; to integrate collaboration into law firm business practices (and to move away from “just talking about collaboration”). A summary of their outlined steps to follows this methodology:

  • Start with compliance: everyone on the team complies with the need to do something, but there is very little discussion or coordination between the team members.
  • Next is cooperation: now everyone is still drawing their own plans, but at least now they are sharing what they are doing with the group. But the overall characterization is still on individual action.
  • Lastly is true collaboration: here all the team members not only share their plans but they brainstorm together on generating new ideas of how to achieve the joint goals that transcend individual action.  And by working together, they can achieve outstanding results.

Wise champions “centering collaborative discussions around specific, individual tasks and focusing on how processes utilized to perform them can be streamlined, regularized, and optimized.”

The greatest insight in Bilinsky and Wise’s article is in their identifying that true collaboration requires lawyers and legal professionals to “move beyond their inherent training” in how to be a skilled adversary. The legal world has a bigger hurdle than most to overcome to turn itself into an environment of collaborators. But, Bilinsky and Wise’s vision for a legal world, in which collaboration brings about synergy and creativity, is truly inspiring. The legal industry’s focus is shifting to collaboration tools and cross-departmental interaction, making the environment ripe for cultural (and process) change. Now, more than ever before, strength in the collaborative business model and opportunity in the emerging collaborative tools – when championed with confidence and determination – could lead law firms to that promising future of collaborative creativity sooner than they imagine.

Information & Collaboration

Posted ago by Gillian Neer

“How do we make information actionable?” The information management landscape is changing; new technologies and capabilities are fostering a growing opportunity for information professionals to contribute more directly and significantly to the success of their firms through:

  • Increased inter-departmental collaboration
  • Taking on greater strategic roles
  • Identifying opportunities to create competitive advantage
  • Making information more real-time and accessible

In response to these changes, various organizations have begun putting together new models for the career paths and characteristics for successful information professionals. Let’s take the position of CIO for example:

  1. The CIO Executive Council has released:
    1. A Future-State CIO Journey model including competencies and value delivery moving from functional to business strategy roles;
    2. A Leadership Competencies Journey for IT department roles discussing the transitions from reactive, to active, to proactive responses to business needs.
  2. The Enterprise CIO Forum released an infographic in 2012 including interesting pieces o information such as:
    1. That BUSINESS results and BUSINESS knowledge ranked far above IT knowledge and IT relationships as sources of CIO success.
    2. The top 6% of CIOs spend their time almost evenly between IT related items and business related items.
    3. Check out the full infographic here.

For more information on the changing legal information landscape, please consider attending the upcoming Information Management Evolution conference on April 25th in NYC. Register here.

Information Evolution – April 25th

Posted ago by Lynn Oser

This one-day conference brings together legal information professionals from Research Services, Knowledge Management, Marketing, Information Technology, and Administrative Management to focus on the practical application of emerging information technologies, processes, and practices through case studies, industry overviews, and first-hand success stories.

Join us for an innovative new conference designed to help you make immediate practical improvements based on what is working today. The conference will provide you with the checklists, best practices, immediate opportunities, and reference materials to support getting started in the future of information management.

Our first Annual Information Management Evolution Conference will be held Thursday, April 25, 2013 at Convene (formerly Sentry Centers – 810 Seventh Ave) in New York City, 8:30 AM until 4:30 PM.

***REGISTER NOW To Avoid The Waiting List***

Why Attend?

The evolution of information management (systems, technologies, processes, practices) is driving demand for greater collaboration between all areas within a law firm – come be part of the discussion.

Hear What Works: Learn what your peers are doing.  How they are collaborating and identifying opportunities to up their games?  Hear success stories outlining what’s working and why.

Learn how to get started: Change in law firms is incremental – based upon precedent, competitive advantage, and proven practice. Speakers have been asked to focus on immediate opportunities and success stories; on what can be achieved with the resources you already have.

Participate in the Discussion: Panelists will be available to elaborate upon their programs between sessions, during lunch and After the Evolution to hear your perspectives on the topics at the forefront evolving information management.

Evolve: Take the perspectives, case studies, and conference materials (checklists, best practices, case studies, and reference materials) back to your firms and turn them into your own Strategic Information Evolution successes.

What sets us apart?

We often hear from our colleagues that conferences miss the mark in providing real world experience or provoking thoughts that lead to change. They don’t want to hear about “the problem” they want solutions. Solutions that have been proven, are innovative and collaborative, and that will guide them to improving their own organizations and the services they provide. The Information Management Evolution team, as a result, is striving to provide a alternative experience:

  • We are looking to set a positive tone:  Show what works not what doesn’t.
  • We are sharing practical applications: Identify immediate opportunities for success
  • We are looking toward the future:  What are the benefits today, tomorrow and years from now.
  • We are paving the way toward collaboration:  How can groups work together to provide complete answers.

Please join us for a conference that aims to change the way information professionals think, share and walk the strategic path of Evolution.

Conference Differentiators
Positive Tone Speakers were provided with overarching conference themes and guidelines including and specific requests for maintaining a positive tone of how to become empowered within the legal environment despite challenges.
Practical Application Content guidelines were provided to speakers and they were asked to focus on immediate opportunities, success factors, and starting points — through the use of case studies, review of immediate opportunities, and starting points/checklists.
Forward Perspective Sessions will include (along with current and future opportunities) discussion around leading and lagging indicators, so that the projects you select will breed the greatest benefit over their lifecycle.
Support Getting Started Conference materials will include checklists, best practices, specific opportunities for getting started, case studies, and reference materials to support you getting started.
Collaborative Discussion Sessions will represent information professionals from all areas to provide a full picture of how information becomes actionable within different firm environments. Experience collaborative discussion from our: Executive, CIO, Research Services, and Consultant panels.

***Register Now to Avoid the Waiting List***
For the full Agenda and Speaker Information Click Here.

 

Sponsors and Membership Discounts:

    • Silver Sponsor: Friedman Williams Group is a premier full-service professional staffing firm with over decade of experience bringing together, motivated and highly qualified employees with top local and national businesses. Our comprehensive understanding of the industries we serve allows us to create successful employment relationships. Friedman Williams Group offers temporary staffing, temporary to permanent hiring, permanent placement, freelance, contract staffing, consulting, project staffing, executive search and payrolling services. Our comprehensive industry and product knowledge have enabled us to meet our clients’ unique staffing requirements and assist them in accomplishing their immediate and long-term personnel needs.
      Contact: Jonathan Friedman, Managing Director, jfriedman@friedmanwilliams.com
      Michael Greenstein, Senior Account Manager, mgreenstein@friedmanwilliams.com
      www.friedmanwilliams.com
    • Silver Sponsor: KMStandards is ground-breaking technology delivering the first-and-only contract analysis software. At KMS, we’ve brought innovative search engine analyses to the field of transactional practice. Imagine having access to the input and experience of thousands. With KMS software, at just the push of a button you can enhance document quality by comparing your contracts to similar contracts in your files or against our library. What once took hours — creating and maintaining reference standards, model forms, and automated forms – now takes just minutes. The result? Substantially-reduced attorney time translating into significant cost savings. With a few of your benchmark documents in hand, we’ll have you working with templates in a matter of
      days.
      Contact: Kingsley Martin, President & CEO, kingsley.martin@kmstandards.com
      Ellen Zavian, COO & General Counsel, ellen.zavian@kmstandards.com
      www.kmstandards.com
    • Membership Discount: ILTA (International Legal Technology Association).
    • For over three decades, the International Legal Technology Association has led the way in sharing knowledge and experience for those faced with challenges in their firms and legal departments. Through delivery of educational content and peer-networking opportunities, we provide members information resources in order to make technology work for the legal profession.
      www.iltanet.org

Ten Things I’d Do Differently As A Law Firm CEO

Posted ago by Timothy B. Corcoran

There are many good reasons for law firms to adopt business practices from other industry segments.  As has been made abundantly clear, the laws of economics apply equally to law firms as to other businesses.  Faced with declining demand and an oversupply of providers, law firms are experiencing unprecedented downward price pressure and clients are aggressively seeking substitutes.  Law firm leaders who have reduced overhead to maintain profit margins have learned that this approach falters when adverse economic conditions persist.  Many law firm leaders now struggle with what to do next to survive.  Alternative fee arrangements are still considered necessary evils, rarely embraced but reluctantly accepted upon client demands.  Growing top line revenue through lateral recruiting remains a risky proposition because there is no guarantee a lawyer’s clients are as portable as the lawyer.  Too, a lesson most of us learned as teens applies to lateral love affairs:  the pretty girl too popular to commit to one guy is, statistically speaking, unlikely to stay with you for very long either.  Lawyers, not unlike their forbears in other industries facing massive upheaval, tend to do more of what they know rather than proactively seek change, and as a result simple techniques to improve client satisfaction and retention — efforts that in other industries are generally called “sales” — are discarded as unseemly or unnecessary for educated professionals to take on.

Law firms are not mere factories, churning out countless replicas of a popular product.  Nor are they think tanks focused on producing thought leadership for academics to ponder.  But law firms are somewhere on that continuum, subject to market forces, facing changing client needs, price pressure from entrenched competitors and constant innovation from new entrants.  Few law firm leaders have sufficient experience to navigate this maze.  But there is hope.  Unlike the leaders of, say, print encyclopedias, whose business model was disrupted by the unprecedented speed and force of the Internet, law firm leaders have plenty of corollary lessons to draw on to chart a course from fear to prosperity.  To be clear, I don’t believe a law firm should be run primarily as a business.  I’ve been a CEO of a publicly-traded company and I climbed the corporate ladder in divisions of private and public multi-national corporations and there is a common thread:  the business school maxim that earning a profit is the primary goal is interpreted primarily as a toxic quest for short-term profits above all else, including the long-term health of the business, typically because executive incentive plans are pegged to short-term profit measures.  A law firm can generate a healthy profit, which is not a shameful goal, while simultaneously improving client satisfaction and work product quality, and building a sustainable culture for the long haul.  But how?

Here are ten ideas drawn from my own corporate experience that law firm leaders can embrace to improve the fortunes of their firms.

Change the governance model.  Let’s first dispense with the arcane notion that a partnership is an effective or efficient management structure.  Notwithstanding any potential tax or liability benefits of the business form, it is ridiculous to believe that all partners should have an equal say in the operations of the business, particularly after an organization reaches a certain size.  Nor is a dictatorship acceptable, even when led by a benevolent leader, because such organizations lack sustainable business processes and falter when the leader inevitably departs. Identify a core leadership team at the firm and practice group level and give them the authority to lead.  Stop allowing the blowhard down the hall to substitute his childish behavior for sound business practices.  Stop crowd-sourcing important decisions.  Speed up the decision process by eliminating needless voices.  Let the lawyers practice law and the leaders lead.

Productize the offerings. Every law firm has products, we just choose the collective delusion that legal services are unique and non-repeatable actions.  Sure, some matters require unique tasks, but every legal matter includes tasks that have been done before, usually many times before.  Figure out which products — or service offerings if you will — the firm produces profitably and effectively and commit these to a repeatable series of actions.  Repeatability leads to improved profitability and improved quality by reducing variability.  And yes, there will still be plenty of unique matters that only highly-trained and creative minds can tackle.  If you can find a matter or task that’s so unique that it’s never been done before, bill for it by the hour.  Otherwise…

Embrace strategic pricing.  Here’s a revelation: clients will care less about the mechanics of your invoice, whether you bill by the hour, by the word or offer flat fees based on astrology charts, so long as the value delivered is commensurate with the price paid.  Strategic PricingThe practice of issuing invoices with “services rendered” didn’t die because clients grew smarter; it died because law firms grew stupider and adopted billing practices with perverse incentives.  The idea that a law firm might not need a fax machine if not for client demand, and therefore we charged $1 per page sent or received until the fax machine earned in excess of 100,000 times its cost was idiotic.  Thankfully, we learned the lesson and today don’t charge per email.  Or view legal research as a profit center… wait, what?   Learn what it costs the firm to produce and deliver its legal services.  Accept that there’s no “perfect” way to allocate overhead.  Determine the differential value your firm offers against the competition, if any.  Determine the client’s perceived value, if any.  Establish a price that covers your costs, delivers value and generates a profit.  If you can’t figure this out, hire a new finance team. If you can’t find a profitable price, focus on lowering your cost of delivery, not just your overhead. Or accept that the client may not place the same value on the offering that you do and find something else to offer that has greater value.

Reduce inefficiencies.  Law firms carry extraordinarily wasteful overhead.  If you want fine art in your Italian granite-tiled restroom, go for it.  If you want to sponsor every 5k run or splash your logo on every cocktail napkin offered and pretend it’s a wise marketing investment, go for it.  But say no to the partner who demands his own graphic designer and high-capacity printing operation on the off chance he might leave a key proposal to the last second and need to run an after-hours-all-hands-on-deck fire drill to generate a boilerplate RFP response.  Stop running the same conflict checks on the same conflicted prospects, or their subsidiaries, by investing in a data cleanup operation, adding in corporate trees and linking your CRM system to your billing system and the conflicts database.  Improve your RFP win rate by requiring the lawyers adhere to best practices, instead of repeating the same mistakes.  Look at every single process in the firm’s back office and find ways to eliminate redundant and wasteful steps.  Don’t know how? Hire a firm that specializes in business process improvement (BPI) to do it for you, or to train you to do it.  Or hire a business process outsourcing firm (BPO) and let someone else manage your accounts payable function. On second thought, cease the silly sponsorships unless you secure a substantive speaking role and categorize the 5k run as a charitable donation or brand building exercise, not a business development activity.

Reduce the cost of goods sold.  The way to productize your offerings is to embrace legal project management and process improvement.  The techniques used to identify and reduce inefficiencies in the back office can be effectively applied to a legal practice.  When faced with flat or declining revenues, the sustainable way to maintain or grow profits and to defend against predatory competitors is to reduce costs at a faster rate.  If you’ve advised 100 clients on over 1,000 class action defense lawsuits, what are the specific factors correlated with defeating class certification?  If you’ve filed 500 appeals with the state’s regulatory authority, what are the specific steps correlated with success?  Whether in litigation or transactions, there are repeatable steps on thecritical path to success and excess steps that may be deemed helpful or necessary by risk-averse lawyers, but are not statistically relevant to risk-taking clients.  If all tasks in all matters are of high value to the client, then your realization rates would approach 100%.  If your realization rate is lower than 95% (or closer to the new normal of 85%) then by definition you are billing for steps that are either unnecessary or that the client deems unnecessary.  Learn how to talk to clients about budgets on every single matter — how can you possibly employ strategic pricing otherwise?  Undergo a rigorous examination of your processes and develop project plans that reflect successful and profitable approaches.

Invest in knowledge management.  Back in the day, knowledge management (KM) meant writing summaries of notable briefs and memoranda and indexing and filing them away in a database for later retrieval in order to save time, which combined a task that no one liked with a result that no one wanted.  KM should be synonymous with a learning curve, or the economic principle that what we’ve done multiple times we can do more efficiently.  If your pricing analysis tells you the maximum market appetite for service X is $5,000,  then find ways to produce and deliver service X for far less than $5,000, relying on past experience to inform the process.  Poor leaders believe KM is a technology problem and will invest millions in tools that the lawyers happily ignore, but wise leaders recognize this as primarily a cultural problem.  Also, if you’re lamenting the decline of associate training fully funded by clients, you’ll be pleased to learn that a KM culture both accelerates and improves associate education.

Don’t guess.  Forecast.  In countless practice group retreats I hear the same goal: “We’ll grow the practice by 20% next year.”  Yet inevitably there is little rigor applied to the target, let alone how to achieve it.  Businesses thrive on certainty and generally value repeatable revenue streams over one-time transactions, and corporate budgeting is a never-ending exercise to identify revenues and expenses.  No business can operate without a clear sense of its working capital, cash flow and resource needs.  Yet most law firms employ lagging indicators such as profits per partner to determine fiscal health.  That’s like driving a car until the gas tank is empty to determine the gas tank’s capacity, which is then retroactively applied to the prior day’s agenda to see if we should have refilled the tank before embarking upon a series of errands or perhaps scheduled fewer errands.  Create and maintain a sales pipeline, applying simple methods to target the right prospects and predict not only future engagements but the resources needed, the likely cash flow and potential profits. Implement zero-based expense budgets and hold everyone accountable.  Measure the ROI of marketing investments, and not just the ad campaign but identify the partners whose entire “marketing” spend consists of taking the same clients or law school pals to sporting events with no discernible incremental business resulting from the expense.  Not sure how?  Select a client, any client, and ask them to walk you through their revenue and expense forecasting process.  But buckle in first, as it will be quite a jolt.

Measure client satisfaction constantly. There are many ways to do this.  Hire a consultant; send your managing partner on the road; ask your CMO to conduct interviews; conduct an annual satisfaction survey; conduct an end-of-matter survey after every matter.  Whatever you do and however you do it, study it, sustain it, and act on it.  Most law firms are “too busy” to systematically gather client feedback, naively believing good legal work speaks for itself.  Many who claim to care sit on findings that are too challenging to address, e.g., toxic rainmakers, institutional overbilling, etc.  Even those who measure client satisfaction effectively well tend to do so at too-infrequent intervals.  Take a cue from DisneyRitz Carlton, even the local hairdresser — know why clients hire you, know why they don’t hire you, know why (and when!) they fire you, know what you do well and what you can improve.  Know these explicitly and implement programs specifically designed to improve performance.

Compensate for retention and profit.  Partner compensation is often described as the third-rail of law firm management.  We can talk all day long about changing the law firm model and improving client satisfaction, but nothing changes unless the partners are compensated for doing so.  Sadly, lawyers often must choose between personal wealth and client satisfaction.  Hogwash.  Partners will obviously act in their own self-interest when there is no alterntative. So let’s give them some alternatives that tie improved compensation to improved client satisfaction.  Long-term client value always trumps short-term transactional profit. Huh? Said differently, satisfied clients will generate higher profits over a longer period by lowering the cost of sales (retaining existing clients is always less costly than acquiring new clients), because of a reduced learning curve (see above), because of steady utilization and because many-to-many relationships between firms and clients magnify these benefits.  Contrast this with over-billing a client on a single matter, generating short-term billable hours and high profit, but resulting in client defection and constant utilization peaks and valleys.  Huzzah, the partner hit her billable hours target… but was doing so good for the law firm?  Businesses deal with these compensation conundrums every day.  Do we reward the high-volume hunter salespeople who bring in the most new clients but also the most unhappy clients (because of a poor fit) and who require the highest commissions?  Or do we reward the farmers who nurture key clients over time but generate less incremental revenue?  Do we compensate more for selling high-margin products, often because there is little competition, or do we compensate more for selling low-margin high-potential products, because gaining market share is more critical?  Do we compensate for profits, even though salespeople have little influence on the cost of goods sold?  It may seem complex but relatively simple calculations can help us identify the optimal approach.  At present law firms tend to maximize one factor, originated hours.  By tweaking the formula, leaders can better recognize and reward lawyers who contribute at different points in the process.

Require leadership and management training.  There are terms and concepts above that may be unfamiliar to law firm leaders.  Indeed, many successful business leaders have strengths in some areas but not in others.  It doesn’t require an MBA to lead a successful business, but it helps to be consciously competent.  In other words, know why you’re successful and how to repeat it.  Many law firms and their leaders have been unconsciously competent for a long time — successful, to be sure, but no one is quite sure why.  We believed it was because we were good lawyers offering necessary services at a fair, albeit supremely profitable, price.  But as it turns out, years of unlimited demand for legal services may have been more of a factor than our own efforts — and when that demand disappeared, our best efforts failed.  I sat in a law firm executive committee meeting recently where the partners struggled to understand to the nuances of corporate finance so they could better manage the inherent risk of alternative fees.  They were stunned to learn that others could understand, even explain, their law firm business model quite clearly.  They were more stunned to learn that by treating non-hourly fees as a risk to be minimized, they had eschewed significant profits on several sizable matters.  Your own mileage may vary.  But you don’t have to do it on your own.  There are educated people who are willing to teach law firm leaders these techniques, and there are many who are eager to join firms to demonstrate from the inside. Stop treating the law firm leadership track as a hobby.  Stop hiring experienced administrators whose primary asset is not rocking the boat.  Cast aside, or at least gently nudge, the unqualified or uninterested from the corner office and replace them with committed leaders — at the firm-wide and practice group level — who have or will learn new skills and who will employ experts to advise them along the way.

Contrary to what you may have heard, the law firm model isn’t dead.  Nor is law firm growth.  But law firms and law firm leaders stubbornly adhering to outdated models are gasping for their last breath.  The modern law firm can thrive, but not if we pretend it’s still 2007.  Or 1995.  Or 1975.  The future is now.  You can’t do nothing.  Are you ready to lead?

Timothy B. Corcoran delivers keynote presentations and conducts workshops to help lawyers, in-house counsel and legal service providers profit in a time of great change.  To inquire about his services, send an email to tcorcoran@integratedmgt.com or contact him via phone at 1 (609) 557-7311 .

Management Metrics–Strangers to Law Firms

Posted ago by Nestor Holynskyj

The ups and downs economic cycles are a fact of life and, for many years, it seemed like law firms were fairly immune to their negative consequences. During an economic downturn, there would be a slight adjustment of rates or similar concessions to clients but once an uptick appeared on the horizon, it was business as usual and annual rate increases would return like clockwork. However, the past five years have presented a different scenario and law firms are feeling the same pressures as their corporate clients to manage costs while delivering the same level and quality of service. As a result, many law firms are looking to the operating models of their clients to borrow practices and even skills through the hiring of COO’s from the ranks of corporate America rather than other law firms.

An area where businesses outshine law firms is in the area of information management. While law firms have traditionally spent much time and money on providing information tools and services to augment the work product of the practice areas, management of the information has revolved around controlling the costs associated with external information service providers. The Knowledge Management teams and their cousins (Marketing, Research Services, etc.) have attempted to organize and deliver the intellectual capital of the firm through a variety of home grown and purchased products. Capturing and analyzing information that is needed to better manage the operation of the firm has received nominal attention compared to the critical nature of such information in the business sector.

A key distinction in how many (not all) law firms compare with their corporate counterparts in information management is the role and use of metrics. The better known and publicized metrics such as profits per partner are interesting but are lagging indicators that simply report the past. To effectively guide an organization toward a strategy, management requires a suite of leading indicators that can be used as triggers to indicate where attention must be focused to successfully deliver results that will result in positive lagging indicators. While “Billable Hours” is a typical leading indicator, the pressures emerging from alternative fee arrangements suggest that other leading indicators are required and that not all of them are necessarily financial in nature.

Metrics are tools that can serve the entire organization and not just be focused on the firm’s financial goals. Every department should have objectives that are the focus of the group and appropriate metrics can monitor the progress of achieving those objectives. Examples include staff turnover, delivery of training to attorneys and staff, employee satisfaction, etc.

Similarly, effective metrics are needed to better control and measure service delivery in the area of information that is used to support the work product creation of a firm. While creation of such metrics internally is typical, working with vendors to deliver metrics or data about their product/service usage in a manipulable stream to ease analysis later on. As with any selection or design of a metric, care must be taken to choose those metrics that are true indicators of success or potential failure. Having too many metrics is also highly damaging as they create noise that obscures the ones that really matter.

Some organizations and individuals resist metrics for a variety of reasons. These include questioning the effort expended to maintaining metrics versus their effectiveness, fear of too much transparency when metrics show negative results, and others. While there may be elements of truth to some of these concerns, they are offset by the benefits of focus that comes with everyone working toward the same goals. On an even more positive note, metrics allow departments to document and display progress to senior management who may not be aware of the daily activities being performed by a department. This is especially useful when making a case for additional funding during the budget cycle.

Generally speaking, law firms function in a similar manner, so some metrics apply across the board and are useful as barometers to compare one’s organization against a peer or aspirational competitor. However, virtually all firms have nuances in their operational structure and practice methodologies that call out for metrics unique to that organization. The challenge is to find the set that reinforces the successful aspects of a firm’s operation while alerting management to potential risks early enough to take action to correct a shortcoming.