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:
- Financial performance - what is important for the
partners (as the effective "shareholders" of the business)?
- Client performance - what is important for the firm's
clients?
- Internal process performance - how do our processes
perform in delivering results for clients and partners?
- 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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