Management ABCs: The Hawthorne Effect

Admin — Tue, 18 Mar 2008 07:00:10 GMT

A method of increasing performance is based on the Hawthorne Effect. Although several of the experiments have been downplayed by social psychologists, the effect that attention has to performance is as true today as it was when recorded at the Hawthorne Plant in the 1920's.

Basically, when attention is given to the performance of an employee, the employee's performance increases. Simply put, measurement improves performance. If you set goals for your timekeepers and don't measure them against the goals, the incentive to succeed is left to trusting individuals to meet their goals.

How well suited is your firm for a loss of a client such as Bear Stearns (or, perhaps, Lehman Brothers)? Gerry Riskin wrote in January to make your firm recession-proof. Some of the factors listed in recession-proofing the firm:

Ramp up frequency of financial reporting (monitor the firm's key finanacial metrics);
Make hard decisions humanely and fast (monitor under-performing timekeepers);
Manage internal expectations (monitor expectations to keep staff motivated and avoid "business as usual");

Each of the above requires attention. Trust alone that the individual timekeepers will respond to economic crises is a recipe for disaster. A better management model is the Hawthorne Effect. Everyone needs to be accountable for results. Let the effect of attention to performance help the firm during difficult times.

The effect of measuring performance brings other benefits. Beyond improving results, keeping attention on profit drivers has the added benefit of opening opportunities - even in bad economic times. As Riskin notes, [w]hile strategy may be more challenging during recessions, if you grasp the nettle, opportunities will arise to enhance your client mix and your talent base.

We have begun taking submissions towards the 2008 Law Firm Economic Survey. If your firm is interested in participating or if you would like more information, please contact Brian by clicking here.

Measuring Law Firm Profitability

Admin — Thu, 14 Feb 2008 08:00:00 GMT

One way to get an idea of your firm's financial health is to report on the firm's profitability. There are many ways to calculate profitability depending on what you are looking to track. In this example, we are taking into consideration the value of fee earners against their cost. The value of an attorney, for the purposes of this post, is the billed rate per hour.

You determine attorney cost per hour by taking the salary of the attorney, the cost of their dedicated resource(s), the cost of their work space, the cost of equipment used, and other incidental costs (not billable to the client) incurred by the fee earner. This can be sticky for some firms where principals may not be agreeable to apportionment of cost. In cases like this or where the firm is more evenly apportioned in staff and office use, a less accurate but easier calculation would be to add up all the general ledger cost accounts (excluding fee earners' payroll), divide by the number of fee earners, then add salary. It is better to do the work and determine actual cost.

Once arriving at a cost per fee earner, reduce to a cost per hour (by dividing cost per fee earner by worked hours billed per year) and then you can use this to subtract from the attorney's billed rate to get the profitability rate. This is excellent indicator of the value of your billable rates and by extension the attorneys charging these rates.

With profitability reports like the one above that is part of Juris' Active Information product, you can determine how much value (in terms of dollars) you are getting for every billable hour worked by the fee earner. You can set margin per fee earner and track the profitability rate against the target margin as well. Efficiency is an important key to higher profits. A report such as this in a historical context helps you track efficiency of the fee earner.

To take it one step further: you can use, for analysis purposes, the collected rate to compare to the cost per attorney. You shouldn't make this analysis until the invoice has been zeroed out (either by payment or adjustment), so this is not really a good indicator of current profitability. But it can be helpful in a profitability analysis of a given client or fee earner. Again, tools like Juris' Active Information can track collected rate and thus make calculating all the formulas above automatic.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Make More Rain : disaster recovery, benchmarking

Management ABCs: The Hawthorne Effect

Measuring Law Firm Profitability