Make More Rain : hr, law firm bus model

Secondments: A Sound Law Firm Tactic

Admin — Tue, 04 Dec 2007 19:37:00 GMT

The terms ‘secondment’ and ‘secondees’ aren’t used much in the U.S. Nor is the tactic (by whatever name) used often by midrange law firms. Secondees are usually young associates who for an intermediate term (several months to a year) are given over to clients as temporary additions to their in-house legal team. Internationally the practice is more common, especially in the U.K. It has expanded beyond secondment assignment just for young associations to include senior members of the law firm.

There are good reasons for the strategy. First and foremost is the relationship building aspect between the law firm and the client. Because secondees are usually provided at a bargain price, the client views the arrangement as the law firm making an investment in them. For midrange firms, a secondment strategy lowers the risk of adding to its legal team. Adding new associates is an expensive undertaking. The cost comes right out of partner profits and many experts believe that it takes as long as three years before the cash flow from the additional associate becomes positive. The smaller the firm, the greater the relative impact on existing law firm partners. Having an ongoing secondment program can help finance those additions.

The relationship with insiders that secondees develop during their tenure with the client will surely prove to be valuable in terms of retention and expansion of the business relationship between the client and the law firm. And the law firm builds a team with a far greater awareness of service quality concerns of all clients.

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.

Best Law Firm Practices for Increasing Margin

Admin — Mon, 19 Dec 2005 19:34:00 GMT

Always keep in mind that the approach to raising per-partner income should be done with long-range considerations. First, determine how the firm stacks up against its peers. Use survey benchmarks like those available from Altman Weil, http://www.altmanweil.com. Take corrective steps where you fall short.

The list below is a reminder of steps that you can take, among others, to increase margin and improve per-partner income.

Steps for Increasing the Firm’s Margin

Consider relocating for a lower cost per-square-foot
Pursue alternatives for lower communication cost
Conduct a general cost reduction campaign and work with administrative staff to improve on-going cost controls
Take advantage of outsourcing for lower or variable cost
Improve marketing, especially to existing clients to increase fee revenue
Improve productivity both at support staff and professional level through capital investment—technology, equipment, training, etc.
Increase professional and front office direct access to systems and information
Reduce support staffing ratios through use of technology
Plan office space to enhance workflow
Establish systems and controls to improve recovery of client expenses and soft costs
Implement an administrative charge (3%-5%) of fees billed to cover soft costs
Budget firm expenses and compare to actual for improved performance
Engage in structured strategic planning to reduce the cost and impact of off-track or poorly planned activities
Set goals and hold people accountable
Invest in better business systems that eliminate duplicate work and increase performance and efficiency of the accounting and administrative staff

Best Law Firm Practices for Increasing Realization

Admin — Thu, 15 Dec 2005 19:45:13 GMT

The approach to raising per-partner income should be done with long-range considerations. The first set is to determine how the firm stacks up against benchmarks such as those available from Altman Weil surveys, http://www.altmanweil.com. Concentrate on the areas where you fall short.

The list below is a reminder of steps that you can take, among others, to increase realization and improve per-partner income.

Steps for Increasing the Firm’s Realization

Implement and enforce client intake standards
Pursue alternative fee arrangements that let the firm benefit from increased efficiency and technology
Shorten the billing cycle to speed up collections and reduce bad debts and adjustments
Pre audit bills against engagement standards (rules) to eliminate bill rejection and reduce adjustments by corporate and financial clients
Establish controls over unilateral write downs during the billing process—so-called invisible expenses average $31,000 per attorney per year
Improve training to reduce write-offs
Centralize follow-up on accounts receivable
Improve collection tools and procedures
Set goals and hold people accountable
Invest in better business systems to speed up billing, track adjustments and write-offs by those responsible, automate engagement rule compliance and manage the collection function.

Best Law Firm Practices for Increasing Effective Billing Rate

Admin — Wed, 14 Dec 2005 19:49:29 GMT

In general firm's looking to increase partner income should engage in structured planning to identify the main things the firm should concentrate on to improve the business over the long term. Almost all need to improve management with focus on the law firm business model - leverage, utilization, rate, realization and margin. This post deals with the firm's effective or blended rate.

The list below is a reminder of steps that you can take, among others, to increase billing rates and improve per-partner income.

Steps for Increasing the Firm’s Effective Billing Rate (its Blended Rate)

Increase low rates to their higher competitive level
Set higher rates for selected areas of specialization and expertise
Take a more disciplined approach to annually reviewing and renegotiating rates
Identify new specialty areas, train or acquire expertise, thereby increasing value and the potential for increased billing rates
Market for better clients; those willing and able to pay more
Develop and enforce case acceptance standards that emphasize the value of matters undertaken
Improve (and sell) the quality of service, presentation of work product, technology, efficiency and responsiveness
Take advantage of opportunities for alternative billing (value based) pricing
Invest in a better business system for pricing flexibility, easier price changes, improved anniversary date tracking, etc.

Best Law Firm Practices for Increasing Utilization

Admin — Tue, 13 Dec 2005 19:37:23 GMT

The approach to raising per-partner income should be done with long-range considerations. First, determine how the firm stacks up against benchmarks such as those available from Altman Weil surveys, http://www.altmanweil.com. Fix the areas where you fall short.

The number one item to consider is improved marketing, especially to existing clients. The second item is adjusting leverage to fit the nature of the practice. Third is to engage in structured planning to identify the main things the firm should concentrate on to improve the business over the long term. Fourth is to improve management with focus on the law firm business model - leverage, utilization, rate, realization and margin. That requires a sound business system that provides the business intelligence and tools to keep the firm in line or ahead of its peers at all times.

The list below is a reminder of steps that you can take, among others, to increase utilization and productivity of fee earners improving per-partner income.

Steps for Increasing the Firm’s Timekeeper Productivity—Utilization

Provide fee earners with better tools for tracking and reporting billable time as worked, including use of Blackberrys and other PDAs
Measurement improves performance - set individual fee earner targets and/or goals, then track actual billable hours against the fee earner’s target
Negotiate fee agreements providing for billing in minimal time increments
Generate more business to fully utilize existing fee earners and to support increasing the number of fee earners
Modify compensation plans to increase rainmaking and handing off work
Reallocate workloads to “even out” utilization and to avoid client hoarding at the partner level
Intensify training of young lawyers to shorten learning curves and improve productivity earlier in their careers
Substitute lateral hiring for law school recruiting
Add laterals with an established book of business
Employ professional administrative staff to reduce opportunity costs (lost billable hours) of partners involved in management

Best Law Firm Practices to Increase Partner Income

Admin — Mon, 12 Dec 2005 19:24:15 GMT

The short-term approach to inadequate profits is to increase price and reduce cost. Unfortunately, that is not necessarily the long-term fix. Consider the movie theater’s escalating cost of popcorn. Volume declines, price is increased; volume declines, price is increased; etc. The result is a continued spiraling down of the business. In the case of the law firm, law firm clients have a choice. If rates rise significantly above the market, they will take the option. Second, for all practical purposes, cost in a law firm consists of people and facilities. Reduce facilities below the appropriate level and recruiting and retention of people is affected. Likewise, clients may begin to question the firm's status and position. Reduce people cost and you are engaging in "factory closings" that reduce the capacity of the firm.

Fix the areas where you fall short. If your collection days are longer than your peers, fix it¾invest in technology and/or change procedures. If work in process measured by billing days is excessive, fix it. Likewise, if utilization is too low, find out why. If you don’t have enough work, then either reduce fee earners and staff or preferably get more business. If, however, the problem is underreporting of time, then implement new tools to track and report time as worked, set individual goals, track performance and hold fee earners accountable. After you have taken short-term corrective steps, begin to look for long-term changes in the business that increase income without reducing the long-term value of the business.

Over the next several days, l will post a number of checklists of steps that you can consider to improve per-partner income—one checklist for each of the items listed below that were identified in David Masister's law firm business model as income drivers:

Leverage
Billing Rates
Utilization
Realization
Margin

Law Firms Gain Little from Electronic Billing to Insurance Clients

Admin — Fri, 09 Dec 2005 19:41:00 GMT

Getting ready for the holidays for me has always meant cleaning up things. That includes my pending file and C drawer. I’ll tell you more about my C drawer in a subsequent post.

In doing so, I came across an e-mail from an associate pointing out the following quote that appeared in the September 29, 2005 issue of Legal Technology Online.

“Technological prowess is such a key factor in corporate clients' hiring and retention of outside law firms, 35 percent of legal departments say they require electronic billing. Some have even fired law firms for lacking technical ability. On a positive note, clients like e-billing's streamlined invoice review and firms enjoy the faster payment turnaround. When it comes to billing, being "old school" is not a way to save money - it's a way to lose business.”

The quote first appeared in a National Law Journal article by James Evangelista, Teresa Strange and Kelley Johnston.

The more I discuss corporate mandated electronic billing with law firms, the clearer becomes a picture of two different spheres. In one sphere you have the firm's corporate clients. While these clients are motivated by a desire to lower legal cost, they don’t necessarily want to do it on the backs of law firms. They want law firms to become more efficient. They prefer predictability over lower cost and fewer hours over lower rates. They do give something back for the extra cost and effort law firms incur to comply with their electronic requirements. They do pay faster as promised.

The second sphere involves insurance companies. This group appears to chase the lowest hourly rate and gives little or nothing back. Firms report that electronic billing has not speeded up payments and, in fact, insurance companies slowed the entire process down by shifting to quarterly billing in many cases.

There seems to be give and take in the corporate sphere and all take in the insurance sphere.

Eat What You Kill Compensation Plan Bites Back

Admin — Thu, 08 Dec 2005 19:12:22 GMT

I frequently hear the comment, there is no perfect compensation plan and I agree. I also believe that management, not compensations plans, must be the driving force steering the firm into its future.

Recently, I was talking with a managing partner about his firm’s effective blended rate. It was below competitive levels. As is turned out, the firm’s partners had vetoed a proposal to increase rates.

We took a look at some financial models, and it was clear that even with some client losses, per partner income would increase significantly if rates were increased.

Why would partners veto such an obvious and appropriate move? The motivation lies in the partner compensation plans. Each partner’s compensation was based on a formula that included origination credit, supervision credit and worked credit. While the increase in rates might lose some clients, each individual partner was concerned that those losses might be among their particular clients. It did not matter that the move would be good for the firm as a whole. Each partner was concerned about their particular book of business, especially those generating origination credits. The environment was one of sub-optimization where the interest of the parts (individual partners) ruled rather than the interest of the whole.

Compensation plans based on purely empirical data may avoid disputes in the short term over allocation of the firm’s profits but the approach can also block effective management in pursuit of common goals. Likewise, failure of the partners to empower an executive officer or executive committee to make the hard decisions runs counter to long term firm success. What appears to be a good thing at one point in time can spiral down to marginal performance and eventually collapse.

P. S. Finally the answer - after drafting the above post, I came across an item on Adam Smith. Bruce MacEwen’s answer is that the right compensation plan depends on where the firm is in its life cycle. This is one of the best insights into the relative influences and benefits of the Eat What You Kill plan versus the Modified LockStep plan. It is truly a must read post. Go to his November 17, 2005, article, The Optimal Partner Compensation System, Revisited.

Tracking Law Firm Key Performance Indicators

Admin — Wed, 07 Dec 2005 19:39:00 GMT

Key Performance Indicator tracking pulls the macro pieces of business intelligence together for the manager/leader. Managers who successfully lead their organization to targeted performance follow a road map. They don’t reach targets by accident. They understand that six to ten key items drive performance and determine the outcome. They don’t spend their time digging through reports to answer the question, “How are we doing?” They know the answer and know it continuously. They understand better than others how one area versus another will affect performance. They concentrate on the main things that determine the outcome.

Usually their road map is a simplified model of the organization. The image below (click on image to download) illustrates use of an Excel spreadsheet to pull the key performance information together into a simplified picture of where the firm is on its road map at any given time. The Variance from plan and Impact columns show how each area is likely to effect results for the year if the firm remains on its present course.

Keep in mind that any model is a simplification. Through simplification, the critical factors that determine income become clearer. While the result is an approximation, simplified models usually produce more accurate estimates than detailed budgets and forecasts. Why? Because the simplified models focus on what is important. Simplified models focus on the key indicators that determine the outcome.

The KPI tracker is using monthly results and, in some cases, annualized results based on year-to-date information to estimate per-partner income. The Variance and Impact columns illustrate the impact that missed targets are having on the outcome. You can use the attached spreadsheet to implement Key Performance Tracking (KPI) in your firm.

Earlier post included downloadable spreadsheets for computing the Key Performance Indicators summarized in the above KPI tracker. Consider having your accounting staff use the attached downloadable KPI tracker spreadsheet in conjunction with the earlier post for Work-in-Process Days, AR Days Outstanding, Utilization and Rate, Realization, and Margin to give you the situational awareness needed to manage the firm to on-target performance.

Measuring Law Firm Collection Realization

Admin — Tue, 06 Dec 2005 20:39:00 GMT

Effective managers keep their pulse on the numbers. Not all numbers. They watch six to ten Key Performance Indicators that provide them with the situational awareness essential to guiding the firm toward on-target performance.

Key Performance Indicators (KPI) to be tracked include Utilization (billable hours), Blended Rate, Realization, Margin plus Billed but Uncollected Receivables and Unbilled Fees and Expenses. This post includes an example of a common method for tracking realization and includes an attachment you can use to track realization in your firm.

Example (click to download):

The above schedule reflects the most common method used by firms to provide an estimate of the % of fees billed that actually get collected. Unfortunately, it is not the best practice for measuring collection realization or overall realization. The numbers are unmatched. It compares billing for one given set of hours to the collections related to an earlier set of hours.

The better practice would be to compare the collected fees to the amount originally billed for those fees. For overall realization, the best method would be to compare the value of collected fees to their value at standard value for the worked hours related to the collections, i.e., standard rates.

Not all law firm billing systems track the information required to compute realization using the best practice. Juris®, for one, does and you can view realization in a number of reports. The Combined Analysis is probably the most preferred and reflects realization in a number of ways including standard value, negotiated value and billed value. For firms without the Juris system, the attached spreadsheet will provide a less accurate, but useful, alternative for tracking realization in you firm.