109 posts categorized "Alternative Fee Arrangements"

November 25, 2015

New survey reveals how clients define value

Just about everyone agrees that legal clients are demanding greater value these days.  But what exactly do clients mean by “value”?  As a senior executive from one AmLaw 200 firm summed it up in my research for the book Client Value and Law Firm Profitability:

The truth when it comes to value is that I’m not sure what our clients mean. It means different things to different people.

While there will always be individual differences between clients, it is useful to start by knowing what clients in general mean.  Altman Weil’s recently published 2015 Chief Legal Officer’s (CLO) survey provides significant insights into this issue based on answers from 258 CLOs.   (Full disclosure: Altman Weil is a strategic partner of LegalBizDev, but I’d write about these findings even if we weren’t.)

From the law firm point of view, I think the most interesting question was “Rate the value to your law department of the following things law firms can do to better understand your organization.”  Here are the results:



Average value rating*


Conversations with you about pricing / budgets



Conversations with you about matter management efficiency



Conversations with you about project staffing



Legal issue spotting and preventative law strategies (at firm expense)



Post-matter reviews



Industry research and issue spotting (at firm expense)



Formal interviews to get your feedback



Law firm participation in industry groups and events



Formal survey program to get your feedback



Visits from law firm management


* On a scale from 0 (no value) to 10 (enormous value)

If you are involved in legal marketing, it would be interesting to rate the time and money that your firm devotes to each of these ten items.  In my experience, most marketing departments are investing heavily in exactly the wrong things:  numbers 8, 9 and 10 (the old marketing), instead of numbers 1, 2, and 3 (the new marketing). 

Four of the top five items are examples of legal project management.  As I noted in my recent article for Bloomberg BNA’s Corporate Counsel Weekly Why Law Firms Must Change their Marketing Priorities, a few firms are headed in the direction of putting more emphasis on LPM, but most have not yet adapted to the changing needs of the marketplace.

Another important question in this year’s survey asked: “Of the following [ten] service improvements and innovations, please select up to three that you would most like to see from your outside counsel.”  The top three, according to 258 CLOS, were:

  1. Greater cost reduction (selected by 50% of respondents)
  2. Improved budget forecasting (46%)
  3. More efficient project management (40%)

It is worth noting that this question has been asked for the last several years, and these have consistently finished as the top three.  Since LPM leads to #1 and #2, and is the very definition of #3, I like to sum up the results by saying that what clients want most these days is LPM, LPM, and more LPM.

How well are law firms doing in meeting this client needs?  Not very well.  When CLOs were asked “In your opinion, in the current legal market, how serious are law firms about changing their legal service delivery model to provide greater value to clients (as opposed to simply cutting costs)?”  On a scale from 0 to 10, the median rating (with half the firms above and half below) was 3.  These results were almost identical to last year’s, so despite all the press releases law firms are putting out trumpeting their successes in increasing value, clients have not been impressed by the results.

The complete survey includes a great deal of additional information on law departments, and can be downloaded for free.  Now that’s what I call value.


November 11, 2015

LPM Case Study: Hanson Bridgett (Part 2 of 3)

By Jim Hassett and Jonathan Groner


Transactional partner Leslie Keil worked with coach Gary Richards to break down the work and costs involved in one client’s corporate reorganization.

“I worked with Gary to put task codes on every aspect of the matter,” Keil says. “The idea was to check on progress at every point and to build a very detailed budget. This worked well even though I had already given the client a fee estimate for the matter. But when I broke it down with Gary, the number of tasks on the list doubled, though my overall fee estimate remained the same. I identified tasks I hadn’t thought of before. That increased the client’s and my team’s understanding of the project and of its costs.”

In order to do this, Keil had to work with the associate and the paralegal on the project to review exactly what they do on a project like this and plan how long it would take them.

“Now we have a better idea of the work that will be delegated, and to whom, well in advance,” Keil says. “And we developed a spreadsheet and a template that can be used in similar matters. As an incoming partner, LPM is a very important skill to have these days.”

“One of the things that we can now do,” she concludes, “is to use these tools to review past projects so that we can see how much work was involved in each category and at what rates. This helps us understand our own costs and estimate better in the future.”

Adam Hofmann, a senior counsel who was coached by Natasha Chetty, says the main advantage of LPM is developing the mental discipline “to think about the process and better advise my clients, because we can predict our projects and costs in a more reliable way.”

Hofmann does most of his legal work for public entities such as local governments and special districts. One of his main practices is in eminent domain matters where the government is legally obligated to pay fair compensation for taking someone’s private property for public use. Often, the main issue is the value of the property and the amount of compensation due.

“Since most eminent domain cases go roughly the same way,” Hofmann says, “this type of practice is ideal for LPM. We lay out each step and who will do what – will it be me, someone else on my team, or the client? – at each stage. From the moment that the government decides that it needs the property, there is always a standard series of steps. So for each case, we want to identify early what are the tasks and who will take responsibility.”

“I had some idea of how this type of planning and standardization worked even before, but now, having learned from people who have been through it, I am even more motivated,” he says. “It’s good business, and it’s not rocket science.”

Hofmann says this “gives us an advantage over other firms that don’t use LPM. A client can now see behind the curtain a bit, so that they can really understand how we are reaching good results. Sometimes a client may see lower bills but may not know what went into that. We show them that the lower bills are based on ideas that we had right from the start, from the initial thought about that client. We try to communicate that to the client very directly. The client will appreciate seeing the forms that standardize our work and seeing the other aspects of how we organize each matter. Some clients will see the value immediately, while others will understand it a bit later, but they will always see it.”

Kathryn Doi is a health care litigation partner who joined the firm in November 2014 from a smaller law firm. She brought in a specialty to the firm – litigation on behalf of health care providers who claim that they have received insufficient dollar reimbursements from the Medi-Cal program or private insurers, or are challenging the Medi-Cal program’s proposed adjustments to health care providers’ reimbursement rates.

“The way my coaching worked was very straightforward,” Doi says. “Mike Egnatchik and I identified certain types of cases, and we talked about the implementation of LPM principles in these cases. I had not even heard the term LPM before we started, but the idea immediately resonated for me. Lawyers like me are always trying to be mindful of the need to be efficient, to bring value to their work, and to meet or exceed client expectations.” Doi also worked with Senior Value Pricing Specialist John Murphy and CFO Roger Robles to create budget and planning estimates.

As a result of her coaching, Doi notes, “I began to think more like a client – to see what we do through the lens of a client.”

Doi represents a major air ambulance company that, at any given time, is pursuing a large number of small claims. With help from Egnatchik, she developed templates and “road maps” for these types of claims based on the firm’s past experiences of its budgeting and workload for these cases.

Now the client is sent a summary of where each active case stands on a regular basis, along with results that allow the client to compare results with expectations and anticipate future workload. “I have received very positive feedback from the client on providing this type of regular communications,” she says, “and it has resulted in a stronger client relationship.”

“The client was going to follow me from my prior firm,” Doi says, “but by doing this, we were able not only to rebuild the work but to create a more efficient model for the work. The client needs to know on a high level what is going on with its matters. Now they have a work flow matrix that can be plugged into all the cases to give an immediate sense of where each case stands.”

October 28, 2015

LPM Case Study: Hanson Bridgett (Part 1 of 3)

By Jim Hassett and Jonathan Groner


“The law firm of the future will require many new skills that were never taught in law school,” according to Andrew Giacomini, the managing partner of Hanson Bridgett, a northern California law firm with more than 150 attorneys in four offices. “That’s why we have decided to make a significant investment in training our lawyers in legal project management (LPM), value pricing, and leadership training, to enable them to be more successful.”

This series of posts discusses the process and results of the LPM portion of Hanson Bridgett’s training, which began in July 2013 when partner Garner Weng and Chief Information Officer Chris Fryer organized a group of 11 attorneys to compare several variations of our LPM coaching program.

Most of the firms we work with these days concentrate on two months of one-to-one LPM coaching, which looks for “low hanging fruit” and applies LPM to ongoing real-world engagements as explained in several previous case studies in this blog and on our web page. The one-to-one approach allows any number of lawyers to begin whenever it is most convenient. However, the best approach for any given firm depends on its culture and its needs, and based on the results with their first group, Hanson Bridgett decided to organize the coaching into groups, beginning each with a just-in-time training workshop on LPM. At the end of the two months, each lawyer also had the option of completing a third month. (Only a few have exercised that option, but everyone seems to appreciate having it available.)

Based on the success of the 11 in the pilot test, they offered this LPM program to 13 more lawyers beginning in April 2014 and then another 14 starting last March, for a total of 38 to date. Fryer expects to keep offering this program until he has offered it to all the lawyers who could benefit, with “sessions for 10-14 lawyers about once a year in the future.” The program has been helpful to a wide range of lawyers, including some of the most senior partners in the firm.

Larry Cirelli is a senior trial lawyer and business litigator. In addition to his business litigation practice, he is frequently asked to step in and assist when the firm goes to trial in almost any type of matter.

“I have always applied certain principles that I would call LPM,” says Cirelli. “For example, I always ask the client at the start of a matter, ‘What are your goals? What is your ideal resolution of the matter?’ Then I create a plan to attempt to achieve those goals. I use an Outlook task list in part to do so. Outlook allows you to set deadlines and relate each item on the list to the overall strategy of the case. But just because I’ve been doing this all along doesn’t mean I can’t improve. There are always better ways to do things.”

Cirelli says that as a result of his LPM coaching with Mike Egnatchik, he streamlined his task list, added subfolders to break down tasks more precisely, and added management objectives such as ticklers to stay in touch with clients on a regular basis.

Also in the coaching, Cirelli discussed the way he handles certain cases all over the United States for a major client – cases that tend to follow a pattern. He then worked with John Murphy, Hanson Bridgett’s senior value pricing specialist, to set up budgets for these types of matters. As Fryer explained, the pricing position was created in December 2014 to “improve budgets for AFAs and hourly matters in order to make our budgeting approach more professional and ultimately more profitable.”

According to Cirelli: “Working with John, we set up budgets for these cases using the information we had gleaned from completed cases to guide us with regard to the time needed for each specific task. So we were able to say for each case, ‘Did we/could we go over budget? If so, why? Did we underestimate anything? Can we provide service to the client in a more efficient manner?’” Using these budget templates, he was able to reassess and rebudget some of the eight ongoing cases. “In each case we sent these budgets to the client and the client was very pleased with this approach.”

“The whole training process has made us more efficient in handling all these cases and it has made me more productive,” Cirelli concludes. “You can never stop learning and improving. And although I already had my system of project management, now that we have the technology to use LPM, it helped me make my system more efficient.”


October 21, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 4 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.


The urgency of change

The topic of the most cost-effective way to implement LPM remains controversial. We recommend beginning with a pilot test to change the behavior of a few influential partners, so they can become internal champions for more substantial changes. It would take a much longer article to completely explain our approach and how it compares to others.

But there can be no doubt that clients are demanding change. In my Client Value and Law Firm Profitability survey, when I asked “Will firms have a competitive advantage if they change more quickly?” 85% said yes. (10% said they didn’t know and only 5% said no.)

In business, success starts with meeting client needs. And, as the managing partner of one firm in my research put it:

The vast majority of lawyers in the big law firm environment have to be focused on LPM, otherwise they’re just not going to be successful in bringing in the work. I don’t care how much of a quality practitioner you are; there are very few practice areas that are so insulated that general counsel are not evaluating every firm they’ve worked with for 30 years to say that maybe it’s time to make a switch.

LPM will be beneficial in both hourly and non-hourly work, but law firms see the need for LPM most clearly in alternative fee work where a budget overrun comes directly out of the firm’s bottom line. The same managing partner went on to say that:

You can’t do the alternative fees unless you really understand what your client’s objectives are. You really have to have a game plan for how you’re going to accomplish them, and you have to have management in place to ensure that you’re consistent with the plan. So whether you call it project management or something else, you need to be constantly focused on what kind of fee arrangement you have in place and how you’re going to ensure that it meets the client needs as well as the law firm needs. You can’t agree to these alternative arrangements and continue to do business as usual. It doesn’t work.

As the number of firms experimenting with LPM rises, the competitive bar will continue to go up.

When I published an article for Bloomberg Law on LPM and marketing two years ago, Wendy Tucker, director of marketing and business development at Seyfarth Shaw, said she had seen “a dramatic change, and a very recent change, in the questions that we are asked by clients.” In the past, “in the RFPs that we received, we rarely saw any questions about project management. Then, the question was whether we had project managers at all. Now the question is ‘How will you apply LPM in practice to our work?’”

Most of the law firm leaders I interviewed for my survey believe that the world has permanently changed, like the managing partner who said:

The way law firms deliver legal services to clients is undergoing a huge revolution. It’s going to change before our eyes in the course of a very short period of time. And it’s all being driven by clients who want to get value for their money.

As the chair of another firm summed it up:

I believe that we’re still in the beginning of the process. There are a number of famous economists who have talked about disruptive technologies and disruptive business processes. I think there’s a lot of evidence out there that this profession is being subjected to those pressures. Five years from now, if I turn out to be wrong, that will be great. But if I’m right, then I have to believe that those firms that adapt more quickly will have a competitive advantage, because the firms that don’t adapt quickly enough will be out of business.

September 30, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 2 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

Why is LPM so important?

In the current highly competitive environment, many law firms are struggling with two key issues:

  1. Pricing: How do we bid high enough to make an acceptable profit, but low enough to get new work?
  2. Managing: After we win work at a particular price, how do we manage the work to make a profit?

Another chapter in this book discusses how law firms are addressing the first question. While both are important, we would argue that management holds the keys to success. This is an era of dog-eat-dog competition in the legal profession, and firms often have little control over pricing or whether a matter is to be handled on an hourly basis or under an alternative fee. But once the price is set and the fee is structured, they CAN control how the work is done.

When I interviewed managing partners, chairs, and other leaders of 50 AmLaw 200 firms for my book Client Value and Law Firm Profitability, several talked about the importance of implementing LPM:

One of the problems that we have, and frankly that most firms have, is just teaching lawyers how to manage a project, getting them out of the habit of just automatically starting out with some rote process. Just because the client says “I think I might have a lawsuit” doesn’t mean you go off and conduct 40 depositions. Lawyers need to sit down and talk about what the client is trying to accomplish. It might turn out that we are able to accomplish the client’s end goal without taking any depositions. Or we might be able to do an M&A transaction, not by going through all the traditional steps, but stopping and thinking critically first. That’s something that we spend a lot of time trying to get across to our younger lawyers.

Project management is the next great horizon we need to reach. Historically, I believe that legal matters have been handled largely by just forging ahead with the project team leader directing various team participants to address this or that task without any formal checklist in sight. That has led to the bills for legal services being larger than one might otherwise expect or desire.

Most of our clients are no better at understanding or applying legal project management than we are. But in the future, the fact that you can actually do something on time and within budget is going to become an important indicator of whether or not you really are a good lawyer.

If you apply all its principles, LPM is not that scary, and it’s not that hard. Just getting people to understand it and do it is the biggest challenge.

According to the ALM Intelligence survey, firms that have begun to apply LPM, even in very limited ways, have already seen benefits. When the survey asked “Which of the following 13 benefits has your firm realized from its project management effort?” every single benefit in their list had been realized by at least 20% of the group. The most common benefit was “More productive relationships with clients” (achieved by 62%).

The ALM survey concluded that:

LPM can help bring increased effectiveness, reduce wasted time, and manage client expectations… Law firms can overcome [the] hurdles by targeting initial efforts in areas that would be most receptive, incrementally rolling out initiatives, and getting experienced help. Those that can successfully implement LPM will find over time that they gain a competitive advantage.

Altman Weil’s 2015 Law Firms in Transition survey has presented the most systematic evidence to date that greater efficiency pays off. They found that firms that had changed their approach to efficiency were more likely to report that revenue per lawyer was up (76% of firms that changed had increased revenue per lawyer vs 62% of firms that had not changed) and that profits per equity partner were also up for a higher percentage of the firms that had changed (76% vs 61%).

September 23, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 1 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

For the previous edition of this book, I wrote an article entitled “Legal project management: A trend that is here to stay.” In the years since, all signs have pointed to its continued growth. But genuine progress in changing lawyers’ behavior has been slowed by controversy about the best way to implement legal project management (LPM), and even how the term is defined.

One thing is crystal clear: firms that improve LPM will have a competitive advantage because its growth is being driven by clients. In its 2014 Chief Legal Officer Survey, Altman Weil asked, “Of the following service improvements and innovations, please select the three you would most like to see from your outside counsel.”  They listed a number of concepts, including preventative law strategies, non-hourly based pricing structures, improved communication, alternative project staffing, and technology efficiencies. The three that clients picked most often were greater cost reduction (58%), more efficient project management (57%), and improved budget forecasting (57%). Since LPM leads to improved budget forecasting and to cost reductions, you could say that the top three client requests were LPM, LPM, and more LPM. 

And clients are frankly not impressed with what law firms have accomplished to date. The same survey asked participants to rate how serious law firms are “about changing their legal service delivery model to provide greater value to clients” on a scale from 0 (not at all) to 10 (doing everything they can). The median answer was 3, a ringing indictment of clients’ views regarding the inadequacy of the current level of effort.

From the law firm perspective, progress is being made. You know a topic is important when people start selling opinion surveys about it. That happened for this topic in 2012 when ALM Legal Intelligence released Legal Project Management: Much Promise, Many Hurdles, a survey report that included data on software, training, pilot programs, firm culture, influential stakeholders, staff, and much more.   

The first question they asked was, “Does your firm employ legal project management processes in its casework?” 51% said yes, 26% said no, and 22% were not sure. Is the glass half full or half empty? By the glacial standards of law firm change, this is significant progress. Just two or three years before, if you had asked this question, most lawyers would probably have replied “What is ‘legal project management?’” So the fact that a majority of this group was using LPM in casework reflected a significant change in a few short years.

Other surveys have found similar results. In the American Lawyer’s December 2014 report on its “Law Firm Leaders Survey,” Michael Heller, Cozen O’Connor’s CEO, summed it up very simply: “Law firms are being forced to completely change the way they practice law.”

When Altman Weil’s 2015 Law Firms in Transition Survey asked managing partners for their opinions on which of 14 current trends were most likely to be permanent, 93% put an increased focus on practice efficiency at the top of the list. That’s right, 93%. When have you ever heard of 93% of lawyers agreeing about anything?

But when the same survey asked, “Has your firm significantly changed its strategic approach to efficiency of legal service delivery?” only 37% said yes. (36% said no and the remaining 28% said changes are “under consideration.”)

93% of firm leaders think change is needed, and only 37% are doing something about it. What’s wrong with this picture?

As negative as these figures seem, in our day to day experience the reality is much worse. In many cases firms that say they have “changed their strategic approach” have done so only for a small sub-group within the firm or in a strategic plan which has not yet been implemented. In the trenches, the vast majority of lawyers are still practicing the way they always have. This should not be surprising, since LPM requires lawyers to change habits they’ve developed over decades, and no one likes to change.

In 1962, Professor Everett Rogers analyzed the forces involved in changing business behavior, and summarized his conclusions in an influential text entitled Diffusion of Innovations, which is now in its fifth edition. In this context, the most important idea is his argument that the people who adopt a new idea are distributed in a normal curve in several sequential categories which he called innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%), and laggards (16%).

While it is impossible to prove exactly where LPM stands on this continuum, based on our experience talking to a wide number of firms, we strongly believe that LPM is at the early adopters’ stage. A small group of innovators has successfully proven its value, but the spread to others remains slow. Many law firms have done an excellent job at putting out press releases announcing that they are leaders in LPM. But when it comes to changing the way an entire practice group or firm does business, they have fallen far short.

The bad news is that clients want faster progress. The good news is that to win new business you just have to be a little better than your competitors, so law firms that have started down the LPM path have an enormous opportunity to get ahead of those who have not.

Glacial progress can produce new business when you are competing with firms that are making no progress at all. We were reminded of this when one client contacted us two years after we offered just-in-time LPM coaching at her firm. She reported that they had just won some new business as a result of using LPM. She went on to say that she had been frustrated by the slow pace of change in her firm, but in this case it did not matter because their competitors were even slower. “If you move like a turtle but you're racing a bunch of snails,” she said, “it all works out in the end.”

July 29, 2015

Overcoming Resistance to Legal Project Management

A guest post by Gary Richards


“The difficulty lies not in the new ideas, but in escaping from the old ones.”  - John Maynard Keynes


It is natural for people to resist changing their normal way of doing things, and many lawyers resist the change of approach and mindset required by legal project management (LPM).

This post was written for internal LPM champions who see the value of LPM to their firm.  It lists six common objections to LPM.  Each is followed by questions and statements that could be used to guide a conversation to overcome resistance.

  1. Clients don’t always know what their objectives are.
    1. Do you have a list of typical questions you ask to help a client define their objectives?
      • Asking relevant questions shows the client that you are interested in what is important to them.
      • Your questions can also help the client think about issues they normally don’t consider.
    2. Do you and your client draft a written statement of objectives for discussion and mutual agreement?
      • Without clear, agreed upon objectives that the client is willing to pay for, you are more likely to have trouble agreeing at the end of the matter on what should have been done, and what will be paid for.
      • It’s easier to discuss client objectives if they are written
      • A draft can more easily be marked up during a discussion than taking notes without a draft for reference.
    3. Do you seek to determine whether other decision makers or stakeholders in the client’s organization share those objectives once defined?
      • A written statement of matter objectives is handy for your client contact to use in his/her internal discussions.
  2. Planning is often a waste of time. My cases evolve so quickly and have so many surprises that things never work out the way I expect. Besides, I don’t have time to plan and budget.
    1. Does the fee incurred ever exceed your quoted budget estimate?
      • Matter plans and budgets allow more accurate fee estimation.
    2. How do you tell if you are ahead or behind in work on the matter?
      • Matter plans help you to monitor progress
    3. What would suffer if you spent 30 minutes planning your next matter immediately upon accepting the representation?
      • Planning time is frequently billable, since the client benefits from increased efficiency, thoroughness, timeliness, etc.
    4. Do you ever run into:
      • Last minute crunches?
      • Missed deadlines?
      • Unavailable staff because they are already committed to another matter?
      • Task-level matter plans help avoid all three of these problems.
    5. Were there ever any problems with scope creep after you started work?
      • It is easier to show that the newly required work was not included in the initial plan/fee estimate if, in fact, an original plan/budget exists.
      • Otherwise, the client may feel it is legitimate to say something like “You are the expert… I thought you would have foreseen this!”
  3. My clients don’t require budgets.
    1. Do they just pay in full whatever you bill them? Or is there sometimes pushback on fees?
    2. Do you ever have conversations with clients that include fees?
      • Those discussions go better when you have a basis for your estimate, such as a matter plan and a clear scope statement.
    3. How do you determine what fee and/or timing to tell the client in the engagement letter?
      • At some point very early in the engagement, clarifying the fee expectation is important.
    4. Do your initial fee estimates ever prove to be too low?
      • (If “yes” because of scope increases…) It is easier to show that the newly required work was not included in the initial plan/fee estimate when, an original plan/budget exists.
      • (If “yes” is because of simply underestimating…) Matter plans allow more accurate fee estimation. Discussing the plan with clients can help shake out exactly what should be included in the work to accomplish their objectives.
  4. I have done this kind of work for years… I know how to provide my services.
    1. Of course I recognize that you would not be working in the firm if you had not been successful for years. But competitors are becoming more efficient and we want to stay ahead of them.
    2. Do you ever have any tasks you have delegated either come in late or get completed differently from what you expected?
      • Matter plans improve the clarity of delegated work, and the likelihood that it will be performed successfully.
    3. Do clients ever push back on fees/require write-offs to keep them happy? If so, how do you handle that?
      • Matter plans and communication plans help avoid fee surprises and related client dissatisfaction.
  5. My problem is that there is just more work to do than I can handle.
    1. Is it possible that you could delegate more of the tasks you are now doing that don’t require your level of skill knowledge and training?
      • (If “Yes”…) Having a solid matter plan/budget makes it easier to identify and hand off tasks that could be done by others.
      • (If “No…there’s no one to delegate to.) If you ask and are refused, then you have data to provide management about the need for more staffing. If you don’t ask, then vital information is being hidden from the firm, and client service may be suffering.
  6. If I become more efficient, won’t my hourly revenue drop?
    1. Is it possible that competitors could take the work away by offering the same quality for lower fees, due to greater efficiency?
    2. Is it ethical and/or a good business practice to have the client pay for your lack of efficiency?
      • When you are able to show that you are you efficient, it increases the likelihood of additional business and referrals from that client.
    3. Do you already have all the new business generation that you can handle?
      • If you reduce the time it takes for you to deliver quality services to a client, you can invest that “found time” in seeking new business, or other activities.

June 24, 2015

How to change law firm culture (Part 4 of 5)

 By Jim Hassett and Tom Clay


In addition to the difficulties with change management described earlier in this series, at law firms there is an additional challenge: the lack of strong central authority leads to a lack of accountability. It’s a lot easier to get things done when someone is in charge; someone who can penalize people if they fail to execute. The non-hierarchical structure of most firms makes it very difficult to hold people accountable.

In change efforts for complex situations like the evolving marketplace lawyers now face, Kotter and Cohen found that successful managers relied on the sequence SEE-FEEL-CHANGE. Instead of trying to appeal to the rational mind, they focused on making an emotional connection – which is exactly what Bilzin Sumberg did as it gradually expanded successful LPM initiatives to create a new LPM-based culture.

It would be nice to be able to report that, once a majority of Bilzin’s partners had completed their coaching, their LPM work was done. In fact, it was just beginning.

It is true that the firm’s clients quickly saw significant benefits in reduced costs and greater responsiveness, which in turn led to new business. But when LegalBizDev interviewed firm leaders for follow-up reports over the next few years, they consistently used phrases like “baby steps,” “infancy stage,” and “aspirational rather than obligatory” to describe the firm’s current use of LPM. 

Well, they should see the other guys! We spend our lives looking behind the curtain at a wide variety of law firms as we work with them to increase efficiency. Many firms have individual lawyers or practice groups that are quite advanced in LPM but, in our opinion, there is unfortunately not a single firm on the planet that can say that LPM has truly taken hold among all its lawyers.

There are dozens of firms that have put out more press releases than Bilzin announcing their LPM success. But in our experience, none has achieved behavior change more quickly or more cost effectively than Bilzin. LPM aims to change habits that have been reinforced over decades, and that kind of culture change will always occur one small step at a time. 

According to Paul VanderMeer, Bilzin’s director of knowledge management, “The more successes we have gotten the more converts we obtained, and the more that LPM has permanently changed the way we do business.”

One of the most important steps that Bilzin took to monitor and sustain progress was the formation of an LPM committee chaired by Michelle Weber, the firm’s chief operating officer. Practice group leaders are required to report regularly to the committee and to the managing partner about how they are applying LPM and what works best.

“We’re following this so tightly because it’s an enormous priority,” says Weber. The result is that best practices are spreading. Many changes have been quite simple but still extremely effective. For example, she noted that:

As matters come in, we routinely have a discussion at the outset with all team members, including paralegals, so that everybody understands what the scope is. At the same time, we discuss the task codes that everyone’s going to use so we don’t have major problems with consistency later.

Al Dotson, who was one of the three lawyers in the initial pilot test of LPM coaching, recently said 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.” For example:

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.

A number of other proven tactics for changing behavior have also accelerated success at Bilzin Sumberg and other of our clients. When LPM first became popular around 2009, some firms experimented with training every lawyer in the firm in the hope of spreading innovation like jam across the entire firm at once. It is a common approach among firms and is part of the “CLE syndrome” that’s especially pervasive among professional development directors. It allows the firm to check a box and put out a press release proclaiming success.

However, from a broad behavior change point of view, almost all these training programs were failures. Typically a few lawyers changed their approach but the vast majority just finished the class and went back to work the way they always had. As the managing partner of one firm that invested in extensive LPM training put it:

Project management will probably have the longest-term positive impact but it’s been the biggest challenge, because when busy lawyers start scrambling around, the inefficiency creeps right up.

It is much more effective to start by identifying a small group of lawyers who are most likely to be early adopters, by virtue of both the challenges they face (e.g., those who must manage fixed fee matters) and their personal openness to change.

The “tone at the top” is also extremely important. Enthusiastic support for LPM from senior management is very helpful in assuring acceptance. We have seen some firms succeed with a “bottom-up” effort that spreads LPM from the trenches with only lukewarm leadership support. But things go much faster if leaders are enthusiastic enough about LPM to keep pushing the effort past the inevitable speed bumps.

You may want to take a look at the third edition of the Legal Project Management Quick Reference Guide for additional examples of how proven tactics from the change management literature can be applied to law firms. In terms of what we’re talking about here, the most important point is simply that law firm cultures can be changed relatively quickly if you carefully apply proven principles from other professions.


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.


April 29, 2015

Six challenges in defining law firm profitability (Part 4 of 4)

Law firms’ problems measuring profitability cannot be attributed to lack of trying. A growing number of software programs are available to handle the calculations. The two long-time leaders in the field—Intellistat Analytics from Data Fusion and Redwood Analytics from Aderant—have been providing sophisticated tools to quantify law firm profitability for several decades. But to use these tools, one must make a series of assumptions, and that’s where the trouble starts.

At the 2014 LMA P3 conference, Jeff Suhr, vice president of products at Data Fusion, noted that his company had 91 clients actively using their tools, including 10 of the top 35 AmLaw firms (Jeff Suhr, “Best Practices in Leveraging Profitability Analysis to Better Price, Staff and Manage New Engagements,” presentation at the LMA P3 conference, Chicago, May 13, 2014).  Exactly how did these 91 clients calculate profitability? Ninety-one different ways. The fundamentals are the same, but there are important differences in the details, which can have significant implications for the way profitability is interpreted and used to motivate changes in behavior.

Suhr distinguished between the relatively straightforward science of calculating profitability and the art of determining the exact methods that best fit the needs of each firm. He also discussed the different challenges of “macro strategies” for analyzing profits for a firm, an office, or a practice group, vs. “micro strategies” for analyzing a book of business or a particular matter. These sometimes require different assumptions and different approaches.

For starters, you would think it would be easy to measure the revenue associated with a matter, but it’s not. John Iezzi’s Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability (p. 132) noted that:

There are three different revenue numbers you can use. One is the accrual basis revenue number, which is hours worked multiplied by hourly rate. The second is the bills rendered number. And third is the cash receipts number.

The first two numbers reflect theoretical revenue. After client write-offs and write-downs, a significant amount of this may never be received. So a profitability system based on either accrual or bills rendered rewards lawyers for putting in more hours even if they produce no revenue. This is particularly troublesome with fixed fees and other AFAs, where lawyers with too little to do may pile on the hours “since it costs nothing and could help the client relationship.” Not to mention that in many firms attorneys get paid more if they bill more hours, whether the client ever writes a check for the hours or not.

In my LegalBizDev Survey of Alternative Fees (p. 118), one AmLaw 100 decision maker told us that:

It often happens that alternative fee matters, particularly large ones, end up being a dumping ground for individuals who may not be fully employed because you are reportable to the client for the result, not the cost. When lawyers work unnecessarily on a project your profitability looks bad, so in order to really determine the profitability, we need to deal with that issue.

As one chair in this research put it:

What you’re trying to do internally is change the mindset of the attorney who is used to billing hours. In the past, if you billed 2,000 hours, you were better than somebody who billed 1,200 hours. But with an AFA, you have to be more efficient and more concerned with delivering the value to the client in a way that makes this a productive relationship.

That’s why the best measures of profitability must ultimately be tied to cash received. But there’s no way of knowing that figure until a matter is completed and the bills are paid. In a large firm with tens of thousands of simultaneous matters, each on their own schedule, comparisons between matters must be based on a long list of assumptions about what will happen in the future, or postponed until the end of a case, which could take years to resolve. And this can lead to arguments and gamesmanship.

One senior executive at a firm that bases compensation partly on accrual-based profitability highlighted one such problem:

We use dashboard tools including Redwood Analytics and Intellistat to track key metrics and responsibilities for each attorney as a working, billing, and originating attorney. This information is directly used in each person’s annual review and compensation setting, along with qualitative and subjective elements. They have visibility to this key information every day, and it begets a whole different sense of responsibility and accountability.

Determining cost is even harder. In order to truly determine the cost of delivering services for a particular matter, one must answer two basic questions: what was the cost of the direct labor of performing the work, and what overhead indirect costs (such as rent, clerical staff, etc.) should be allocated to that particular matter?

The problems start with how to estimate the cost of each hour of a partner’s time. If a rainmaker partner was paid $1 million last year, how much of that was her direct cost for working on legal matters vs. origination fees, payment for time spent on management, profit distribution, and other factors? A number of different systems of “notional compensation” are used to split compensation between the amount allocated to billable activity and the amount allocated to everything else. The details of how to do this could easily go on for many pages, but in this context the most important fact is that every single system includes arguable assumptions. And if there is one thing that lawyers do well, it is argue, especially if a calculation affects the way their financial results are perceived. And if matter profitability is tied to compensation and perhaps even to job stability, the debates on how to calculate these figures will rapidly get louder and more passionate.

If you think that since associates are on salary, it would be easier to calculate their direct costs, you’d be right. But even there, important decisions must be made. For example, suppose two mid-level associates earn the same $300,000 salary, but Associate A billed 2,000 hours last year and Associate B billed 1,500 hours. To keep this example relatively simple, we will ignore the cost of their health insurance and other benefits and focus strictly on salary. Some firms say that the direct cost of Associate A is $150 per hour ($300,000 divided by the 2,000 hours she billed) while Associate B is more expensive at $200 per hour ($300,000 divided by her 1,500 billable hours).

Now suppose that relationship partners are rewarded for managing matters more profitably. Of course they will try to assign more work to the busy $150 per hour associate than to the $200 per hour associate who has more time available. In this case, the attempt to measure profitability to develop a more efficient system rewards behavior that is actually likely to reduce efficiency by overworking the busiest associates.

Discussions of other aspects of overhead can also get into heated debates about such details as:

  • If one practice group heavily uses the services of the marketing department and another doesn’t, should the first group pay more marketing expenses through higher overhead?
  • If one lawyer has office space in a high-cost city like New York, and another has an office in a lower-cost city like Cincinnati, do they have different overhead rates?
  • If one lawyer in New York has a 600-square-foot office and another has a 300-square-foot office, should that be reflected in different overhead rates?
  • If one lawyer’s assistant makes more than another’s, should that be reflected in their personal overhead?

The questions go on and on, and they raise the kind of awkward issues that sow resentments and dissension. As one partner interviewed for Michael Roster’s article noted:

Many of us have long believed that the non-attorney costs of the various practice groups are wildly different. At most firms, no one wants to hear that, probably because it might open Pandora’s Box.

Some experts believe that this box should be opened, and when it is it will reveal that different practice groups can afford to charge different rates. One expert we consulted, who preferred to remain anonymous, put it this way:

Cost accounting should be kept very simple lest the lawyers argue about it forever more. That said, it should not be the same for the higher cost of production groups that need a lot of work rooms, support services, etc. (such as litigation) versus the very low cost of production groups that can work in a cubicle and only occasionally might need a conference room (such as trusts and estates). GM charges a lot less for a Chevrolet than for a Cadillac, and yet the overall Chevrolet division may be far more profitable that the overall Cadillac division.

Others disagree and feel that analyses that compare relative costs will become divisive by focusing lawyers on their short-term individual interests rather than the long-term benefits of working together. The labor and employment group may come to question the wisdom of belonging to the same firm as the M&A group that needs more expensive space. Lawyers from the Cincinnati office may begin to ask whether it is really worth having a New York office with much higher overhead.

To explore the real-world solutions that law firms are using most often, Jonathan Groner  contributed to my research by interviewing two of the leading consultants in the field: Russ Haskin, director of consulting services at Aderant Redwood Analytics and Jeff Suhr, vice president of products at Data Fusion Technologies/Intellistat.

According to Haskin:

If a firm has hired a pricing director but does not look carefully at profitability in a sophisticated way, it is doomed to fail.

Haskin said that very few large firms do more than pay lip service to the concept of profit margin—and those that do are far ahead of the game. Among other things, they are ready to respond to AFA proposals in a way that will be profitable for them. A firm that looks at profitability in the “old” way by examining gross revenue rather than profit margin as seen at the client or engagement level is simply not equipped to respond intelligently to an AFA request.

Both consultants agreed that the key to success is to simplify assumptions, and one way to do that is to look at gross margin (revenue minus direct costs). Suhr argued that at the matter level, gross margin is a better measure than any that includes overhead because issues like office space can’t be controlled at the matter level.

Haskin suggested that to simplify the cost analysis, the firm should allocate a standard cost rate to each lawyer or group of lawyers, for all clients, like the senior partner we interviewed who said:

We have a model that takes into account cost not based upon actual draws or salary, but it takes into account junior associate, mid-level associate, senior associate, junior partner, partner, and senior partner typical costs.

At the end of the day, there is a reason why Data Fusion’s 91 clients use 91 somewhat different methods to measure profitability. Companies like Data Fusion and Aderant Redwood work with each client to come up with a consistent approach that has grass-roots support within each firm.

As John Iezzi summed it up in Results-Oriented Financial Management: A Step-by-Step Guide to Law Firm Profitability (p. 145):

The subject of profitability at [the matter] level is one that is very difficult to grasp for those not fully versed in cost-accounting concepts. Whatever methodology is used, it should be agreed to by a consensus of the partners so that the results are accepted once the methodology is applied.… Make certain that everyone buys into how the process is going to be done, and more importantly, why it is being done and what decisions will be made from the information once the analysis is completed.

Jeff Suhr made a similar point more succinctly:

The right way to measure profitability is one that is accepted in your firm. The art is to measure it in a way that keeps everybody happy.

And as one managing partner in this study summed it up:

You can argue all day about what the right profitability metrics are or what you’d include. We argue about it a lot.

Many participants, like this senior executive, think that the cure is worse than the disease and that firms should stick to more traditional measures:

We’ve used realization as a surrogate for profitability to this point. True profitability has been reserved for senior management analysis. We haven’t wanted lawyers arguing about indirect allocations and whether they only use 10% of a legal administrative assistant’s time versus 33%.

The profession may never find the perfect solution that some lawyers seem to want.  But it is absolutely clear that firms which want to survive and prosper in the current environment must find an answer that fits their culture and allows them to clearly distinguish between the matters that make money and the matters that lose it. 

This series is an excerpt from my book Client Value and Law Firm Profitability.  An edited and abridged version of this series appeared in the March 2015 issue of MP magazineThe MP article can bedownloaded from our web page