228 posts categorized "Legal Business Trends"

March 18, 2015

LPM workshop: Experts from five firms discuss how to change behavior

On June 8 in Chicago, five law firms that have made significant progress in LPM will frankly discuss what has worked and what hasn’t at the fifth session of one of the Ark Group’s most popular events : “Legal Project Management Showcase and Workshop: Changing Behavior within the Firm.”  I look forward to chairing this session and discussing the latest developments with:

Andréa Danziger, Director of Business Development and Practice Management, Loeb & Loeb

Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie

Michael Nogroski, Director of Knowledge Management, Chapman and Cutler

Scott Wagner, Partner, Bilzin Sumberg

Matt Wahlquist, Director of Practice Management, Stinson Leonard Street

If you are planning to attend this year’s Legal Marketing Association’s P3 conference (the three Ps stand for Project Management, Pricing, and Process Improvement), you may notice that the  Ark conference is scheduled one day before P3, which is also in Chicago.  That was not an accident.  I hate to travel, and Ark was kind enough to agree to schedule this workshop the day before P3 to save me a trip.  I wouldn’t miss P3. 

Implementing LPM is more critical than ever.  In Altman Weil’s 2014 Chief Legal Officer Survey, the top three things that clients wanted were greater cost reduction (58%), more efficient legal project management (57%), and improved budget forecasting (56%).  Since LPM will help meet the first and last requests, you could say the top three things clients want are LPM, LPM, and more LPM.

From the law firm point of view, when I interviewed AmLaw 200 chairs, managing partners and senior partners and executives for my book, Client Value and Law Firm Profitability, LPM was identified as the single best way to provide greater client value while protecting profitability.  But many firms have learned the hard way that while it is easy to offer awareness training to lawyers focused on LPM theory (and put out a press release announcing all their lawyers have now been trained in LPM), it is very difficult to get them to change their behavior.  The managing partner of one AmLaw 200 firm that invested heavily in traditional training and was disappointed in the results put it this way: 

I think project management probably will have the longest-term positive impact [on value and profitability], but it’s been the biggest challenge, because it’s something that hasn’t been easily absorbed by a lot of the lawyers. When busy lawyers start scrambling around, the inefficiency creeps right up. At our firm, project management has not met expectations.

After previous sessions of this program, audience members said:

This workshop did an excellent job of offering practical suggestions for dealing with the issues law firms encounter when they implement legal project management. The frank discussions between partners and executives at firms that have successfully changed lawyers’ behavior would be helpful to anyone who is trying to get their arms around this challenging transition.

Delilah Flaum, Partner in Charge of Knowledge Management and Legal Project Management at Winston & Strawn LLP

 

This workshop is a great way for any law firm to jump-start an LPM initiative. Jim Hassett has the experience and credentials to be THE leader in this area. His approach is directly applicable to achieving greater efficiency, competitiveness, and client satisfaction and the workshop panelists described how they used LPM to increase revenues and repeat business. I was truly inspired and enabled by this program to achieve higher profitability for my firm.

Pete C. Elliott, Director of Legal Project Management, Benesch, Friedlander, Coplan & Aronoff LLP

For more details about what these five firms have done so far, and on the workshop, download the brochure, visit the Ark Group’s web page or contact Ark’s Peter Franken at pfranken@ark-group.com or (312) 212-1301. Readers of this blog qualify for a special 15% discount.  Simply write “LegalBizDev Discount” on your order form and subtract 15%, or ask for the discount when you register by phone.

 

March 11, 2015

LPM at Stinson Leonard Street – A course on defining scope and much more (Part 3 of 3)

By Jim Hassett and Jonathan Groner

 

Given the success of the course “How to Define Legal Scope and Negotiate Changes,” described in Part 2 of this series, what comes next for LPM at Stinson Leonard Street?

It all comes back to providing clients with greater value, according to Jill Weber, the firm’s chief marketing and business development officer. The firm frequently conducts client satisfaction surveys, both in person and online, and has consistently found that when it comes to value, the definition varies from matter to matter and client to client. For value, “one size fits one,” Weber summed up, quoting an in-house lawyer who spoke at an ACC Value Challenge event a few years ago:

I see tremendous potential in LPM for improving the delivery of services, especially where we have multiple matters for a single client and there can be some consistency in how you plan matters and staffing. Mind you, that is not the only place for LPM, but it is the easiest place to become more efficient while still remaining effective and meeting and exceeding clients’ expectations.

Matt Wahlquist, the firm’s director of practice management, is continuing to integrate LPM efforts across every office, practice division, timekeeper, and administrative department.

A few months ago, Wahlquist hired Rodney Miller, a former practicing attorney, as an in-house LPM specialist. Miller joined the firm after the scope workshop and has worked extensively on follow-up activities related to the course.

There was always a good deal of interest in LPM at the firm, but now the lawyers are running toward it as a result of client demand. There is a synergy between client needs and attorney needs that puts LPM in the middle of it. I reach out to our lawyers to help them further their LPM goals. And I work with clients as well, when they want a change in scope in an alternative fee arrangement matter or a traditional hourly matter.

Wahlquist’s core team has now grown to include two legal project managers and three pricing professionals. The most recent hire, Bree Johnson, completed LegalBizDev’s Certified Legal Project Manager® program when she worked for another firm.

The team is already helping to improve performance on a variety of matters, including assisting in the development of a pilot test of a highly innovative new LPM-based process to design and implement a new pricing regimen with one of the firm’s largest clients.

According to Co-managing Partner Mark Hinderks:

Clients often fear alternative fee arrangements as “black boxes” with which they might be gouged, but we are working to combine project management principles with the advanced cost and pricing analytic capability we have been using for several years to create a new transparency in pricing. We believe this will prove very appealing, especially as an alternative to arbitrary discounting from rack rates that firms establish in different ways. It should provide assurance of savings to the client while also preserving a reasonable return to the law firm in a mutually sustainable relationship.

This is not an approach that a firm would want to use with just any client, but we expect it will be very helpful for large clients where there is a strong relationship built on mutual trust. Stay tuned as we pilot this.

Plans are also underway for individual coaching and other programs. Next June, Wahlquist will be reporting on the firm’s progress at the Ark Group’s Legal Project Management Showcase & Workshop on June 8 in Chicago.  When the firm holds its retreat in Phoenix next October, Jim Hassett will conduct a panel discussion of partners who are LPM leaders within the firm to internally publicize their progress and recommendations for next steps. Hassett will also give a keynote speech summarizing the firm’s efforts to date, how it compares to what other firms are doing, and his predictions for the future.

Co-managing Partner Lowell Stortz summed up the firm’s philosophy and plans like this:

We've picked lawyers who are willing to learn, with clients for whom we can have the most immediate impact. We’re building LPM a brick at a time, from the ground up, with those clients, and I think in a law firm environment that sells better than “preaching” and then hoping that it catches on.

Given the way legal practice is changing, we need to continue to improve. A year from now, we need to be further down the road than we are, and I am confident we will be there.

March 04, 2015

Tip of the month: Improve the questions you ask when you start an engagement

When I interviewed chairs and managing partners of AmLaw 200 firms for my book Client Value and Law Firm Profitability, they said that the single most important factor in LPM success was defining scope.  The simplest way to improve is by asking the right questions before an engagement begins, such as:

  • How do you define success or “a win”?
  • What business problem do you want to solve?
  • Are there strict budget limits?
  • What deadlines matter the most to you?

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.

February 25, 2015

LPM at Stinson Leonard Street – A course on defining scope and much more (Part 2 of 3)

By Jim Hassett and Jonathan Groner

After Matt Wahlquist, the director of practice management at Stinson Leonard Street,observed the course “How to Define Legal Scope and Negotiate Changes,” he noted that:

The course was extremely practical. We have had conceptual training before from other companies, but our lawyers are always looking for something they can use on a day-to-day basis, and that is exactly what this workshop provided. Some people put their lessons into practice that very day. After all, if we can decrease our write-offs as a result of improved upfront conversations on scope, those results flow through directly to the bottom line. A proactive five-minute conversation with a client can pay for itself very quickly from a return-on-investment perspective.

Co-managing Partner Lowell Stortz said that before the course was offered:

I was somewhat skeptical of the results, because we chose people for the workshop who already had some interest in and/or knack for scoping. It’s always easy to show progress when you start with someone who’s at zero; it’s much harder to show progress when you start with people who are already pretty good at something. At the suggestion of the course leader, three weeks after the course I sent an email to this group of accomplished, busy, successful lawyers and asked them to respond as to how they’d used it, if at all. Virtually all of them responded (and in a law firm environment that alone is amazing) with good insights.

One participant reported to Stortz that:

I have one client that I thought just wasn’t interested in LPM or scoping. But as a result of the workshop, I reached out to the client and engaged them in a conversation and it turned out that there really was a place for this. The training led me to give it a shot, not only from my side, but also inviting the client to think about it. This yielded some benefits right away.

Another participant, Scott Hecht, is an insurance litigation partner at the firm and head of the insurance department. He explained that at any given time he is responsible for managing dozens of matters pending for a particular client, although a group of other attorneys do the bulk of the work. He took the class because he wanted:

To enhance my ability to manage those matters, communicate effectively with the client, and maximize efficiencies in billing and other areas.

Each of these matters is a litigation matter or an administrative investigation. They are all somewhat similar in scope on the surface. The variation is based on the number and nature of opposing parties, counsel, witnesses, and documents in each case. What I took away from the scope course is the need to have a constant sense of the client’s expectations in each matter and the way in which external factors sometimes only known by our defense attorneys handling the matters can still substantially affect the scope of each matter. It’s a question of getting and keeping your ducks in a row for each of dozens of similar matters.

In this client organization, there are 30 or more people who are my points of contact; they all have different personalities, levels of experience, and expectations, and I need to be very responsive to all of them. I expect LPM techniques to translate to a better experience for my client contacts, which differentiates our law firm from others.

Course participant Paul Hoffmann, a bankruptcy partner, pointed out that the office of the U.S. Bankruptcy Trustee, which supervises bankruptcy matters nationwide, recently set forth a rule change that requires advance budgeting in all larger bankruptcy cases. Therefore, bankruptcy lawyers have a legal obligation in many of their cases to develop budgets in advance.

I took the course because I wanted to improve my ability to estimate fees and to draft engagement letters. This will help to reach agreement in advance with clients on nontraditional billing matters and also help clients draw up budgets on traditional hourly billing matters.

There are so many ways in which a lawsuit can change as it unfolds. There can be a change in parties, a change in issues, or there can be the need to document a settlement or an appeal.

The course did a very good job of telling us how to explain budgetary changes to clients so as to minimize any client concerns that might arise. And it also did a very good job of showing us how the billing attorney must meet with the entire team to discuss the budget and to discuss any budgetary changes that may arise as time goes on.

Tracey Donesky, still another course participant, represents employers in many types of matters, particularly both federal and state wage and hour suits under the Fair Labor Standards Act and other various employment discrimination claims brought under various state and federal employment laws. According to Donesky, the single most important fact about LPM is that:

Clients want LPM, so law firms will have to use it to increase client satisfaction and better manage their cases. LPM needs to be integrated into every aspect of every case. The course helped solidify in my mind the need for LPM from a client expectations standpoint.

Donesky has recently begun to use LPM techniques on a number of matters, including several for one firm client where she is lead counsel. She seeks to budget for each case 30 days in advance, working with partners, associates, paralegals, and other timekeepers on the file to identify what litigation activities are anticipated for the month ahead and then allocating estimated hours expected to complete such activities. This provides the clients who use LPM an estimated budget, which helps increase predictability and manage expectations in advance. While there is some level of trial and error to the process in these beginning stages, the hope is that over time and as similar cases begin to work through the LPM system and historical data is gathered, the budgeting and estimating process will become more predictable and precise. 

As Donesky summed up the experience to date, “The firm is only going to get better at this process as time goes on and more data is analyzed.” 

Part 3 of this series (coming March 11), will focus on additional efforts in the firm currently underway to improve LPM.

February 11, 2015

Business development best practices: Work with others

This is one of a series of occasional posts summarizing the most important best practices from my book the Legal Business Development Quick Reference Guide which is now also available in a Kindle edition.

Business development is difficult, and it helps to work with other people who provide support through the losses, and help you celebrate the wins. One way to do this is to form a business development group. It could be your entire practice group, a formal committee including people from your marketing department, or just two or three lawyers who meet for breakfast once a month.

Keep the agenda simple. At the first meeting, each person should commit to action items for the next meeting. Then at every subsequent meeting, go around the table and have each person report what they accomplished since the last meeting and what they have planned before the next one.

Working with a group provides social support, increases accountability, and leads to steady progress. No one wants to go to a meeting and report that they have failed to follow up on all their action items. The simple fact that you know you have a meeting coming up will help spur you to action.

The results can be summarized in a simple report after each meeting. The fact that a report is being circulated will create a friendly competition and increase compliance. Nobody wants to be the person who has all zeros in their business development report.

The most reliable systems often put a staff person in charge of collecting the data (say, every Monday by noon), and publishing the results every week at the same time (such as Mondays at 5). The report should never be delayed to wait for an individual’s results. This week’s missing data can be filled in next week. And the phrase “missing data” in the report will help to ensure that the information will be supplied, sooner or later. Ideally, the reports should start with a clean slate every few months. Without this fresh start, once people fall behind, they are likely to stay behind and just give up.

But whether you decide to have written reports or not, the biggest challenge here is to simply make sure you keep meeting. Life is sure to intrude with your meeting schedule, and it is easy for these meetings to fade away after a few misses. Therefore, it can be extremely useful to include a non-lawyer (e.g. your marketing person) who takes responsibility for reminding everyone of the next meeting, and do everything possible to maintain a quorum. In a nice way.

For many lawyers, an even better way to proceed is to work with a professional legal business development coach.

On the other hand, working alone may not be as good as working with a coach or a group, but it’s a whole lot better than doing nothing. If you are one of those rare individuals who will continue to follow-up through sheer self-discipline, go for it. The important thing is to find a system that works for you, and to sustain it over the long term.

January 07, 2015

Tip of the month: Hold a lessons learned meeting

Lawyers are increasingly holding meetings at the end of every significant matter to review what worked, what didn’t, and what could be done better the next time.  These discussions are not just a learning opportunity but also a marketing opportunity. A “lessons learned meeting” will enhance your relationship, help you learn more about what an existing client values most, and enable you to provide more value. If a large matter is at a pivotal point, a mid-course review and redirection could be the difference between success and failure.  

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. For suggestions to increase the efficiency of “lessons learned meetings,” see the third edition of my Legal Project Management Quick Reference Guide.  

December 31, 2014

One managing partner’s view of three critical issues in LPM

A guest post by Sverre Tyrhaug

Background:  Sverre Tyrhaug is the Managing Partner of Thommessen, the largest law firm in Norway.  He is also one of five individuals from the firm who are currently completing our Certified Legal Project Manager Program®.  This is the first of three blog posts based on his answers to essay questions from the program.

A personal plan to improve time management

What I do well now:

  • Clear picture/vision on what I want to achieve.
  • Using to-do lists (with brain map tool, giving good overview of all tasks)
  • Prioritizing and doing one thing at a time
  • Spending time to plan the week ahead
  • Maintaining “stop doing lists”
  • I often ask myself the questions:
    • What is the most productive thing I can do right now?
    • What is the best use of my time right now?
  • Trying to run efficient meetings with clear agendas
  • Keeping a clean desk and papers and documents  in organized fashion
  • Keeping track of time spent, categorized in 15 categories and evaluating it on a monthly basis.

What I could improve:

  • Limit unnecessary internal meetings
  • Establish routines and business process improvements on repetitive tasks including yearly budgeting, partner performance meetings, strategic review, and salary/bonus assessment
  • Limit interruptions (emails, drop-in visitors)
  • Block out time in calendar for my own project work
  • Ask questions and challenge the way I work:
    • What is the value added from this task?
    • Is there an easier way to do this?
    • What three to five things can I accomplish today/this week/this month that will make a big difference to the bottom line?
  • Delegate better and more
  • Learn to say no.

Thirteen ways to improve team performance

  1. Communicate: inform and listen
  2. Allocate enough time to team building.
  3. Involve the team early. Present them with the scoping of the matter and the draft work breakdown structure for brainstorming, buy in, commitment, assignment of tasks, and assignment of individuals responsible for each task. Communicate clearly on client goals and scope.
  4. Communicate “ground rules” for the team early in the process, including respect for each other, productive use of time in meetings, active listening, focus on solutions, and being prepared for meetings.
  5. Have regular efficient team meetings with clear objectives, an agenda in advance, the right people attending (small to get things done, large to build relationships or brainstorm). Provide minutes with decisions reached and follow up actions.
  6. Update the work breakdown structure and the planned schedule.
  7. Watch out for scope creep. Remind the team about the project scope and goals.
  8. Find out what motivates the team (deadline, challenge/difficulties, bonus)?
  9. Motivate team members, along the way and at the end. Make each member of the team aware of the importance of their contribution to the team.
  10. Act as a good example.  Be positive and provide feedback. Be available to discuss problems.
  11. Let people be responsible.  Hold them responsible for the result, but do not micro-manage. Be demanding in terms of performance, but provide clear goals and be supportive. Treat the team members as “winners” and part of our unique firm.
  12. Involve the team members in decisions. Listen to their views, show that you appreciate their input.
  13. Evaluate, gather feedback and take actions based on the feedback.

How to improve delegation

Delegation is an important part of the business model for a successful law firm. We need to delegate to manage profitability, we need to delegate to train our associates, we need to delegate to keep our associates happy in terms of understanding that they are valued and involved, and we need to delegate to free up time to do business development and other firm building work.

To improve delegation: 

  • Delegate early in the project. Think delegation immediately. Do not wait!
  • Think carefully, from the client’s perspective, on what tasks should be delegated. Delegation is not always efficient, but all or most of our projects have activities that should be delegated.
  • Discuss with the client why parts of the project are delegated, and explain why it is in the client’s interest.
  • Be a good coach when delegating.  Be clear on expectations (e.g. deadlines and  feedback) and priorities vs. other projects. Be available to help. Put the activity that is delegated in context. Why is the task important for the project (and what is the project?). Upon a new assignment, provide clear goals and objectives (WHAT).  Spend little time on HOW, but ask for their input on how they propose to perform the task (do not dictate how to perform the work in detail), and spend time on WHY (give the task meaning).
  • Learn from your experience when delegating. If you are not happy with the result or get a lot of questions from the associate on how to perform the work, think about whether you could be clearer on expectations etc. when delegating.
  • Try to delegate entire projects or work-activities as that generally helps the associates’ motivation, commitment and sense of responsibility for the end result.
  • If you lack confidence or delegate to new associates, start with delegating smaller tasks and provide structure and guidance.
  • Think carefully about the skills required and who to delegate to. Also think about the workload of the people and avoid delegating to someone who is already busy if there are other resources available.
  • Evaluate completed assignments and provide feedback. This is an extremely important point, as it is an investment in the associate that will provide the associate the tools and learning to perform even better on the next task delegated.

December 26, 2014

Bloomberg interview regarding my new book (Part 2 of 2)

This interview originally appeared in Bloomberg BNA’s Corporate Counsel Weekly.  A pdf of the complete interview can be downloaded from our web page.

Bloomberg BNA: Can in-house counsel help law firms become more efficient?

Jim Hassett: Absolutely. Many law departments need to become more efficient themselves if they expect their firms to deliver better service. A few years ago, an AmLaw 100 Chairman I interviewed for an earlier research report (The LegalBizDev Survey of Alternative Fees) noted that “It is very difficult for a law firm to tell a client that a matter is not going well because of what is going on in the legal department. I think we’ve all had experiences over the years with in-house counsel who are not good managers… [This] can increase cost and reduce the quality of outcomes.” Another participant echoed this theme when he described some problems he was having with a very large client but noted, “I am reluctant to tell [the GC] that his own people cause a fair amount of inefficiency, because he’s not going to want to hear it.”

My new book lists the top three things clients should do to increase value:

  1. Define objectives and scope at the beginning of each matter
  2. Increase transparency about client needs
  3. Improve in-house project management

As one chair summed it up, “Clients have to jointly work with us to figure out what it is they want us to do less of in order to meet their expense goals. You can’t do scorched-earth approaches to matters at reduced fees.”

Bloomberg BNA: How are new staff roles contributing to profitability?

Jim Hassett: In 2012, Jonathan Groner and I wrote an article for Bloomberg Law Reports entitled “The Rise of the Pricing Director.”  At that time, despite extensive networking, we were able to find only a handful of people who held the title of pricing director in a law firm or performed that function. Law firms generally move a little slower than glaciers, but the growth in pricing directors in the two years since has been meteoric. According to a 2014 survey by ALM Legal Intelligence, “Seventy-six percent of big firms now employ some sort of pricing officer. And these positions are in the midst of a remarkable growth spurt.”

With 20/20 hindsight, it is easy to see the reason for the rapid growth of the pricing director title and function. The well-documented changes in the legal profession over the last few years have placed intense pressure on profits. It is therefore not surprising that a new host of high-level executives has emerged to help law firms set their prices in a way that will help them to maintain profitability.

Many firms agreed on the value of hiring people with business backgrounds and empowering them to use their skills to help lawyers make crucial decisions on pricing and efficiency. As one managing partner put it: “I think what’s had the greatest positive effect is our business managers. They can much more impartially sit down and analyze profitability. They build up a database of what it costs us to do things, and they’re just invaluable. They work with enough lawyers that they’re able to focus on the numbers and their minds work differently… These non-lawyers are focusing on the business side of the equation and what it costs to do things, pushing back and helping lawyers have a little bit of backbone. They can now show them a model and say, ‘No, that’s too low, you’re going to lose your shirt.’”

Bloomberg BNA: Is profits-per-partner a good metric to measure a law firm’s influence?

Jim Hassett: In my opinion, it is definitely over-emphasized. Unfortunately, when lawyers talk about profit, many think first and foremost about profits per equity partner, the figure publicized in the American Lawyer annual rankings of the top 200 firms. This is widely perceived as a sign of financial health and sometimes used to recruit laterals to higher profit firms. It is also misleading.

In any other business, profits are defined as the revenue that is left over after all expenses have been paid. In the law, partner salaries come out of the “partner profits” pool. In a law firm, if there were no partner profits, partners would be paid nothing for their work. This leads to considerable confusion. For example, one managing partner in our study said: “As a partnership, everything we make above our cost is profit. I once had a lawyer who stood up and said, ‘How did we lose money this month?’ I said, ‘We didn’t lose money, we just didn’t make as much money as we would have liked.’ It’s very hard for a law firm to lose money, that is, be in a situation where you’re not paying your partners anything.”

In other businesses, companies analyze which product lines and groups are most profitable, and they act on that information by fixing or discontinuing unprofitable products or people. In law firms, the focus on total profits per partner distracts people from one of the most critical questions in today’s competitive legal marketplace: which matters, practices, partners, and offices make money and which don’t?

If that’s not bad enough, there are a number of other problems with these figures, starting with the fact that they are not audited. An August 22, 2011, ABA Journal article by Debra Cassens Weiss reported that “More than half of the nation’s top 50 law firms could be overstating profits per partner to the American Lawyer magazine… An analysis by Citi Private Bank Law Firm Group reportedly found that 22 percent of the top 50 firms overstated profits per partner by more than 20 percent in 2010. Another 16 percent inflated partner profits by 10 to 20 percent, and 15 percent boosted partner profits by 5 percent to 10 percent.”

Bloomberg BNA: Will the legal market ever “bounce back” from the recession, or do law firm partners now need to learn how to excel in a totally different environment?

Jim Hassett: Most of the people we interviewed 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.”

Adapted with permission from Corporate Counsel Weekly Newsletter Vol. 29, No.48, December 10, 22014. Copyright 2014, The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com.

 

December 17, 2014

Bloomberg interview regarding my new book (Part 1 of 2)

This interview originally appeared in Bloomberg BNA’s Corporate Counsel Weekly.  A pdf of the complete interview can be downloaded from our web page.

Bloomberg BNA: Tell us about your new book Client Value and Law Firm Profitability – what was your goal and who did you talk to?

Jim Hassett: In the last few years, millions of words have been written by law school professors and consultants about how the demands of the clients of major law firms are changing and what law firms should do about it.

The only thing that’s been missing from the conversation is statements by the people who actually run large law firms. These senior decision makers deal with these issues every day, and their very livelihood depends on coming up with the right answers. I wanted to hear their honest opinions about these highly sensitive issues but knew they could not speak openly if they were quoted by name, so I devised a research approach built around anonymity. I conducted every interview myself, and promised that while firm names would be listed in the report, the name of every individual I interviewed would remain confidential and no quote would be linked to a particular person or firm.

Leaders from 50 of the AmLaw 200 agreed to speak with me for this book. Forty-two percent were managing partners or chairs, and the remainder were senior partners and staff, including CEOs, COOs, and CFOs. They were indeed unusually frank in their responses, including the AmLaw 200 chairman who said that “Lawyers are about as dumb as you could possibly be about understanding how our product is made. The lawyers who understand how to make it and who can manage that process efficiently are going to be the winners.”

They also spoke freely about both problems and solutions, like the managing partner who noted that “I have a $10 million practice. But that could be a disaster for a firm, because it could cost them $11 million to get $10 million. But nobody ever talks about it that way.”

Bloomberg BNA: What was your most surprising finding?

Jim Hassett: While almost everyone agreed that client demands for greater value and lower fees have been putting pressure on law firm profits, firms were remarkably inconsistent about how they measure profits. When I asked, “If you compare profitability for two lawyers in your firm, is there a software program or formula used to calculate profitability or is the comparison more intuitive?” a surprising 26% said there was no such formula or program and that the answer was intuitive. For the other 74%, definitions and formulas varied widely, including total revenue, profits per equity partner, leverage, several different types of realization, and a variety of approaches to cost accounting.

To dig more deeply into this important issue, we conducted follow-up interviews with industry leaders from firms that sell software to analyze law firm profitability. Jeff Suhr, a VP at Intellistat/Data Fusion, reported that his company currently has 91 clients actively using their tools. How do they calculate profitability? Ninety-one different ways. The fundamentals are basically the same, but there are important differences in the assumptions and details. These differences can have significant implications for the way profitability is interpreted and can affect the way in which the figures are used to motivate lawyers to change their behavior so that they can better meet client needs in a way that can be sustained.

Bloomberg BNA: What are law firms doing to protect the bottom line?

Jim Hassett: They are trying lots of things, with mixed success. According to our data, the two most effective ways of protecting profitability are quite new to the legal profession: legal project management (LPM), and new staff positions in such areas as pricing, value, and LPM.

Other tactics have led to more mixed results, including relying on new technology, knowledge management (KM), and contract attorneys and outsourcing. The book includes many quotes from proponents saying that technology, KM, and outsourcing were the most valuable steps they took, and from others who said that they were a waste of time and money. These differences of opinion can be traced both to the different needs of different firms and to the details of how they tried to implement change in each of these areas.

Bloomberg BNA: Lots of people seem to agree that legal project management is important, but what exactly does it include?

Jim Hassett: That is an excellent question. The field is so new that experts disagree about what should be included and excluded from the concept. This has slowed progress, as seen in the remarks of one senior executive who noted: “We were just at a board meeting last week where we were talking about whether we should do formalized project management training. My answer to that is obviously yes, we absolutely should. But first we need to agree on what legal project management is.”

In my book Legal Project Management, Pricing and Alternative Fee Arrangements, I reviewed the short history of this movement and proposed the broad definition we use in our coaching, our training, and this research: “Legal project management adapts proven management techniques to the legal profession to help lawyers achieve their business goals, including increasing client value and protecting profitability.”

This broad definition includes everything from budgeting and communication to process improvement, knowledge management, and personal time management. We believe splitting hairs over what is and is not LPM is just another excuse to avoid action. Law firms need to move as quickly as possible to the real problem: What must we do today to meet client needs while remaining profitable and competitive?

Bloomberg BNA: Where is the pressure for LPM coming from?

Jim Hassett: From clients. One of the best sources of information about client demands is the Chief Legal Officer Survey which Altman Weil has been publishing for the last 15 years. (Full disclosure: LegalBizDev is a strategic alliance partner of Altman Weil.) One key question in the 2014 survey, which was released in November 2014, was, “Of the following service improvements and innovations, please select the three that you would most like to see from your outside counsel.” This year’s answers from 186 CLOs were greater cost reduction (58%), more efficient project management (57%), and improved budget forecasting (57%). Since LPM leads to cost reductions and to improved budget forecasting, you could say that the top three client requests were LPM, LPM, and more LPM. 

In business, everything starts with meeting client needs. But lawyers who understand LPM and apply it to their practice are still a tiny minority. As one senior executive put it: “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.”

When I asked about which aspects of LPM were most critical to firms’ short-term success, it is interesting that the top two areas participants singled out were defining scope and managing client communication. These issues cannot effectively be addressed by the expensive software that so many firms see as a starting point. They require partners to change their behavior and become more efficient.

Adapted with permission from Corporate Counsel Weekly Newsletter Vol. 29, No. 48, December 10, 22014. Copyright 2014, The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com.   

December 10, 2014

Book excerpt: The challenge of measuring law firm profitability (Part 3 of 3)

This series was adapted from my new book Client Value and Law Firm Profitability.

The questions about assumptions raised in Part 2 of this series go on and on, and they raise the kind of awkward issues that sow resentments and dissension. As one partner interviewed for and article by Michael Roster 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, we interviewed 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 at the end of a chapter on cost accounting:

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 less than perfect estimates are absolutely essential in helping firms adapt to a rapidly changing world.

A slightly edited version of this series was published in the October 2014 issue of Of Counsel:  The Legal and Management Report by Aspen publishers.  The complete article can be downloaded from our web page