Make More Rain : disaster recovery, policies/ procedures

Challenge Number 3: Outsourcing by Law Firms

Admin — Thu, 01 Sep 2005 18:52:00 GMT

I feel compelled to mention Katrina victims before getting into the subject of today’s post. I have made a donation to the Red Cross. Juris, Inc. has done the same. I know that many (if not all) Juris team members are making individual contributions. You probably have already done so, but if not, please make a contribution to the American Red Cross, http://www.redcross.org, or your preferred organization. The Katrina victims are family (our countrymen) and family comes first. They need us to dig deep.

Unfortunately, there will be law firms, especially in the New Orleans area, that never reopen their doors. Out of all the steps a law firm can take to survive a disaster, one of the most important is the easiest to do but seldom done. Tomorrow's post will be devoted to that step.

Back to today’s subject—the third challenge to law firm growth indicated by the 2005 Managing Partner Survey involves Outsourcing. Profitable Growth and Long-Term Viability require investment and a willingness to outsource specialized functions.

Technology has and will continue to put pressure on all businesses to move faster, be more efficient and effective not only to grow but to simply survive. Top performing companies no longer look at technology investments as a one-time or periodic cost. Technology is a recurring operational expense and you simply can’t afford to manage it every few years. Infrastructure is not just about electronics and software. Increasingly, law firms are outsourcing back office and even some front office functions (i.e., legal research).

More than 90% of the Am Law 100 outsourced payroll vs. only 36% of the firms we surveyed. Focus on practicing law by taking advantage of technology and outsourcing. Failure to do so will ultimately hurt your practice materially and you’ll lag other firms in terms of per-partner income and the ability to serve clients as they expect.

Challenge Number 2: Management

Admin — Wed, 31 Aug 2005 19:39:47 GMT

The 2005 Survey of Law Firm Managing Partners conducted by Juris, Inc. and the Managing Partner Forum identified three key challenges that firms face to achieve their growth objectives. The second of those challenges involved Management. Management is a Discipline and a Learned Skill – Management Must Be a Priority.

65% of firms indicated that management and strategic decisions involve all the partners.
75% of managing partners indicated that they spent 25% or less of their time fulfilling the role of managing partner.
87% of surveyed firms said there was no formal job description for the role of managing partner.
56% of managing partners look internally to other lawyers for business and management advice.
50% of managing partners have been in the role for less than 5 years.

In today’s marketplace, we believe that the need for dedicated management personnel and a more traditional management structure will be necessary to execute firm strategy effectively. In their “Why Law Firms Fail” report, the Brand Research Company found a very high correlation between long-term success and the existence of dedicated “C-level” executives or partners in areas such as IT, marketing, operations and knowledge. Our survey indicated that to some degree firms dedicated personnel to these areas, but even the highest incidence was only 52% for IT closely followed by 51% for recruiting.

Timeliness of decision making is also an issue as nearly half the respondents’ partners met only on a quarterly basis. As expected, partners tend to act more like a board of directors than either a governing democracy or a dedicated management team. Only half of the firms had a formal management committee or executive committee to bridge the gap.

Even though firms typically do have a managing partner, 75% of managing partners indicated that they spent 25% or less of their time fulfilling the role of managing partner. Understandably, these individuals want to continue to practice law and stay connected with their clients; but in any other business, a CEO who could only dedicate ¼ of their time to leading the business would have greatly diminished effectiveness. And not surprisingly, 87% of surveyed firms said there was no formal job description for the role of managing partner. Based on our conversations with managing partners, there is a high degree of variation in how the role is defined.

The bottom line is that law firms are recognizing the need for dedicated management; however, this transition is in its early stages. We believe it will accelerate as competition for clients and talent intensifies along with ever increasing demands from clients to reduce rates and increase service levels.

Goal-Specific Measurements

Admin — Tue, 26 Jul 2005 18:17:56 GMT

These measures include everything from project deadlines to individual goals for taking some number of prospects to lunch each month. I think these types of measurements are pretty obvious, but do remember that only by measuring results will those goals be taken seriously. You have deadlines and deliverables for your clients and they measure you every day. Do the same internally.

Activity Measures

Admin — Mon, 25 Jul 2005 17:54:00 GMT

Activity analysis is used track firm operations. Of course, you may elect to put exception measures, discussed earlier, in place around activity tracking. Typically, activity level measurements are not considered KPI’s but are predictive of performance and also serve a diagnostic purpose if you have a process that isn’t producing desired results. Activity measures tend to change often and are targeted at critical processes within the firm such as the billing process as opposed to mail room operations. Examples of activity analysis measures include:

- cash flow cycle time or the number of days from work being performed to collection from the client

- volume of hours worked

- number of errors or corrections per time entry or per bill

- down time for the firm’s technology resources

- hours worked by task code or type of matter

- volume of materials used (i.e. paper, etc.)

Certainly, some of these examples seem less than exciting and critical. But if one of the firm’s goals is to improve realization somebody had better be focusing on how many days, how many steps and how much re-work and error correction is involved in the billing process. If the current cycle to bill takes 110 days and the firm’s business model and goals require 60 days you need to break the process down and measure all controllable aspects of that process. Then you need to apply corrective measures to reduce the bottlenecks and accelerate the process and measure the activity to find what works and what doesn’t.

Exception Measures

Admin — Fri, 22 Jul 2005 18:46:09 GMT

Exception measures are those measurements that the firm puts in place to detect or prevent events that will have a negative impact on the firm's ability to achieve its strategic objectives. These measures, commonly identified as exception reporting, are a call to action and serve as an automated mechanism to ensure that firm activities are in line with the strategic plan. An effective and automated exception reporting and compliance system can be one of the firm’s most powerful measurement tools to achieve its strategic objectives. Examples of exception measures include:

Individuals or groups failing to meet targeted levels of hours worked or billed for a given time frame;
Clients with outstanding receivables above a target level;
Clients with profitability levels below firm targets;
Individual client complaints;
New client alerts.

As previously noted, you can design an exception measurement for just about anything. So the key here is to put in an exception reporting system that will focus on the most important decisions or events that will affect the firm’s goals. For example, a firm that is struggling to maintain market share as competitors are aggressively after their clients might put in a system of exception reports to highlight problematic client situations, late payments, and client demands for write-offs or client losses. You may also implement a client survey system with a scoring mechanism and if any clients rate the firm’s services below a target level the managing partner is immediately notified. Whatever exception measures are implemented, also focus on whom at the firm will be notified of the exception. In general, try to avoid informational communications where no action is required as that simply creates noise. Instead, if a particular exception occurs then some action should be prompted and the notification should therefore go to the individual with the responsibility and authority to take appropriate action.

Key Performance Indicators - KPI

Admin — Thu, 21 Jul 2005 19:11:42 GMT

The most important set of measurements to develop are the firm’s KPI’s. These are the top line metrics that must be achieved for the firm to meet its strategic objectives. KPI’s can be both financial and qualitative, but should be highly correlated with the top priorities of the firm and the firm’s business model as developed during strategic planning. Furthermore, if you have more than 10 KPI’s you probably have too many. For example, Colgate-Palmolive Company manages its entire worldwide operation with 10 Key Performance Indicators. The first thing every business unit general manager would review when presenting to the CEO would be their results against those 10 KPI’s. The rest of the meeting was explaining why or why they did not meet their goals. It’s hard to believe a huge Fortune 500 company can manage a global operation using 10 measurements of success but it’s true and it was VERY effective. Colgate is one of the most reliable businesses when it comes to consistency and predictability of revenue and earnings growth and their KPI system is a key element of success in this regard.

Obvious choices for law practice KPI’s might include leverage, rate, productivity, realization, etc. Other obvious choices include fee revenue, cash generation and the balances of WIP and accounts receivable, or related ratios such as day’s fees outstanding. If you have designed a target business model as part of strategic planning, you will know what these values must be if you are to achieve your strategic objectives. If realization is coming up short, you can probably bet that the firm will not achieve targeted levels of partner income. So a key element of selecting the most critical measures for the firm to manage is that a target or goal outcome must exist. In addition, the measurement must be clear and objective. Other less obvious choices for KPI’s might include market share related measures, client profitability or measures of staff diversity if those issues are top priorities of the firm. To develop KPI’s, we suggest that you begin with the list of priorities identified in strategic planning and that during the development of the strategic plan, a means of measuring success for each is identified. The partners can then come back together to review and approve the KPI model as developed by the managing partner or whomever has been delegated the task.

An important pitfall to avoid in designing a measurement and accountability model is reporting for the sake of reporting. As a CPA, I can attest to the fact that accountants often measure success by the quantity and complexity of reports we could develop and distribute. Having stacks and stacks of thick reports with full detail are basically useless for managing a business. Detailed reports are for analysis to find the reasons why a given key performance measurement is failing to meet expectations or perhaps to analyze pricing or customer profitability for the purpose of making decisions on rate increases. So, don’t design your measurement system around reports. Select the top-line measurements you need to track to ensure success, set a goal level and a minimum level of performance and simply report on those few measures. If results don’t meet the target, THEN and only then, dig into detailed reports to find the root cause. This approach implies that the managing partner only needs to see a very few measures at any given time. Such measures can be distilled into dashboards that simply show a graphic indicator. We’ve called this “happy face/sad face” management reporting. If you only track realization, daily cash flow and billed hours against a goal level as your KPI’s, then you might design an e-mail that is sent every day that looks like this:

Key Performance Indicators Status

Analysis Level 1

Date: May 15, 2005

Week of: May 12, 2005

Month of: May 2005

Scope: Total Firm

As the responsible manager, you should probably know that you expect realization of 90% and any level below that will show as a “sad face.” Likewise, you should know that your daily cash flow target is 3% of outstanding accounts receivable and that your billed hours target is based on budgets for the appropriate periods being measured.

If you denote an exception or sad face, you would then be able to click on the KPI and see more detail with continued drill-down options. Also, you might show formula definitions for clarity as different firms may have different methodologies to measure results.

Analysis Level 2:

Realization is measured as the total cash receipts for invoices paid on or during the period measured divided by the total value billed for those invoices.

From here you might be able to drill down another level to look at the actual collections against specific bills and organize those results by billing partner to identify where the problem lies and to then take appropriate action. Of course, you don’t have to actually use happy and sad faces, but we would encourage you to consider employing graphics and color as a means to quickly assimilate information instead of reading numbers from even the shortest report.

General Counsels Have a Budget Problem

Admin — Fri, 15 Jul 2005 17:57:00 GMT

Solving the General Counsel’s Budget Problem

Nat Slavin who writes the "Interactions" section in Corporate Legal Times often hits the mark. Sometimes, it is with a curve ball. His July article is about bid fixing—the increased frequency of general counsels asking law firms to rebid their work to retain the corporation’s future business. Why? It is because the corporate world lives by a budget. Law departments, once exempt from budgetary discipline, are now expected to deliver on target like any other cost center.

That discussion turns into the observation of the root cause for bid fixing. Slavin observes that law firms are failing to address their client’s economic needs.

On average, law firms take 78 days to bill for work performed and another 60 days passes before the client pays for work performed. Under those conditions, law departments cannot realistically budget or forecast future expenditures. In short, law firm fees are eight months behind actual performance of the legal work performed on behalf of the client.

Don’t think your corporate clients place any value on the free cash float. They don’t. In fact, they don’t understand how anyone would do business that way; and second, it often results in a blown budget, putting general counsel in a bad light with the company’s CEO.

Slavin puts it this way, “Until law firms start billing in advance of the legal work they provide, businesspeople will never be able to bridge the gap between budgeting and actual expenses.”

The author points out that law firms should be able to predict 90 days out and bill that amount. It is a risk firms should be willing to take to reduce the tension between the client’s legal department and the company’s CFO.

For the complete article, refer to the July issue of Corporate Legal Times. If you would like to comment or pass along your experiences to the author, e-mail Nat Slavin at nat@cltmag.com.

Pricing pressures in the corporate world may be more about uncertainty than price itself. Solving that problem for the general counsel can reverse recent trends and actually increase realization and per-partner income.

E-mail or Phone?

Admin — Mon, 20 Jun 2005 17:11:35 GMT

My wife uses e-mail, but only reluctantly. She says one of these days they will invent something you can just pick up, punch a few numbers and talk to the person on the other end. Sounds similar to something already on your desk, doesn’t it? --the phone.

There are things that need to be dealt with face-to-face or, at least, person-to-person over the phone. Before e-mail became the predominant form of business communication, I used to say, “If you write a letter, you are just going to get a letter back; pick up the phone and resolve the matter". That is still true today. E-mail is a powerful means of communicating, but it is not well suited to negotiating, mediating, or feeling out the other side. Face-to-face and following that phone-to-phone are still the best tools you have.

So the next time you start to send that e-mail, think about picking up the phone instead. Both are great tools properly used.

Tracking time

Admin — Wed, 18 May 2005 17:52:28 GMT

Yesterday, I was having a discussion with the president of Juris, Inc. concerning spoilage in a law firm.

If the business end of a widget factory is widgets, then the business end of a law firm is billable hours. The more you produce the more units you have for sale. It follows that if a law firm decides to increase its revenue, it will need to produce more hours. One of the first things it can do is eliminate or reduce spoilage--time that gets worked but not counted.

Many fee earners still record time the old fashioned way - handwritten notes given to accounting or to a legal assistant to decipher and manually enter into the firm’s billing system. What is wrong with this tried and true method? You are guaranteed to under report billable time. It is the classic scenario of working hard and not getting paid for it.

A busy fee earner, without the tools to easily track time as worked, overlooks short, unplanned phone conversations with clients, opposing counsel or others regarding a billable matter.
The manual method tends to focus on blocks of time spent on legal matters. Time spent reviewing bills or other case-related administrative efforts go unreported.
After-the-fact methods of recording time, as opposed to as-worked methods, usually result in under-estimating the actual time devoted to the task preformed.
Under-reported time increases when work is performed out of the office. Phone calls and e-mail still reach the fee earner and time responding to them is often overlooked.

If an attorney billing at $200 per hour neglects to capture 15 minutes of billable time each day, it translates roughly to $250 per week. The 15 lost minutes daily can add up to about $12,000 a year per lawyer. In a firm with a leverage of just 1 to 1, that adds up to $20,000 or more per year in per partner income. My experience is that the actual unreported billable time in most law firms is much higher.

Timekeepers need the tools to easily record and report time as work is performed. They need to be able to do that anywhere and at anytime. Management needs the tools to monitor reported time against timekeeper targets. They need that information in time to change the outcome.

Internet Shopping

Admin — Thu, 14 Apr 2005 18:32:00 GMT

The futurist, Alvin Toffler, as early as 1970, began to write about rising consumer power in a new age where consumers had unlimited choices that were all the same. All the same except for price, associated services, accessibility and ease of use.

The front page of The Economist this month declared "Power at last" and proclaimed that the Internet has made the buyer king and queen. Businesses not only sell products and services that should be adapted to this new world, they consume products and services. With the Internet, they are now in control of the price they pay for the goods and services they consume.

Is your firm still purchasing general office supplies from your local brick and mortar vendor? Your local supplier may be giving you a competitive price but, even so, the chances are that a quick Google search will produce a better deal. It is easy. It is fast and it is usually less expensive. Yesterday, I wanted to purchase a large number of Avery Lay Flat Report Covers, product number #47781. They were available locally but the local supplier had only a limited quantity on hand and there was no volume discount. A quick product search on Google identified 13 sources, each with a different price including case prices. I selected the lowest price and several cases will arrive in 3 to 5 days.

I hope your firm is not still using a travel agent. It is less expensive and more convenient to book travel on-line. The convenience of the Internet and the ease by which you can compare prices between suppliers, including airlines, means that shopping by the Internet will lower your firm’s operating cost and overhead.

The advantages of the Internet are not limited to one time or periodic purchases. The most recent issue of Law Technology News included an article by David Whelan titled "Automating Benefits and Payroll". The author explains what led him to go with a paperless payroll service over the Internet. ADP and Paychex are the two firms mentioned in the article. He noted that they may save 15% annually. Juris, Inc. uses ADP online services with direct deposit, and we use Concur for processing employee expenses. Employees are issued American Express cards for which they, not the firm, are responsible. However, the expenses are automatically accumulated by Concur online. The employee adds cash expenses and other required information; then with the click of the mouse, submits the expenses for reimbursement. When approved, the reimbursement is automatically transferred to ADP and is included in the next direct deposit so that the employee’s deposit includes both payroll and expense reimbursement. Overhead is reduced. Fee earner time to prepare and submit an expense report is reduced. That frees time that becomes available for billable work.

You can put more money in the pockets of partners, by making Internet shopping the norm rather than an exception.