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5 posts from September 2014

September 24, 2014

Book excerpt: What should law firms do to improve profitability and LPM? (Part 1 of 4)

This series was adapted from my new book Client Value and Law Firm Profitability, which will be published in a few weeks.

This research was designed to help lawyers make the best possible decisions about how to adapt to a rapidly changing marketplace by providing insights into the actions and opinions of their peers.  In the months preceding this book’s publication, a number of conferences have been held by law schools to discuss the challenges facing the legal profession.  Countless articles and several books addressing these changes have also been written by law school and business school professors.  And consultants have written far more – probably millions of words on how client demands are changing and what law firms should do about it.

The only thing that’s been missing from the conversation is public statements by the people who run large law firms.  These senior decision makers rarely publish anything on their tactics and strategies, or even attend conferences.  They are the ones who deal with these issues every day, and whose very livelihood depends on coming up with the right answers.  What do they think?

To answer this question, I interviewed chairs, managing partners, executive committee members, CEOs, CFOs and other senior executives at 50 AmLaw 200 firms between June 2013 and January 2014.

Based on those confidential interviews, there can be no question thatclients are demanding more value than ever before.  There is, however, much less agreement about the best way to remain competitive in an increasingly challenging environment. 

There are many signs that as times get tighter, firms are paying more attention to profitability and to its role in compensation:

I think you’re going to see the pressure in law firms increase about how the pie is split. When things were going well, it was easier to take care of the worker bee partners, who are great lawyers. It’s going to be tougher now, because everybody’s strategy is through lateral hiring, and you don’t want the great brief writer. What you want is the person who has five to eight million dollars following him or her, or the group that’s going to bring 20 to 30 million dollars. – Senior executive

As the pressure goes up, the emphasis on total revenue is being replaced by an emphasis on profitable revenue:

Historically, virtually all law firms overweighted revenue. Often two partners who produce five million dollars each are treated equally for compensation, even if one of those partners used six and a half million dollars of resources to produce that revenue, and the other used three and a half million. – Senior executive

We merged a few years ago with a firm that principally focused on total dollars in the door and allowed billing attorneys to set their own rate exceptions without much oversight. We focused on those decision points that reduced realization, and the lack of profitability in a million dollars received that takes two million dollars of effort to generate. Consistently reinforcing these basic concepts through our BI tools and in the compensation system has resulted in significant margin improvement. – Senior executive

There are still far too many lawyers who respond to cost pressure by offering discounts, without understanding the implications:

Most of our partners have been doing things in a particular way for a long time. And the carpet is moving under them, because the market is changing. A lot of times, their reaction to competitive pressure is to just cut rates but not examine the way they deliver the service—not change the way they practice to be able to offer more value for the same price, or reduce the cost to deliver the same value at a lower price. Demand is down. Price pressure is up. So some lawyers will just say, “I don’t want to talk about value based billing arrangement. I’ll just give clients a big discount. They’ll be happy, I’ll be happy….” It’s really remarkable how few attorneys appreciate the economics of discounting. They just don’t get the math. They never had to before. – Senior partner

It is easy to make clients happy by just cutting the cost.Not enough lawyers have really embraced building a better mousetrap that makes clients happy while at the same time maintaining profitability. – Senior executive

Lawyers are proposing a 10% discounted deal or a 20% discounted deal, or a blended rate deal, but then they’re going to literally do everything the same way they’ve always done it. They don’t think about it in terms of profitability yet. So we’ve got a lot of catching up to do. However, at one recent conference I attended, it sounded like there are still a lot of firms that aren’t much ahead of us. – Senior executive

Many firms are working to fill this gap and develop new tools and approaches:

I’ve been with the firm a little over a year, and part of the reason that the firm brought me in was that we needed to look at our operational infrastructure and basically get caught up with the rest of the AmLaw 100. We didn’t have the ability to really measure profitability. We could just barely measure it at the firm level and at the office level, but not at the practice level, not at the client level, or matter level. About three months ago we finally started using a business intelligence platform that allows us to measure those things, and we’re still trying to make that part of the culture. – Senior executive

Life used to be so much easier. The world has changed, and I think in the new environment, to preserve and enhance existing client relationships and to get our nose in the door for new client relationships, we’ve had to be more flexible on pricing, particularly in the alternative fee context. I think we’re in a brave new world here, where we have to learn a lot of new sciences and employ a lot of new techniques. – Senior partner

Some firms are providing lawyers with very detailed reports, like these:

We developed a real-time report on our intranet that is role-based. For example, if you are a client attorney, then your report will show all the clients on which you have any client credit on any matter, and it will show you the components of profitability. The report shows you collected revenue, the costs associated with that revenue, the profit, and the profit margin. Then it shows you the number of hours that are in it, the revenue per hour, the cost per hour. Then it breaks down timing differences on billing and collecting time. And then it shows you the traditional measures of profitability such as realization rates at the various levels. You can click on a client and it drills down to the matter level, so you see it for every matter. And then you can click on every matter and it drops down to all the timekeepers, and you see it across the board for all timekeepers on each matter, all those same metrics. We built the database to go back 10 years. You can do it for time periods of year to date, rolling 12 months, from inception, or for any other time period. – Senior partner

Other firms are concerned that too much data can be counterproductive:

One of the traps you can fall into is giving people a lot of data but not giving them information. Simply revealing realization or matter profitability, just putting it out there, would not really advance the management goals of getting people to focus more on profitability. What you would engender is more questions about “How come she got paid more than I did?” That kind of stuff. – Chair

Merely sending canned reports to partners will not result in many partners changing the way they manage their practices to improve profitability. We need to better develop a process whereby partners with profitability challenges receive the help they need to improve profitability in a manner tailored to the issues presented by that partner’s specific practice. Otherwise they look at the report and say, “This is crap. It’s wrong.” – Senior executive

A pdf of this entire series can be downloaded from Altman Weil Direct, where it originally appeared.

 

September 17, 2014

Case Study: Update on LPM’s benefits at Bilzin Sumberg (Part 2 of 2)

Jose Ferrer is a commercial litigation partner at Bilzin Sumberg who has an extensive practice in international disputes and arbitration. As noted in Part 1 of this post, a majority of Bilzin Sumberg’s partners completed our three-month individual coaching program, but Jose is part of the “other half” who attended an initial retreat presentation, and then developed LPM tactics on his own, and in collaboration with partners who were coached. 

As a litigator, Ferrer says, “you always work with your strategy in mind, and LPM helps you better define your strategy. It tells you what the next 90 days will involve and it enables you to think through your case.”

“Sometimes we compete with firms that have lower hourly rates, and then we have to provide something else to our clients. Part of that “something else” is certainty and the ability to budget. Of course, most clients’ litigation departments see outside counsel as a cost item. Our ability to produce and adhere to a budget improves a company’s ability to predict its own bottom line, which is of great value to the client.”

“We track every hour billed by an attorney or any other timekeeper by task code. It takes longer to put your time into the system, but it represents a significant value-add to any client,” Ferrer says.  This task-code system was developed at Bilzin Sumberg starting from standard ABA task codes and it is extremely well suited to the types of litigation they specialize in.

“The task codes force you to think about your strategy,” Ferrer says. “If you see that in the past 30 days, you have used only the discovery task codes, it forces you to think, ‘Did this discovery add or detract from your progress in the case?’”

“I have an icon on my computer that represents our budgeting software, ENGAGE. If I click on it, it will help me compare the planned budget with actual expenses, for example. It is relatively simple software and is easy to use. The benefit of the software is that it draws on past experiences in similar cases and tests how realistic the budget is when compared with them. We’ve been populating that system with our cases for two years, and we now have a reasonable amount of data in front of us.”

“ENGAGE offered training in the software, and it’s very hands-on.  For example, for one footwear chain client, we are using it to budget for current cases – breach of contract cases, landlord-tenant cases, other commercial cases – based on prior experience in similar cases. We have prior history that we can draw upon. Not only do we have an idea of what the current case will cost; we also can have an educated conversation with the client in advance about how the case will go and what strategy to use.

Al Dotson is a government relations partner and leader of the land development practice group at Bilzin Sumberg. His work primarily involves public-private partnerships in economic development in South Florida. It involves securing land use, zoning and other key government approvals and permits for large real estate developments. 

Al was one of the three lawyers in the initial pilot test of LPM coaching, and says he is now using LPM principles “in just about every matter that I have here. These principles are flexible and important enough to apply to nearly everything that I do.”

One key area is communication with the client and among team members. “Early communication with the client is absolutely essential for us to mutually understand what the expectations are,” he says. “In addition, I routinely set up non-billable team meetings  to ascertain the status of the work at any given stage, to avoid duplication of effort, to identify issues sooner rather than later and to communicate quickly with the client if there are any issues. This is done early and frequently throughout the project.”

“You really can’t say you are engaging in LPM,” Al says, “unless the budget and the assumptions are continually being reviewed and updated on a going forward basis. It’s an ongoing process, not just the mere act of creating a budget for a project. For example, changes occur regularly within a project. The initial assumptions will change, and we will need to change the staffing on a matter. Similarly, changes in a project will even begin to change how we define the concept of success for the project. Because of our use of LPM, all of these matters are now top of mind.”

Al shared that he has access to the LPM reports and budget tracking for the matters on which he is working.  To ensure consistency of data and to provide additional "eyes on the target," Bilzin Sumberg has a centralized process supported by finance staff who input budget information into the budgeting software.  One of the finance team's responsibilities is to “provide us with ticklers when certain milestones are reached.”

“Bilzin Sumberg provides attorneys with access to real-time information and this is critical to LPM.  It enables better communication with the client and allows me to be  even  more timely and efficient on my matters.”

 This post was written by Jim Hassett and Jonathan Groner.

 

September 10, 2014

Case Study: Update on LPM’s benefits at Bilzin Sumberg (Part 1 of 2)

Last December I wrote in this blog that “no law firm on the planet has achieved more LPM behavior change, more quickly or more efficiently” than Miami firm Bilzin Sumberg.  Since then, the firm’s LPM success has been featured by others in books and at conferences.

As explained in my book Legal Project Management, Pricing, and Alternative Fee Arrangements, their breakthroughs were built on a foundation of providing LegalBizDev’s individual coaching program to the majority of their partners (26 out of 51).  That coaching was completed in May 2013.  By then, the LPM had reached critical mass and had developed enough momentum that no more coaching was needed.  The partners themselves and Bilzin’s internal staff took ownership of moving the effort forward.

No one at Bilzin Sumberg would say that their LPM work is done.  As the chair of one AmLaw 200 firm put it in my new book Client Value and Law Firm Profitability:  “It’s an evolving process.  I don’t think there’s ever going to be a point at which you can say: ‘Now I’ve arrived.’”  But Bilzin Sumberg’s continuing experience provides valuable lessons in the best and most cost-effective ways to get started, and what happens next, so we will continue to update their results from time to time in posts like this.

Jon Chassen, a partner in the real estate group at Bilzin Sumberg, was one of the three lawyers in the firm’s original pilot test of LPM coaching at the beginning of 2012 with LegalBizDev principal Steve Barrett, and his success encouraged other partners to give it a try. Jon’s practice focuses on complex real estate deals  and on real estate deals with unusual twists. He often works closely with litigators to solve his clients’ problems, although he is not a litigator himself.

Jon says that a lot of things that he learned in the LegalBizDev coaching were similar to techniques that he had been trying to implement throughout his career.  The coaching crystallized and formalized these methods and techniques.

In Jon’s practice, LPM works best for larger transactions, where at the very outset, you need to design an engagement letter that spells out what you will and will not do for the client. “This way, the engagement letter guides the entire project. It establishes the scope of the project so that everyone in the transaction, outside lawyer and client, knows what role they will play. Then, as the transaction changes in unexpected ways, the engagement letter can be modified to reflect changing expectations.”

“Sometimes it’s relatively easy to anticipate that the scope of work will change and that the project will become larger or smaller than originally anticipated,” Jon says. “Sometimes, the changes are completely unanticipated. Either way, LPM techniques permit the lawyer and client to make changes pretty much on the run. I can now see at a glance who needs to be added to the team, who is dropping off the team, and so on. I see immediately when we’re at a fork in the road, and what the possible choices are at that decision point.”

“LPM also permits me to delegate more effectively. Since all the assignments to attorneys are made well in advance and carefully specified, I don’t need to be the funnel point on everything. If I have a lawyer working on a particular set of documents, I can trust that he or she will complete that assignment.”

“I am a bit technologically challenged in terms of creating charts and work flows. But with the use of LPM techniques and with people in the firm who can help me, I can now create these charts in a very useful manner. The chart will tell me what happens next. Who needs to get involved? LPM helps me come up with answers to those questions.”

Carter McDowell’s practice as a Bilzin Sumberg partner involves land use, zoning, environmental, and other regulatory approvals for major building projects, including regional malls, resort hotels, industrial complexes, professional buildings and marinas. Carter completed LegalBizDev’s three month coaching program in its second wave, after the pilot test.

“At the end of the day,” Carter says, “LPM is mostly about organization.”

“It enables you to step back and look at the process and compartmentalize it. It also enables you to look at it in the largest possible sense, from the very beginning.”

For one major project on South Beach that Carter has worked on, he made a very specific LPM outline of all the aspects of the project and of the budget associated with each aspect.

“We separated the project into several parts,” Carter says, “and we made several updates to each part as we went along. The government, after all, doesn’t take a linear path in granting approvals, so this LPM document has helped us plan each step. Our client used the LPM document on an ongoing basis.”

“In the South Beach project, there have already been seven hearings at which some sort of approval was granted, and two more approvals remain to be granted,” says Carter. “Each hearing is before a separate board. So the LPM document was helpful in documenting and managing the whole process.”

“We actually prepared the LPM document as soon as our client acquired the property. It was that long ago.  The client had asked us to put together a list of the most likely tasks that needed to be accomplished. So we used the LPM document to prepare that and we have updated and expanded it on an ongoing basis.”

“The firm now has sophisticated budget software (ENGAGE). On this project, the financial department staff at the firm established the outline of the document before the current software was available. So in this case, I don’t manipulate the software myself. I do receive reports from the financial people. They have been very helpful and responsive.”

“The document has led us on more than one occasion to go back to the client and to say, Here’ s a hearing that we hadn’t anticipated, so we updated the budget to include that process.”

“The LPM process is working well to enable us to provide our clients with better service at a lower cost.  Some of the procedures that we documented repeat themselves in other projects, so I can reuse this outline for other clients and efficiently tailor it to fit their needs.”

 This post was written by Jim Hassett and Jonathan Groner.

 

September 09, 2014

Ark webinars to discuss my new book: Client Value and Law Firm Profitability

In association with the publication of my new book on Client Value and Law Firm Profitability, the Ark Group has scheduled a series of three webinars in which I will discuss key findings from our research with leading experts in the field.  All of the events will be recorded, so if you have a conflict on any of the dates below, you can listen to the webinars later any time, any place.

 

Wed Oct 8, 1-2 PM Eastern

Defining value and its impact on profitability

Law firms cannot meet client demands for greater value until they understand exactly what clients are looking for. This session will begin by reviewing data on how often clients simply want to lower costs, and how often they are looking for better understanding of business objectives, greater efficiency, improved communication, and other factors. It will then proceed to discuss how to define and manage profitability while meeting these client needs.

Jim Hassett, President, LegalBizDev

Michael Roster, Steering Committee Co-Chair, Association of Corporate Counsel’s Value Challenge

David Schaefer, Deputy Chairman; Chair, Corporate, Loeb & Loeb

 

Wed Nov 12, 1-2 PM Eastern

Legal project management: The state of the art

When law firms were asked what they were doing to meet the profitability challenge, many started by listing legal project management (LPM). But the term means different things to different firms, and some have had much greater success than others in changing lawyers’ behavior. This webinar will review data on what has worked best in LPM, and what hasn’t worked at all.

Jim Hassett, President, LegalBizDev

Albert Dotson, Government Relations & Land Development Practice Group Leader. Bilzin Sumberg

Richard Rosenblatt, Operations Partner, Labor & Employment Practice Group, Morgan Lewis

 

Wed Dec 10, 1-2 PM Eastern

Strategy and tactics for the new normal

In addition to LPM, firms have been experimenting with many related tactics including knowledge management, software, new staff positions in pricing and value, contract attorneys, outsourcing, alternative fee arrangements, and much more. The final webinar in the series will explore which strategies and tactics have been most effective, and what firms must do in the future to adapt to a changing marketplace.

Jim Hassett, President, LegalBizDev

Tom Clay, Principal, Altman Weil

John Paris, Partner, Chair of the Firm Innovation Team, Williams Mullen

 

To register, or for more information, see the announcement on the Ark Group web page, or contact Ark’s Peter Franken at pfranken@ark-group.com or (312) 212-1301.

 

September 03, 2014

Tip of the month: Increase the pace of change

According to the chairs, managing partners and leaders of AmLaw 200 firms interviewed for my new book Client Value and Law Firm Profitability,the faster firms act, the more likely they are to survive and prosper in today’s increasingly demanding marketplace.  In Altman Weil’s most recent Chief Legal Officers Survey, the top three things that clients want are improved budget forecasting, greater cost reduction, and more efficient legal project management (LPM). Since LPM will help meet the first two requests, you could say the top three things clients want are LPM, LPM, and more LPM. To date, the response at too many firms has been delay, delay, and more delay.

 

The first Wednesday of every month is devoted to a short and simple tip to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. This month’s tip is explained in detail in Chapter 7 of my new book.