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4 posts from May 2015

May 27, 2015

How to change law firm culture (Part 1 of 5)

By Jim Hassett and Tom Clay

Recently, Altman Weil was consulting with the senior management of a mid-sized law firm about its strategic plan and got into a discussion of the importance of measuring profitability by practice group, client, and matter. The CFO dismissed the idea; they had already tried that, he said, but it simply didn’t work.

A few years earlier, the firm had spent several hundred thousand dollars on software to measure profitability. Mathematically, the software was indeed a good way to calculate profitability by matter or by client. But when management tried to roll out the new system, there was an enormous amount of negative pushback from partners. The software was too complicated, partners said, and the assumptions too controversial.

More importantly, almost every lawyer who was told that a matter was unprofitable said there must be some mistake and questioned the way profitability was calculated. After months of acrimony and debate, the firm decided to simply stop using the software and put it on the shelf as a costly experiment that had failed. They wrote off all the time that had gone into choosing the software, installing it, and training lawyers to use it. Not to mention the initial investment of several hundred thousand dollars.

Mind you, management still felt that measuring profitability was an important and valuable strategy. Presumably, it just couldn’t be made to work in that firm’s culture. In any other business, the CEO might have required that the software be used whether people liked it or not. But many law firms are fragile partnerships where firm leadership simply does not have the power to enforce change.

In several decades of working with hundreds of law firms, we have seen many such examples where well-designed strategies have failed because partners refuse to embrace them.

Customer relationship management (CRM) software is another great example. Many firms have recognized the value of tracking client relationships more closely and invested six figures or more in technology to do that. But based on our unscientific count, CRM systems have failed at the vast majority of the law firms that have installed them, due to lawyers’ resistance to sharing information about their clients and their unwillingness to put in the hard work of tracking details in the system. Enormous effort was put into the initial stages of selecting software and implementing it, lawyers pushed back, and in the end management gave up and the money was thrown out the window.

The problem of failure to execute is not limited to software. “Key client programs” to improve service to top clients sound like a great strategy when they are committed to paper, but, when the time comes to act, many lawyers just keep doing what they’ve always done. Practice group planning is another problem area. When 81 managing partners responded to the Altman Weil Practice Group Performance Survey a few years ago, we concluded that “Law firm practice group performance… is mediocre at best across a series of measures.” For example:

Sixty-three percent of law firms say they have a formal Practice Group planning process, but planning quality is inconsistent and many firms fall short on plan execution. On average, on a scale of 0 to 10, firms rate the effectiveness of Practice Group planning at 6.0 and the effectiveness of plan implementation at a meager 5.6.

For every firm that has successfully implemented a strategic plan, several others have failed to execute.

We could go on, but there is really no need. You could probably add several recent examples from your own firm. As management consultants often say:  “Culture eats strategy for lunch.”  (The original quote has often been attributed to Peter Drucker, and a few years ago Curt Coffman wrote a book with that title.) 

Several decades of consistent financial success have led many law firms to develop cultures that are frustratingly resistant to change. As Richard Susskind noted in his widely quoted book, The End of Lawyers?, “It is not easy to convince a group of millionaires... that their business model is wrong.”

In a series of web articles entitled “Leadership and Culture,” Sean Culey noted that:

Every organization has its own unique culture, defined as the set of deeply embedded, self-reinforcing behaviors, beliefs, and mindset that determine “the way we do things around here…” It controls the way their people act and behave, how they talk and inter-relate, how long it takes to make decisions, how trusting they are and, most importantly, how effective they are at delivering results… Studies have shown again and again that there may be no more critical source of business success or failure than a company’s culture – it trumps strategy and leadership every time.

For example, consider the attitude toward perfectionism at many law firms.  As consultant Ron Friedmann wrote in his blog several years ago:

Clients often want to know if there are any major risks: “Let me know if there are any boulders in this playing field.” Lawyers often hear that and think they need to find not just the boulders, but also the pebbles. The fear of being wrong – and of malpractice – runs deep. ‘Perfection thinking’ makes it hard to approximate, to apply the 80-20 rule, to guide in the right direction but with some imprecision.

When lawyers were getting paid by the hour and most clients didn’t seem to care how many hours it took to reach perfection, the mindset was reinforced by the compensation systems that are still found at most law firms: the more hours you bill, the more you are paid.

But clients are increasingly questioning hourly bills and/or asking for fixed fee alternatives. When realization goes down far enough, firms will gradually be forced to change compensation, as Jackson Lewis did when it announced that associates will no longer be compensated for billing more hours.  Instead, they will be rewarded based on factors tied to results such as efficiency and client service.

A slightly edited version of this series was originally published in the April 2015 issue of Of Counsel: The Legal and Management Report by Aspen publishers.  A pdf of that complete article “Strategies to Successfully Change Law Firm Culture: The Example of Legal Project Management” can be downloaded from our web page. 

 

May 20, 2015

New national survey links legal project management to financial benefits

Altman Weil has done it again.  Every spring they publish the most important survey of the year, and the 2015 Law Firms in Transition Survey they released last week is more thought provoking than ever.  (Full disclosure:  LegalBizDev is a strategic partner of Altman Weil, but I’d write this blog post even if we weren’t.)

Their 124 page report can be downloaded for free and summarizes the opinions of 320 managing partners and chairs on topics ranging from leadership to market forces.  I turned right to the section entitled “Efficiency of legal service delivery” and found data unlike anything I’d seen before.

For the last seven years, Altman Weil has found that the vast majority of law firm leaders say that there has been a permanent change in the legal profession increasing the focus on practice efficiency (this year 93%).  On the other hand, their surveys have consistently found that only a minority of firms are doing anything about it (37% of firms said that they had “significantly changed their strategic approach to the efficiency of legal service delivery”). 

What’s new this year is data correlating this strategic change to financial results to suggest that firms benefit financially by becoming more efficient. This can best be seen in profits per equity partner (up for 76% of firms that changed their approach to efficiency vs 61% of those that didn’t) and revenue per lawyer (up for 76% of firms that changed vs 62% of firms that didn’t).

While there is a great deal of anecdotal evidence that legal project management (LPM) improves financial results, this is the first national survey data verifying the link.

Similar results were found in this year’s data on AFAs.  Altman Weil reported that 68% of the firms that used non-hourly billing described it as “primarily reactive (in response to client requests),” while only 32% said it was “primarily proactive (arising from your belief in the competitive advantage of alternative fees).”  Interestingly, when the profitability of AFAs was compared to hourly work, the proactive firms were far more likely to say they were more profitable (29% vs 10%) and less likely to say they were less profitable (12% vs 41%).  Proactive firms have also been getting better at it.  When this question was first asked in 2010 only 17% of proactive firms said AFAs were more profitable than hourly work, compared to 29% this year.

While the survey did not directly ask why profitability was improving, there are only two possible answers:  either matters are being priced better at the outset, or the work is being performed more efficiently within budget.  We have no doubt that both are true for proactive firms.  And given the intense competition that is often driving prices below desired levels, our guess is that LPM was the more important of the two.  

As a reformed academic, I feel it is necessary to add two caveats to our claims about LPM and profitability.  The first is that there is still some controversy about exactly how to define LPM, and our statements above apply to the broad definition we use, as described in my book LPM, Pricing, and AFAs.  When Altman Weil asked firms how they were increasing efficiency, seven of the eight factors they mentioned come up routinely in our LPM coaching:  technology, knowledge management, training, contract lawyers, paraprofessionals, using non-law firm vendors, and re-engineering work processes.  (The eighth efficiency factor is usually not involved in our coaching, but is extremely interesting:  an amazing 49% of firms now say that they are “rewarding efficiency and profitability in compensation decisions.”)

The second caveat could come from my brother the mathemetician, who likes to remind me that a correlation does not prove causality.  Of course, technically he’s right.  But if I were a managing partner in this highly competitive profession, I would not wait for a long term double blind experiment to prove that the link was cause and effect.  I would just start promoting greater efficiency through LPM, and see for myself if it seemed to improve my bottom line.

Another thing managing partners will want to do is to improve efforts to understand client needs.  I found it quite interesting that of the ten tactics to improve client understanding in this survey, post-matter reviews came in dead last at 24%.  In our LPM coaching, this is often one of the first things we recommend, since it is so revealing of how clients feel about your work, and can be as simple as asking “what did we do well” and “what could we do better.”  (For a review of more sophisticated techniques, see the third edition of my Legal Project Management Quick Reference Guide.)  But in this survey, post-matter reviews finished far behind other tactics that are extremely useful, but far more difficult and expensive to implement such as participating in client industry groups (75%) and formal client interview programs (49%).

I was also interested to note that 61% of firms said that overcapacity is diluting their profitability.  Equity partners in 47% of the firms, and non-equity partners in 41%, simply need more work.  That’s one of the most common reasons behind what Bruce MacEwen has described as “suicide pricing” in his book Growth is Dead:  “Bids from name-brand firms… that are so breathtakingly low one wonders how they could possibly make any money. The short answer is they can’t.”  As the chair of one AmLaw 200 firm put it in my book Client Value and Law Firm Profitability (p. 80) “Lawyers will look at a case and say ‘I know you don’t want to get 70% realization on a $200,000 matter. But 70% of $200,000 is a whole lot better than 100% of nothing.”

There’s a whole lot more to be learned from this survey beyond the core topics of this blog.  So if you have any interest in how the legal profession is changing, I would strongly recommend that you download your own copy today.

If you don’t find it useful I’ll send you double your money back.  Oh wait.  It’s free.

 

May 13, 2015

How to solve delegation problems

A guest post by Gary Richards

 

Talented lawyers are sometimes bypassed for future assignments because they slipped a little on work that was delegated to them in the past. Partners may sometimes solve the problem by deciding to not put them on future assignments rather than giving them corrective feedback from which they could benefit.

For example, consider the following scenario: You have a competent set of lawyers and paralegals working with you on an important matter. However, one of the more legally talented members of the team has recently been coming in late with assigned tasks, or has not done it exactly as assigned, or both.

He always seems to understand exactly what you want when he accepts the task. After handing off a task, you always seek confirmation that he understands by asking questions like, “Do you have any questions?” or “Do you understand exactly what I want and when?” He always assures you that he has “got it.” Yet there is a recent pattern of incompleteness and lateness you would like to avoid in the future.

You are reluctant to complain to him because you know that he is quite busy working on other matters for other partners. By and large, his work quality is good and clients like him. You also don’t want to seem dictatorial when you hand off work for fear of insulting him or demotivating him, because you could really use his help if only he were accurate and timely.

However, unless this situation improves, you are considering not assigning him to any future work that is deadline-sensitive or has nuanced issues requiring significant attention to detail. That way you would save time dealing with his performance problem and wouldn’t have to waste your time coaching him on how to improve. You believe that any intelligent and experienced matter team members should do what he says he will do, on time. After all, you don’t recall anyone ever having to pressure you to correct your lack of detail or timeliness.

This is a fairly common situation. Unfortunately, deciding to save time by not assigning him to future matters is also fairly common. But it is a costly and shortsighted solution to deprive the offending lawyer of needed coaching. Furthermore, taking that approach would mean failing your responsibility as a partner to provide professional development of those working on your team.

The tension in this situation stems from your natural preference to avoid conflict, compounded by not knowing how to ensure clarity at the moment of handoff.

A better solution is grounded in two simple concepts: tactfully require people to repeat your instructions, and schedule a mid-point review.

 

Tactfully require people to repeat your instructions

When you encounter a performance problem like the one above, the best first step is not to ask “What is wrong with him?” Instead, ask “What can I do differently?” The truth is that getting work done on time, as expected, is usually much more dependent on how the work is handed off and monitored than it is affected by a flaw in the recipient.

The usual solution to this situation is to do a better job finding out exactly what he actually understands to be required and by when, no matter how well you think you have presented it. Simply asking a question like these will not uncover true understanding:

  • “Do you have any questions?”(Not really.)
  • “Is it clear what I need?”(I think so.)
  • “Do you understand exactly what I want and when?”(Sure, I’ll get right on it.)

Even if they are less than certain of the details, most people are not comfortable admitting that they are unclear or confused, especially if you outrank them. So those kinds of questions usually do not learn what it is they actually understand.

He may even demonstrate rapt listening and industrious note taking as you describe what you want, all creating the illusion of clear understanding even though some details may be missed. It is likely that the listener believes that he does understand it, because he is clear on what he thinks that he heard.

There is only one way to know for sure what he understand: Have him immediately repeat his understanding of your instructions so that you can compare what he says to your intended instructions. Such a request to repeat instructions received is rarely made because it could be taken as an insult to his ability or a veiled accusation of inattention. But there is a skillful way to request that instructions be repeated without being insulting or accusatory: Format the question as an “I” message, not as a “you” message.

Faulty way to request feedback of instructions (insulting and accusatory “you” message):

­Please repeat what I said so I can tell whether you got it all correctly.”

Effective way to request feedback of instructions (non-insulting and non-accusatory “I”):

“That was a lot of detail, Bob, and I described what I need pretty quickly. Would you mind repeating for me your understanding of those instructions and timing so that I can see if I said it clearly?”

As you listen to his repetition of your instructions, you can compare it with what you intended. In effect, this way you are comparing what is in his brain to what is in your brain. If you hear an omission or misunderstanding, you can immediately say, “What I meant to say was…” and provide the correction, possibly rephrasing it more clearly or in a different way to highlight its importance. It doesn't matter whether you did say it correctly the first time or not. What does matter instead is to correct the misunderstanding immediately, not to assign blame for the misunderstanding by saying something like, “No, you have it wrong.”

 

Schedule a mid-point review

Once it is established that the instructions are understood, the next thing to help ensure performance is to schedule a follow-up midway through the duration of the task. You have a right, even an obligation, to follow up to ensure that the work is on schedule, especially if there have been past problems with timely performance. Get agreement at the time of hand-off as to when you will follow up midway, and why. Unscheduled follow-ups like, “How are you doing on….” will appear that you don’t trust him. Also, he may have work appropriately scheduled on the task at a time closer to the deadline than when your surprise follow-up occurs, causing your question to be an unfair irritation that results in no information.

Instead, it is much better at the time the task is handed off to schedule a time-certain mid-point follow up. For example, if you hand-off a task on Wednesday and the deadline for completion is the following Tuesday by noon, say something like this: “How about I touch base around 10:30 A.M. Friday to be sure that you have everything you need and see if there are any questions?”

When a mid-point follow-up time like that is agreed upon, several things are put into play:

  • It becomes more likely that the doer will be further along in their work on the task by the follow-up time of Friday at 10:30 than if no follow-up had been scheduled
  • With that stated reason for the follow-up, the doer understands that it is to be a helpful event, not a sign of mistrust
  • You avoid having to interrupt the doer with “How are you coming?” whenever your anxiety compels you. Instead, you can relax until Friday at 10:30, knowing that you have plenty of time afterward to get things back on track if needed.

These two simple tactics can solve delegation problems, save you time by avoiding performance problems, and fulfill your obligation to constructively develop the skills of those working on your teams.

May 06, 2015

Tip of the month: Improve the way you manage your team

To provide clients with the value they are demanding, you may need to devote more time to actively managing the members of your team.  Start with these questions:

  • Who will have primary responsibility for completing each task on time, within budget?
  • Do they agree with your estimated schedule and budget for the task?  If not, discuss any differences of opinion before they begin the work.
  • Will they need any special help or support to successfully complete their assignment?
  • Should the team set up a regular schedule of very short meetings to assess progress and overcome any obstacles?

 

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. More information about this tip appears in the third edition of my Legal Project Management Quick Reference Guide.