BDO Stoy Hayward and International Survey Research (ISR) teamed up to measure the relationship between core values and performance. The study is still ongoing according to an article in Managing Partner by Rupert Merson. Merson (rupert.merson@bdo.co.uk) is a partner in BDO and a Fellow of the London Business School.

While the project is still ongoing, Merson reports that the evidence indicates that firms who emphasize organization values, any values, outperform others. The stronger the emphasis, the better the firm performs and the more income partners take home.

The lesson to learn here is that it pays to invest time and effort in understanding the organization’s values that have developed over time. When making that determination, some leaders may not like what they find. Having determined the values that are currently influencing behavior within the organization, they are then in a position to support those in synch with the leadership and to change those that are not desirable. The objective should then be aligning the entire team behind a single set of core beliefs or values. That alignment is accomplished by continuous frequent communication and thorough training.

Morepartnerincome previously put it this way: “Firm partners need to get together and agree on what they are in agreement about." See the prior post What Law Firm Partners Need to Agree About or check out other posts in the folder Culture & Core Beliefs.

How significant is it for an organization to place emphasis on its core values? It’s big:

62 percent higher growth in fee income

Margin percentage is double

Partner income is 54 percent higher

Merson says, “All this naturally requires an investment in time and energy. Unsurprisingly, research also shows that the firms investing the most in core values also have training and development expense per employee, some 81 percent higher than firms less concerned with core values.”….”The results of this investment might also be startling—making it very difficult for another firm to copy and reinforce the competitive advantage.”

The study will go on to determine which values are more important than others. But from my view, the most important finding is that it is those law firms who have defined themselves internally and externally in terms of their collective values (core beliefs) that succeed best. It is the belief system that keeps an organization together in the best times and during disappointing times.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-3740, e-mail info@juris.com or go to www.Juris.com.
 

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While mega firms have sufficient access to the talent pool to pursue their “move up or out” model for associates, midsized firms have a greater need to retain and develop their younger attorneys.   This means there is need for constructive rather than destructive performance evaluations to guide the associate’s development as a well-rounded attorney.

 

Unfortunately, doing performance evaluations doesn’t come easy for most midsized law firm partners.   It is one thing to express your opinion to other partners about a given associate’s performance.  It is another thing to give helpful counseling to the individual with an objective of enhancing their career prospects.

 

One helpful tool is the man/woman job overlay.  Take a standard letter-size sheet of paper to represent the job—the traits and skills required for a fully competent incumbent individual such as:   

Professional Competencies

Writing skills

Work Ethic

Interpersonal Skills

Client Relations

Client Management

Business Development

Compliance with firm policies and procedures

Overlay a second sheet of paper representing the associate’s performance. Explain that the associate‘s current performance fulfills that portion of the job obligations covered by the second sheet of paper.  It is only the uncovered portion that represents the improvement needed to completely fulfill the expectations of their current position, or the position to which they hope to move.

 

 

The overlay will cover most of the original sheet of paper, emphasizing that only small changes are needed to round out performance.  The discussion can focus on the positive steps that need to be taken by the individual being evaluated.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com

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If you are stepping into a law firm leadership position, your success will depend on how well you match your approach and style to your particular firm’s environment and people. Those who selected you did so because they know you can do the job. The question is, “Can you do the job successfully in this environment with these people?” One leadership style doesn’t fit all. In fact, a recent study by Harvard and GE confirmed that negative things can happen due to a mismatch in style when a company hires a successful CEO away from another company.

It all comes down to what Clayton Christensen, Matt Marx, and Howard H. Stevenson call the Agreement Matrix and where your team fits in relation to the four quatrains of the matrix:

When a consensus on objectives exists, the organization needs someone out front leading the charge. The key here is pushing activity—“Just do it!”

On the other hand, when no consensus exists, various factions within a law firm are often pulling in very different (sometimes opposite) directions. It takes power, command, and enforcement to realign the organization behind common objectives. This is the classic call for a leader who can say and back up the statement: “I don’t care if you agree or not, get on board, get out, or suffer the consequences.”

When a consensus exists on both objective and the strategy for achieving it, management’s job is to reinforce the vision through the organization’s culture—folklore, rituals, tradition, planning, etc.

On the other hand, when there is agreement on the objective but weak or little consensus on how to achieve that goal, leadership has to focus on training, standard procedures, measurement and rewards.

Environments are seldom black and white. There are degrees of style and approach. There are different issues and different segments within a law firm that must each be met with appropriate leadership style but you get the gist—one style doesn’t fit all. Your success will depend on how well you adjust to fit the environment and its people.

You can read more about “The Tools of Cooperation and Change” in the October 2006 issue of Harvard Business Review, where the authors noted: “One of the rarest managerial skills is the ability to understand which tools will work in a given situation—and not to waste energy or risk credibility using tools that won’t.” You can purchase a reprint of “The Tools of Cooperation and Change” for a small charge by going to Harvard Business Online.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Peter Drucker identified the eight areas that every business must address through its objectives and control systems. The eight key result areas are:

1. Customer Satisfaction

2. Productivity

3. Innovation

4. Resources

5. Management Development and Performance

6. Employee Attitude and Performance

7. Public Responsibility

8. Profitability

The excellent law firm will set key result goals for each of these areas. It will develop strategies and tactics to achieve its goals. It it will develop methods for measuring actual results against the goals with an objective of making additional changes as needed to achieve and maintain its goals.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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Relevant cost is an accounting concept that separates the costs that have a bearing on decisions from the costs that should not. In layperson terms, we often refer to irrelevant cost as sunk cost.

The idea is that what has occurred (what is below the waterline) is not important to the decision-making process. It is SUNK COST. The original cost of a ship under water is not relevant. The cost of raising and reconditioning the boat versus the cost of new construction is the only relevant issue.

Unfortunately, in the real world emotional issues often cloud the issue. I have heard more than a few partners explain, “We have too much invested to change now.” They may be talking about software that is failing to achieve the intended objective, or worse, that is unreliable and disruptive to the normal operation of the firm. They could be talking about an unprofitable branch office or a telephone system that generates nothing but complaints from the firm’s clients.

“We have too much invested” should send up the red flags. That is never the issue. The issue is: “How much will it take to fix the situation?” and, “How much is it costing the firm (including lost opportunities) to continue living with the situation?” compared to the cost of replacement. Granted, you don’t want to replace one problem with another one, so you always have to be concerned with the risks associated with any replacement. But those are normal purchasing and partner selection considerations.

Living with prior bad decisions can never be justified on the basis of “We have too much invested.”

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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 An article in the April 2006 Harvard Business Review titled “Growing by Cutting” caught my attention. 

 

It was a slightly different view than the 80/20 rule that has been around almost since the advent of modern management.  The 80/20 rule states that in just about any activity, 20% of that activity produces 80% of all the value. The remaining 80% of activity, for all practical purposes, is a drag on the rest. From an accountant’s standpoint, when costs are fully allocated, 80% of a law firm’s clients are likely to be losers.   

 

The 80/20 rule is a useful management concept, but those who latch on to it as a management mandate take its implications to the extreme with unintended negative consequences. 

 

I believe firmly in the “rule of the fewest”.  When you consider your objectives, the rule of the fewest implies that you should not have any more clients than necessary to achieve your objective. You should not have more legal professionals and support employees than necessary to accomplish the objective.  Nor should you spread the firm over more practice areas than necessary, etc.. Why? Because “things” create work, friction, overhead or whatever. The more “activities” you are involved in, and the more “things” you have involved in those activities, the more wasted energy and cost you incur.

 

However, we have all seen the consequences in the consumer world when management latches on to the 80/20 rule to minimize inventories and maximize profits. Thanks to the internet, we now have a nearly unlimited number of sources to choose from; however, the choices they offer are all the same.  In the apparel industry, if you are outside of the center area of the bell shaped curve because you’re are a little too round, too tall, too short or too thin, you are out of luck when it comes to finding your size.

 

The fact is law firm clients (even the unprofitable ones) begat even more clients. Professional work creates valuable reusable work product and experience when the work itself is done at a loss—Etc. Etc Etc. 

 

So while the 80/20 rule is a useful concept and the rule of the fewest is even better, a firm that decides to grow its profits by chopping off clients, offices, and talent may just wind up with a smaller firm and a smaller future.  So be careful when applying the concept—consider carefully the ancillary or indirect value of activities (values that may not be apparent to the accountant) before you start chopping.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com. 

 

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The best ideas for improving any organization, including law firms, are often discovered by paying attention to ideas and practices occurring outside of one’s close-knit community. In other words, to improve the law firm’s performance, pay attention to what is happening outside of the legal community.

The Harvard Business Review (HBR) is one of those windows to the outside world. The February 2006 issue included a special section recapping some of Peter F. Drucker’s previous articles that appeared in HBR. The section was titled “What Executives Should Remember.”

Drucker believes that an organization must be organized for innovation and engaged in constant change. What some executives overlook is that the drive to break away from what is old must be focused for success. Drucker put it strongly. “An organization is effective only if it concentrates on one task. Diversification destroys the performance capacity of an organization.”

There have been several posts in the blog community lately concerning law firm growth as an objective. Take heed, no organization can stand still. Growth is a by-product of success. If you aren’t growing, you aren’t succeeding. But the wrong kind of growth can put you out of business and, more commonly, make you weaker as an effective organization.

Don’t interpret Drucker’s “one task” admonition too restrictively. In Drucker’s book, that could be to “Save the World” or “Cure the Common Cold”. The point is the organization requires a defined purpose around which all of its talent is focused. Growth in pursuit of that purpose is good. Growth that distracts from it or diversifies the focus of the organization is destructive.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com. © 2006 Juris, Inc.

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We live in a world of limited resources and few things are more limited than an attorney’s time. Units of time are the widgets that the law firm sells. Use time for something else and the immediate impact is a reduction in income—even if the something else is intended to increase income down the road.

 

Thus, it is pretty easy to understand why it is so hard to get those “other things” accomplished:

 

New Business Development

Cross Selling

Professional Development

Etc.

 

One of the answers is to practice the Rule of the Fewest. Do not ask a busy legal professional to do more “other things” than are necessary to accomplish the objective. Consider the difference between the following two statements:

 

I want you to devote more time to cross selling your existing clients to take advantage of other services offered by the firm; versus
Select five clients from those you are responsible for and arrange for you and the estate planning practice manager (or intellectual property head, etc.) to meet with the decision maker.

 

One request is unlimited and its accomplishment is subjective. By giving the attorney a minimum specific quantity, the impact of the business development assignment on the other areas where the individual must invest their time can be mentally digested quickly. Not only can the minimum of five cross selling efforts be accomplished without excessive decrease in billable time, the goal can be exceeded by 20% if, instead of five meetings, six can be arranged. Plus the goal is now measurable and the attorney can be held accountable. That increases its importance. The fact that a specific and limited request can be performed without material negative impact on other time requirements, together with the fact that performance can be measured and the individual held accountable, all come together to make it far more likely that the cross selling goals of the firm will be achieved.

 

The Rule of the Fewest is an important business concept. It arises out of the understanding that resources are always limited. “Things” not only represent a direct allocation of resources, they also indirectly impact on unassigned resources. Thus, the Rule of the Fewest is the business equivalent of Concentration. In business, concentration means the fewest of everything at any point in time—customers, products, distribution channels, transactions, etc. Concentration is “management candy” at work, doing the main (fewest) things with the minimum (fewest) necessary resources to achieve the objective.
 

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The billable hour is only a little more than 50 years old.  Prior to 1950 law firms didn’t track their time and law firm bills were generally one-liners that read, “For professional services rendered."  The billable hour arrived on the scene encouraged by consultants as a way to increase per partner income.  Life was simpler and slower prior to 1950.  Given similar matters, skill was about the only thing that influenced differences in accumulated time.  That could be dealt with through different hourly rates, i.e., partners versus associates, for example.  Time has changed.  Technology and knowledge management now make dramatic differences in efficiency.  Yet, the billable hour continues to be the dominate method of compensation to law firms.

Because of this site’s affiliation with Juris®, some are surprised when I post articles encouraging Alternative Billing Arrangements.  Juris, Inc.’s mission is not to promote the billable hour.  The company’s objective is to provide the law firm with the software and services that increase owner-partner income and wealth.  Thus, the Juris systems accommodate alternative fee arrangements and provide capabilities to help the law firm understand the cost of providing its services by style of case or matter.

I am going to devote the next several postings to Alternative Billing.  I prefer the term Alternative Fee Arrangement (AFA) because that is what is entailed.  It is not just another way to bill.  What AFA involves is coming to an agreement with the customer (your client) on an alternative way to compensate the law firm for value delivered.

Here is the rub.  Most Alternative Billing methods discussed in the publications and articles within the law firm community do not make the AFA grade.  They are generally defensive in nature and do not address 1) the real cause giving rise to the interest in AFA on the customer side or 2) the need for an alternative on the law firm side.

The customer (and we are talking about the business customer) is looking for predictability—lower cost is a smoke screen.  The law firm needs a new fee arrangement that will let the law firm profit from technology deployed and for efficiency—working smarter, not harder.  If we can pair the efficient law firm with the client under an alternative fee arrangement, both objectives can be achieved and it will lower cost while at the same time increasing per-partner income.  One objective does not have to be achieved at the expense of the other.

Instead of addressing these two issues (predictability and higher partner income), law firms and clients are locked into a dance around the issues.  Clients look for methods that lower their cost at the expense of firm partner income.  Law firms look for methods that defensively appease clients and minimize the impact on earnings.  Those approaches treat only the symptoms.  They are Band-Aids® that do not directly address the objectives of either the client or law firm.  What is needed is not yet on the map¾it is an alternative that increases “value” to the client and, at the same time, increases “profits” of the owner-partners of efficient law firms.

We will search for that missing alternative in the days ahead.

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