The Balanced Law Firm

15 05 2011

Living in the corporate world, it’s easy to take scorecards, dashboards and metrics for granted. For those that recoil at management speak, they can become a one way ticket to snoozeville. For those who like to get down and dirty with data, browsing a realtime display of information can be the highlight of their week.

The Finance Director was very clear on how to measure partner performance

Most lawyers however, fall firmly into the “I prefer words to numbers” category, and so before you switch off, let me give you a 100%  money back guarantee that there will be no data analysis, spreadsheets, pie charts or pivot tables in this post.

It’s actually about how you measure and reward performance. Important in any business, surely?

I want to start with a term many of you may have heard, but perhaps not fully explored – the mythical “balanced scorecard”. Created by Kaplan and Norton, it started with the belief that traditional measurement of company performance was too one-dimensional, concentrating (as it did at the time in the mid-90s) on backward-looking financial data. The authors then developed a model that added three more areas of business performance to assess to give a much more holistic view of how the company was doing.

Now, before I go any further, take a second to pause and think about how your firm or team are measured.

What are the phrases that come to mind?

Chargeable hours? W.I.P.? Debtor days?

Don’t get me wrong, these metrics are all important. Understanding your costs and use of time are very important, and you’ll certainly never hear me criticise anyone for managing cashflow carefully……

But

There is more to a successful law firm than simply the financials. Surely the client warrants a mention? And perhaps the employees?

The Balanced Scorecard has four main categories of performance which are measured, and these are then fed in (possibly on a weighted basis) to the overall scorecard. The four dimensions are as follows:

  1. Financial performance – what is important for the partners (as the effective “shareholders” of the business)?
  2. Client performance – what is important for the firm’s clients?
  3. Internal process performance – how do our processes perform in delivering results for clients and partners?
  4. Learning and growth performance – how innovative are we and are we managing, developing and retaining human capital?

For the financial perspective, there is no shortage of common measures among law firms, but how many firms vary their metrics depending on the overall firm strategy, or departmental objectives? For example, in recent years controlling operating costs might have been a key firm-wide objective. However, if a particular team is charged with penetrating a new market, or demonstrating a tangible return on some investment, metrics like sales growth or pipeline growth may in fact be more valuable.

When looking at client metrics, client satisfaction is a measure which is only just starting to take hold in the law firm world, but to my mind is absolutely critical. Not only does it give some very clear feedback at face value, but the collection process can throw up some incredibly valuable insight that can be used to strengthen relationships and also present sales opportunity.

Another metric in this category that is common in the corporate world is NPS, or net promoter score, which essentially asks clients how likely they are to recommend the law firm to a friend. While there is a bunch of research behind this theory, for lawyers that have grown up being told of the importance of “word of mouth” marketing, investigating the use of NPS should seem like a logical step.

When assessing business processes, as readers of this blog will know, I believe there are plenty of opportunities for firms to sharpen up their operational efficiency through better processes.  There are lots of different ways to assess processes and measure improvements too – take a particular process (say drafting a consultancy services agreement), aspects that can be measured (and improved) could include the time the process takes (which doesn’t have to translate to price!), the number of defects (which might not be the same as complaints – defects might get picked up by an internal review), the number of steps in the process or perhaps the level of qualification/skill required to conduct various parts of the process.

Finally, learning and growth. Again, regular readers will know I’ve written quite a bit about the need for innovation in law firms, and it’s never been more important than in the current, highly competitive environment. New products and services, changes in operating models, adoption of new technology are all good examples of performance that can be measured by metrics that will support innovation.

Knowledge management is another critical area to investigate and could theoretically sit in either the business process category or here within learning and growth. The latter seems to me to be a better fit, but wherever it sits, it should be measured and form part of the performance management infrastructure at both a firm and an individual level given that law firms are knowledge businesses.

The other dimension to learning and growth is of course the development of human capital. Employee satisfaction and retention metrics might be a good place to start, but what about training (received and delivered) and subsequent productivity improvements? How about aligning training with strategy – for example are there new competencies the firm (or a team) needs to develop? If so, can attainment be measured and rewarded?

Ultimately, for these measures to be meaningful, they need to flow down to the individual level. In the corporate world it’s common to have a corporate scorecard that flows down to a business unit, which in turn flows down to a department, a team then an individual. The idea being that each of these levels “rolls up” to contribute to the scorecard of their parent unit.

In my experience of law firms this process happens, but only in terms of the financial data. Chargeable hours and utilisation rates roll up, but training targets and client metrics stay with the teams (if they exist at all).

This is a time when many firms are examining their strategy, their organisation and their operating model. Taking a broader perspective to performance management can provide the data to support making changes, but critically can support the introduction of changes by driving the behaviour that’s needed for successful implementation. It’s a cliche, but “if it’s not measured, it doesn’t matter”.


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2 responses

13 06 2011
gastonbilder

I have used the BSC methodology to manage a corporate legal department. I am interested in learning about the experience of any law firms using it. Anybody out there?

Looking forward to hear from you,

@gastonbilder

17 06 2012
Mark Greenhouse

Mark,

Great post and some key ideas and I’d like to add a couple of tips for your readers. Particularly when it comes to operational efficiency.

Monitor and improve the time input to complete work – that’s great, you may be able to compete on price points. Most organisations can do this.

Monitor and improve the time taken from client enquiry to completion (What the customer really experiences) and you can compete on better service – faster turnaround. Most organisations don’t bother to monitor this; too many departments involved.

Often orgs measure departmental, silo, efficiency or part of the process i.e. average wait times to see a consultant in the NHS. I can’t recall seeing an “average time to hospital discharge from first visit to GP”.

Having a faster turnaround and you have lower Lock-up (WIP), this is the bit before you go and try to collect the cash. Now you’re free to go out and win more clients as you have free capacity to work.
Lower WIP and more clients, both fairly critical aspects of business these days?

Be honest though how many firms, in any industry, monitor and improve the time from client enquiry to completion/delivery?

Or use such a measure to compare different locations, offices to uncover best practice.

Yes they do department, function improvements.

TIP #1 Time is the often the only way to compare the performance of different offices/teams doing the same types of work.

TIP #2 Don’t be afraid to monitor a whole process in one – after all it’s what the customer purchases.

Whilst I’ve mentioned averages above I do hate them.

Why? Often you can never achieve them. What’s the average score of a dice?

Throw one a hundred times and what average do you get 3? 4? No, it will always trend toward 3.5. Try throwing 3.5.

So what is your average billing, average debtor days? Have you ever billed the average?

Each score from 1-6 on the die should have occured a similar number of times, unless you have a loaded die.

TIP #3 Make sure scorecards focus on the distribution of results and identiifes the most popular results.

I would also recommend your readers also look towards Lean Accounting as a subject that links operational performance and improvement to the financial performance of the firm.

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