241 posts categorized "Legal Business Trends"

August 26, 2015

Business development best practices: Don’t stop

Selling is a numbers game.

New life insurance agents are sometimes taught the “100/10/3 formula:” You must approach one hundred people to get 10 appointments and three customers. The exact numbers will be different for lawyers, but in any kind of selling you must approach a large number of prospects in order to get a small number of sales.

In his book 101 Marketing Strategies for Accounting, Law, Consulting, and Professional Services Firms, Troy Waugh (p. 227) talks about the need to “succeed by failing more:”

All advertising, public relations and direct mail programs have failure rates (non-response) that exceed 95%. But the one to five percent success can create excellent leads and pay for all your efforts.

Fortunately, the numbers are not quite this high for most professional service firms. At McKinsey & Company, one of the most successful consulting firms in the world, every director in the firm is responsible for marketing, using the “2/4/8 rule:” constantly work on two assignments, four proposals, and eight new prospects. McKinsey does not have an internal marketing department, because they recognize that all senior staff are responsible for marketing.

It can take significant time to build relationships with all these people, and the best way to build relationships is with face-to-face meetings. When Don Schrello analyzed data from McGraw-Hill, Cahners, and other sources regarding face-to-face selling for both goods and services, he found that over eighty percent of the time, sales professionals require at least five face-to-face meetings to close a sale.

In the SPIN® Selling Fieldbook (p. 42), Neil Rackham’s data on major account sales are even more daunting: “Fewer than 10% of calls actually result in a [decision of] an Order or No Sale.”

Add all these facts together, and it becomes clear that finding new clients takes an enormous amount of persistence, and the ability to shrug off rejection, week after week. As Mike Bosworth put it in Solution Selling (p. 83), “Sales always has been and always will be a numbers game—no matter how good you become, not everyone will buy from you.”

The fact that you will be dealing with large numbers means that you will need to be organized and systematic in managing your interactions with all these prospects.

According to Jim Cathcart in the book Relationship Selling (p. 100), “The way to recognize a true sales professional is to look at what he or she does after the sale.”

In every industry, it is far more expensive to win business from a new client than from an old one. Even if there’s no more money for you in this year’s budget, next year’s budget is just 12 months away or less.

Think about what you might do to stay top of mind with each client, from newsletters to personal updates.

Cathcart suggests keeping in touch with everything from clipped magazine articles to handwritten notes, and a regular account review to uncover both satisfaction and dissatisfaction. Publicize the positive, and fix the negative.

And when you lose a sale, keep in touch with those people too. If you find ways to help people, they will remember you, they will come back to you, they will tell their friends, and sooner or later some of them will buy.

The key to long-term selling is “don’t stop.” Look past today’s victories and losses, and focus on building relationships that will be the foundation of your long-term success.

And on the inevitable days when progress feels slow, give yourself a pep talk about the fact that sales is a numbers game. If you knock on enough doors saying the right thing, your share will open.

As Calvin Coolidge famously summed it up:

Nothing in the world can take the place of persistence.
Talent will not; nothing is more common than unsuccessful men with talent.
Genius will not; unrewarded genius is almost a proverb.
Education will not; the world is full of educated derelicts.
Persistence and determination are omnipotent.
The slogan “press on” has solved and always will solve the problems of the human race.

This post was adapted from my book the Legal Business Development Quick Reference Guide.

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.

July 22, 2015

Why law firms must change their marketing priorities (Part 2 of 2)

By Jim Hassett and Jonathan Groner

 

Robyn Radomski is the chief marketing, strategy & business development officer at Bingham Greenebaum Doll, a firm with over 200 lawyers in eight offices in Indiana, Ohio, and Kentucky. She agrees that a seat at the LPM table is needed, and she earned hers by organizing the firm’s first pilot test of LPM coaching, which has already led to improvements in budgeting, cost control, and client communication.

“At its core, LPM is about delivering value to the client, and as marketers we represent the client’s view and the client’s perspective,” Radomski says. “In addition, firms are always looking for ways to differentiate their services, and we see LPM as a huge part of that. LPM is the best way to deliver efficiencies to the client. It also helps the corporate general counsel look good by improving budget control and risk management.”

Over the last several months, Geoff Goldberg, chief advancement officer at McCarter & English, a firm with over 400 lawyers in the Northeast, has devoted a significant amount of his time to promoting LPM within the firm and recruiting lawyers for a recently-started program of LPM coaching. (Goldberg heads business development for the firm and is also involved with advancing its business in other ways, including working with associates and laterals.)

“At first, I found it very hard to get lawyers to talk about LPM,” he reports. “Whenever I raised the topic, eyes would begin to roll and people would say, ‘That’s for lawyers who do commoditized work, not for me.’”

Goldberg decided to develop a formal presentation about how the legal market is changing. He has offered it in four of the firm’s offices so far, to make the point that “many clients are demanding more value and lower costs.”

Lawyers faced with this demand, Goldberg says, have only three choices in how to respond: “Turn down the work, say yes with discounts and take a hit to the bottom line, or say yes with lower fees but maintain profit margins by using LPM and doing the work more efficiently.”

Most firms, Goldberg said, seem to be selecting the second choice with discounts that reduce margins, a trend that has become so prominent that consultant Bruce MacEwen coined the term “suicide pricing” for it. Over the long term, this trend is simply not sustainable.

Marketing departments these days are notoriously understaffed, so where does Goldberg find the time to focus on LPM? “LPM is the single most important change in how we develop business and it’s here to stay. Since driving it is the highest value I can provide to my firm, I focus on it first,” he said. “I get my traditional day job done at night.”

According to Loeb & Loeb’s Andrea Danziger, “As we become more involved in strategic matters, some traditional marketing activities will have to accept fewer resources and give way to matters that are more important to clients in their selection of outside counsel.  For example, brochures and off-the-shelf marketing materials are too general to guide purchasing decisions. What the client wants to know is who is on the team? What’s their experience? What’s the budget?  How will the matter be managed?”

None of the four individuals interviewed for this article was willing to be quoted on the reasons why legal marketers spend so much time on activities that have a low probability of producing new business, and LMA gives awards for them. But once we talked off the record to others not quoted in this article, it was easy to find marketing professionals who went on at great length about two fundamental problems:

  1. Many lawyers simply don’t understand marketing. There’s no reason they should. Lawyers are extremely intelligent, but very few have ever had the time or the inclination to study marketing. 
  2. In many firms with dozens or hundreds of partners, marketing professionals in effect have the same number of independent bosses. On any given day, several may show up with tasks that marketers see as unlikely to pay off but that the lawyer sees as urgent. Marketers quickly learn to do what these bosses ask or look for a new job.

One head of business development described his job as “deciding who I will disappoint every day, due to lack of time.”

Marketers not only lack time to focus on products, pricing, and LPM, they often don’t have enough time to focus on the most fundamental tasks in business development, such as helping lawyers to increase satisfaction for current clients, plan sales advances, or follow up consistently.

Legal marketing professionals must prioritize relentlessly. They’ve always been expected to work long hours, as their bosses do. But as a more competitive legal marketplace economy has led to staff reductions, the total number of marketing department hours has gone down at the same time that the hunger for new work has gone up. Still, in most firms marketers must set aside their own priorities whenever one of their many bosses shows up with the fire drill of the day.

Several of the people we talked to off the record mentioned the pet peeve of many legal marketers: “best lawyer” surveys such as Chambers USA, Martindale-Hubbell, and Avvo. An enormous amount of marketers’ time can go into the process of getting lawyers listed. We found many professionals who talked about how this is driven by lawyers’ egos, but not a single one who thought these surveys were a cost-effective way to bring in new business.

Other off-the-record discussions also revealed that marketers are often forced to devote an enormous amount of time to bidding on RFPs that the firm is very unlikely to win. Why? Because a powerful partner insisted on it.

This underlying dynamic – in which people who understand marketing are micro-managed by people who don’t – puts senior management in an awkward position. It is easy to say that the executive committee should simply give the marketing staff more independence. But management cannot afford to alienate powerful partners any more than the marketers can. At a time when lawyers with large books of business can easily become laterals and take their work to a different firm, one can argue that providing services that stroke the egos of powerful partners is a business necessity.

But if this takes so much time that marketers cannot work on the things that will actually bring in new business – such as helping to provide clients with the right product at the right price – then management has just two choices.  Either hire more marketers – some to develop new business and some to stroke egos – or set firm ground rules for marketing department priorities, focusing on activities that are most likely to lead to new business.

At this critical moment in the history of the profession, when it comes to the “Four Ps” of marketing, product and price are far more critical than promotion. The best web page and brochures in the world cannot sell products that people don’t want to buy. Just ask the people who once sold 3.5-inch computer disks, eight track tapes, and buggy whips.

These days, as the managing partner of one AmLaw 200 firm put it in our recent book Client Value and Law Firm Profitability: “The firms that are most effective [at delivering value] are going to do well, and I don’t think everybody will survive.”

 

Adapted with permission from Bloomberg BNA’s Corporate Counsel Weekly, 6/10/15.  Copyright 2015.  The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com

July 15, 2015

Why law firms must change their marketing priorities (Part 1 of 2)

By Jim Hassett and Jonathan Groner

 

When Kramer Levin, a firm with over 350 lawyers in New York, Silicon Valley, and Paris, conducted a search for a new head of marketing last year, the two finalists were required to give formal presentations to the firm’s executive committee describing their recommendations for the firm’s marketing priorities. Jennifer Manton, the finalist who was ultimately chosen, focused on broadening the position to include more business development activities that will directly drive client growth, including legal project management (LPM) to meet client demands for improved communication and efficiency.

Last fall, when Manton began work in her new position, one of the first things she did was to start planning an LPM coaching program similar to one she had been involved with at her previous firm. (Full disclosure: All of the LPM programs described in this article were conducted by LegalBizDev.) Since then, a pilot group of seven Kramer Levin lawyers has successfully completed one-to-one LPM coaching, and the firm has already seen benefits in improved client communication, more accurate price estimates, increased client satisfaction, and more. A second coaching group will soon be underway.

“It’s all about connecting the dots between the client experience and the service approach,” Manton summed it up. “LPM helps lawyers address many of the issues clients raise in satisfaction interviews, such as the need for better communication.”

One of the many interesting things about this story is that Manton is a former president of the international Legal Marketing Association (LMA), which in the past reflected the nature of the profession by being associated with a more traditional approach to marketing. Marketing is often defined by the “Four Ps”: price, product, promotion, and place. Historically, law firm marketing departments have been involved almost exclusively in promotion. In today’s economic environment, that is a recipe for disaster.

One way to see how most law firm marketing departments have traditionally spent their time is to look at the LMA Your Honor Awards, described on their web page as “the longest-running annual national award program recognizing excellence in legal marketing.” There are 10 major categories: identity, promotional and collateral materials, advertising, events, websites, social/interactive media, media relations campaigns, community relations, marketing on a shoestring, and practice development. Only this last category includes direct business development programs such as attorney coaching and cross-selling initiatives.

In fairness, it is important to note that three years ago LMA recognized the LPM movement when it started a new Client Value Shared Interest Group, which last month held its third annual P3 conference in Chicago. (In this case, the three Ps are project management, pricing, and process improvement.) Interestingly, this group was originally formed as part of ILTA (the International Legal Technology Association). The majority of speakers at this year’s conference were not from marketing or business development, but rather held other titles such as CEO, COO, CFO, or director of LPM, pricing, or knowledge management. And when Strategies, LMA’s official magazine, interviewed three experts to preview this year’s conference, none of them had marketing titles.

In our experience, when LPM is rolled out in a firm, the marketing department has often been limited to a support role, if it has any role at all. In some cases, we have advised clients to get their marketing departments more involved in our LPM coaching and training programs and have essentially been told “No, that’s not marketing’s job.” But we believe it is.

According to Altman Weil’s Chief Legal Officer Survey last fall, the top three service improvements that general counsel and law departments would like to see are greater cost reduction (58%), more efficient project management (57%), and improved budget forecasting (57%). Since LPM leads to cost reductions and improved budget forecasting, you could say that the top three client requests were LPM, LPM, and more LPM.

Andréa Danziger is director of business development and practice management at Loeb & Loeb, a firm with more than 300 lawyers in Los Angeles, New York, Chicago, and four other offices. She believes that the marketing department should be deeply involved in meeting the need for LPM.

“It bothers me if someone looks at our function as just putting together marketing materials,” Danziger says. “If we don’t reach a strategic level of involvement in decisions relating to pricing and staffing, we aren’t doing our job. We need to be touching the levers of profitability in each and every pitch, proposal and RFP response.”

Loeb & Loeb began its LPM initiative three years ago. According to Danziger, “It’s very important for marketing to have a seat at the LPM table, and at our firm we have one. My business development team makes recommendations concerning what is the right team -- how many partners, how many associates, how many staff attorneys -- and at what price. We work with finance to illustrate how such decisions will impact the budget and, as a result, are able to offer the client options. But LPM is not just about budgeting. It’s about how to achieve clients’ goals in the most cost effective way, and about how to communicate with both clients and the internal team. Our involvement helps ensure this is happening.”

To date, 19 lawyers at Loeb & Loeb have completed one-to-one coaching, and four more are currently underway. Danziger notes, “If the relationship partner has gone through our LPM coaching program, it shows. The client becomes more confident in us as a result. This has improved client retention and satisfaction.”

 

Adapted with permission from Bloomberg BNA’s Corporate Counsel Weekly, 6/10/15.  Copyright 2015.  The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com

July 08, 2015

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

What should you do about the issues raised in this series?

If your clients don’t care about efficiency and are willing to pay whatever it takes to handle their legal matters, you may not need to do a thing. Yet. Just keep delivering services the way you always have, pile up those billable hours, and pray for the client’s health.

But even if you are one of the lucky few in this shrinking slice of the profession, it is worth asking whether you are sure your clients don’t care about cost. Is it in the best interest of your clients for you to remain inefficient? What would happen if a credible competitor offered a better deal? We would argue that it is prudent for every lawyer to consider whether LPM could help protect your practice in an ever more challenging profession.

For everyone else – all the lawyers who know that the demand for efficiency and cost-effectiveness is already here or coming soon to a client near you – it is critically important to meet those client demands for efficiency as quickly as possible.

Consultant Shlomo Swidler developed the following curve to illustrate the relationship between the speed of change and the competitive advantage it produces:

  2015_07_08_Graph

 

As this curve suggests, firms that change quickly will have a significant competitive advantage over those that adapt more slowly, and an even greater advantage over those that never change at all.

At the management level, too many firms are reacting to clients rather than taking a leadership position. We talked recently to one managing partner about an embarrassing meeting with the firm’s largest client. The general counsel described hiring a new legal project manager for his law department, and said “I’d like to arrange a meeting for him with your legal project manager.”

The managing partner not only did not have such a person at his firm, he wasn’t even quite sure what LPM meant. But, being a skilled politician, he said, “We’ll make that happen,” and then tap-danced his way through the rest of the meeting. Then he went back to the office and started asking questions about who was working on LPM. The result would have been much better if less tap-dancing had been required.

Fortunately, the research results for Client Value and Law Firm Profitability supported the idea that law firm leaders see change in this area as critical. One key question asked directly was, “Will firms have a competitive advantage if they change more quickly?” Eight-five percent of respondents said yes and only five percent said no. (The other 10 percent didn’t know.)

The results of failure to change quickly could be severe. As one managing partner put it, “The firms that are most effective are going to do well, and I don’t think everybody will survive.”

In a November 2014 American Lawyer article entitled “Big Law’s Reality Check,” Aric Press reviewed a significant amount of data showing that, while a small number of law firms at the top have reason for optimism:

It also seems clear that not every firm is going to make it through the next several years… During the good times it took extreme cases to bring down an enterprise. The limited recovery has shrunk the margin for errors in judgment and execution. The good times were forgiving. Today’s times are much less so.

Or, as investor Warren Buffet famously put it, “Only when the tide goes out do you discover who’s been swimming naked.”

As one AmLaw 200 senior executive interviewed for the book Client Value and Law Firm Profitability summed it up, “Firms that can’t deliver more value will fail.”

It is all too easy to identify law firm initiatives that have failed and to attribute the failure to the implications of that classic observation, “culture eats strategy for lunch.” As clients continue to demand greater value and competitors continue to become more aggressive, only the firms that actively move to a more business-like culture are likely to prosper.

Changing culture is never easy, but other businesses have learned how to do it effectively and law firms must learn from them:

  • Develop internal champions for every initiative. The ideal champion is not the managing partner or chair, but a group of respected partners who can point to the success they have achieved.
  • Aim for short-term wins.
  • When wins are achieved, communicate them effectively throughout the firm.
  • Choose an area like legal project management where it is clear that there will be benefits to both clients (in greater value) and the firm (in profitability). It will help reduce hurdles for many reluctant lawyers.
  • Get everybody to understand the new initiative as an investment, not an operating cost. Investment and cost are obviously two totally different things, and under-investing in any initiative will almost certainly lead to failure.
  • Don’t form a committee that will postpone action until it is convinced there is a perfect solution.
  • Do support lawyers who are willing to experiment to find out what works best for each client, practice, and personality.
  • If things don’t work out precisely as hoped the first time, recognize that that is the nature of innovation and adaptation. Learn from it and try again

Or, as partner Camden Webb of Williams Mullen put it after completing one of our LPM programs:

Just do something. This will spread project management, because when lawyers succeed, others in the firm will imitate their success.

 

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. 

 

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.

 

June 17, 2015

How to change law firm culture (Part 3 of 5)

By Jim Hassett and Tom Clay

 

Change is inherently difficult, especially for lawyers whose mindset is steeped in following precedent and past practices. But there is a large body of research literature on how to change corporate cultures. It has been successfully applied to the legal profession to increase adoption of LPM.

In his book Leading Change, John Kotter, professor emeritus at Harvard Business School, noted that:

Real transformation takes time... Most people won’t go on the long march unless they see compelling evidence within six to eighteen months that the journey is producing expected results. Without short-term wins, too many employees give up or actively join the resistance.

Kotter listed many benefits of short-term wins, including the fact that they:

  • “Provide evidence that sacrifices are worth it
  • Reward change agents with a pat on the back
  • Help fine-tune vision and strategies
  • Undermine cynics and self-serving resisters
  • Build momentum”

Most lawyers will change their behavior if they are provided with convincing evidence that it is in their own self-interest. If partners whom they respect and trust say that an aggressive fixed fee deal became profitable because of the way it was managed, or that a lawyer working on an hourly basis avoided a write-down with a difficult client because he or she used project management tactics, the others will listen.

So, one key tactic to promote change is to focus on short-term wins with clearly measurable objectives. Instead of trying to train everyone in the firm to be more efficient, seek out lawyers who are motivated to change and help them to find their personal “low hanging fruit” that will prove LPM’s benefits to others in the firm.

For example, in 2012 LegalBizDev was asked to introduce an LPM program at Bilzin Sumberg, a Florida-based firm of about 100 lawyers. A few months before speaking at its annual retreat, we began coaching three lawyers on LPM. In weekly telephone sessions of about 30 minutes each, our coach walked the three lawyers through key problems and issues that they were encountering in their practices and how best practices from other firms might apply.

They selected real world matters to analyze and identified the key issues that were most critical in each situation, using the templates, job aids, and checklists in our Legal Project Management Quick Reference Guide. Then they reviewed the best practices described in the book and discussed exactly how to apply them to increase client value and protect profitability. At the retreat, the three lawyers then discussed their results.

One pilot participant was Al Dotson, a member of the Executive Committee and the practice group leader of its Government Relations and Land Development Practice Group. By the time of the retreat, Dotson’s coaching had already led to new business.

Dotson represents real estate developers and contractors in highly complex matters that involve a series of government regulatory agency approvals, and his developer clients loved the approach because they use project management to run their own businesses. One of them was so impressed by a legal project plan Dotson had produced that he asked Bilzin to take on a significant amount of new work.

As a result of the discussion of this quick win at the firm retreat, a number of other partners became interested in seeing if LPM could help them increase new business and realization. All 51 partners were offered the option to complete the same coaching program that Dotson had received. Over the next 15 months, a total of 26 partners volunteered for and completed the program, representing just over half of the firm’s partnership.

At that point, belief in LPM had reached critical mass and developed enough momentum that no more coaching was needed. The partners themselves and Bilzin’s internal staff took ownership of the effort, moving it forward and sustaining progress. The first quick wins had led to more wins and ultimately changed the firm’s culture.

This example can also be related to a second principle John Kotter described in another book (The Heart of Change, co-authored by Dan Cohen, Chairman and CEO at Stuart Advisory Services Group). Kotter and Cohen interviewed over 400 people who had been involved in change efforts at 130 companies to understand why some change initiatives had succeeded and others had failed.

They concluded that the managers who failed had used an approach that could be described as ANALYZE-THINK-CHANGE. They focused on rational arguments, compiled spreadsheets, and developed PowerPoint presentations to show workers all the intellectual reasons why they needed to change. This type of systematic approach can be effective in a stable and controlled situation, they concluded, such as when you need to cut your printing costs or reduce your commute time.

But in most corporate change efforts, it does not work because “the parameters aren’t well understood, and the future is fuzzy.”

 

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. 

 

June 10, 2015

How to change law firm culture (Part 2 of 5)

By Jim Hassett and Tom Clay

For anyone who follows the legal marketplace, it will come as no surprise that corporate clients are exerting enormous pressure to receive greater value from their law firms and that law firm profit margins are being squeezed as a result. What remains a surprise to many firms is how urgent the need for change is and how difficult it is to get lawyers to change their behavior.

It’s something wave seen both in our consulting work with law firms and in the results of several research studies. When, in Altman Weil’s “2015 Law Firms in Transition Survey,” 320 managing partners and chairs opined on which of 14 current trends were most likely to be permanent, 93 percent put an increased focus on practice efficiency. That’s right, 93 percent. When have you ever heard of 93 percent of lawyers agreeing about anything?

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, sums it up very simply: “Law firms are being forced to completely change the way they practice law.”

While clients are demanding efficiency, law firm leaders are struggling to figure out how to provide it. But as long as compensation systems reward lawyers for putting in more hours, it will be a tough nut to crack. Firms must stop focusing on simply generating more revenue, whatever it costs, and instead focus on the much harder issue of generating greater profits. As one managing partner put it in our recent research on Client Value and Law Firm Profitability, “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.”

What are firms doing about the demand for greater efficiency? Not nearly enough.

When the “2015 Law Firms in Transition Survey” asked, “Has your firm significantly changed its strategic approach to efficiency of legal service delivery?” only 36.9 percent said yes. (35.5 percent said no and the remaining 27.6 percent said changes are “under consideration.”)

As negative as these figures seem, in our day-to-day experience the reality is much worse. In many cases, firms that have “changed their strategic approach” have done so only on a piece of paper. In the trenches, most of their lawyers are still practicing the way they always have.

In 1962, Professor Everett Rogers published his influential text Diffusion of Innovations, which is now in its fifth edition. The book explains the elements that determine how quickly a new idea spreads. 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: innovators (2.5 percent), early adopters (13.5 percent), early majority (34 percent), late majority (34 percent), and laggards (16 percent).

At some point, Rogers argues, successful social change reaches a critical mass in which the number of adopters is large enough so that the speed of adoption becomes self-sustaining and further spreads the idea. This is, of course, very similar to the central idea in Malcolm Gladwell’s best seller The Tipping Point: How Little Things Can Make a Big Difference. According to Gladwell’s definition, a tipping point is “The moment of critical mass, the threshold, the boiling point.”

The introduction of legal project management (LPM) is a good indicator of a law firm’s commitment to improved practice efficiency. The field of LPM is so new that there is still some disagreement about exactly how to define it. For this article, we use the very broad definition proposed in our book Legal Project Management, Pricing, and Alternative Fee Arrangements: “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.”

While there is no systematic data as to exactly where LPM stands on Professor Rogers’ continuum, based on our experience talking to a wide number of firms, we strongly believe that LPM is still at the early adopters’ stage. The bad news is that clients want faster progress. Many law firms have done an excellent job at putting out press releases announcing that they are leaders in LPM, and indeed many individual lawyers have achieved success. But when it comes to changing the way an entire practice group or firm does business, they have fallen far short.

The good news is that innovative law firms still have an enormous opportunity to get ahead of competitors. We believe that the key issue for most firms today is to find the LPM tipping point for each practice group. In our experience, the required percentage varies widely depending on the pressure the group is under as well as on the internal political dynamics of a practice group led by a few strong leaders versus one in which each lawyer acts as an independent agent.

Clients are certainly not impressed by law firms’ efforts to date. In Altman Weil’s “2014 Chief Legal Officer Survey,” 186 in-house general counsel rated 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 the low level of effort.

In this context, LegalBizDev recently published the book Client Value and Law Firm Profitability, which summarizes in-depth confidential interviews with chairs, managing partners, and other leaders from 50 AmLaw 200 firms. Many of those leaders reported gaps between the firm’s strategy and what actually gets done.

To assure that strategies are executed properly, you’ve got to start with metrics. As consultants are fond of saying, “What gets measured gets done.” When law firms outline strategies without metrics, the follow-up quickly gets fuzzy. You’ve got to have a way to show people they are making progress. Defining effective metrics is not easy. In the case of LPM strategies, where metrics exist, they tend to be subjective measures of increased client satisfaction and new business. As the field matures, more sophisticated measures are likely to emerge.

In most other businesses, implementation is clearly seen as a four-step process that includes goals, actions, scorecards, and accountability. Most law firms never get past the first step of setting the goals. They fail to identify the actions – specific measurable behaviors – that are required to achieve the goal.

Some identify the actions but lack a scorecard or measurement system to track who is taking action and whether it is working. And the few who do have a scorecard often lack accountability. The lack of centralized power at many firms means that it is every partner for him- or herself.

 

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 27, 2015

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

By Jim Hassett and Tom Clay

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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