The 5 key performance indicators all law firms should measure are:

• Rate
• Realization
• Utilization/ Productivity
• Leverage
• Margin

This week each day I will focus on one of the above. Today the focus is on leverage.

Head count leverage is by far the most difficult indicator to change. Hiring new associates involves much risk, plus you not only need to have the workload, you have to have partners who are willing to share that workload. Some previous posts related to leverage are What Is Leverage?, Best Law Firm Practices for Increasing Leverage, Handling Complexities of Law Firm Leverage, Billable Hours vs. Head Count Leverage In Law Firms, and Leverage Can Help and Hurt Law Firms.

The two types of leverage that will be the subject of this article are head count leverage and billable hour leverage. Head count leverage is the ratio of all non-equity partner fee earners to equity partners. Billable hour leverage is the total sum of all non-equity partner fee earner billable hours divided by the total billable hours of equity partners. The goal is to increase leverage if your partners have reached or exceeded the target billable hour threshold per year. What that number is varies from firm to firm, but in the 2007 Law Firm Economic Survey by LexisNexis , we used a baseline of 1,800 billable hours. I consider 2,000 hours (40 hours per week based on a 50 week work year) as the maximum reasonable output that one should expect from a fee earner. Of that, 4 hours per week can be reasonably dedicated to non-billable activities. As so many who argue for alternative fee arrangements, there are only so many hours an individual may work. After reaching this threshold, it is imperative that work is passed to another fee earner if you want to increase income over the long term (ie, firm growth). Increasing the headcount of non-equity fee earners to handle accretive work (as opposed to absorbing work that could be handled by others) is central in making leverage work to increase income.

According to the 2007 LexisNexis survey, partners are still billing more than associates but continue to project that they will pass work on and reduce their own workload. It appears talking about it is easier than doing it.

Head count leverage is obviously risky if you don't have full utilization of your existing fee earners. If you add staff before full utilization, you are merely absorbing someone else's work - a sure way to lower profits. Plans to increase head count leverage are discussed in years, not months. First and foremost there must be a need. Otherwise, it isn't going to benefit the firm. Still, if used correctly, increasing leverage will increase partner income. The best performing firms in the 2007 LexisNexis survey also had the highest head count leverage.

The best performing firms also had the highest billable hour leverage. This is where firms can make immediate changes and get results measured in months. The key is measuring fee earner productivity. In mid-size firms, partners typically outwork the associates. In order to benefit from leverage (whether it be head count or billable hour leverage), associated must be fully utilized. Before I go any further, let me clarify what I mean by "fully utilized". It doesn't mean "work the suckers until they keel over". It means determining what the maximum amount of billable hours should be (governed by firm culture and reasonable expectations) and don't hire a single person until associates reach that threshold consistently. The whining about associates being overworked may be true in biglaw, but it doesn't appear to exist in mid-sized firms. In mid-size firms, partners are the overworked ones and most don't complain. Finding young associates who have proper work ethic is more the concern (as one managing partner told me recently, "we can't find associates that want to work!") but that is a topic for another article.

What are some ways to increase billable hour leverage?

• Increase paralegal hours or don't retain them. Paralegals are chronically underutilized. If you don't intend on using them, don't hire them. If you only have 600 hours of billable work for a paralegal and your associates are billing 1,300 hours, the paralegal is lowering both productivity and effective rate.
• Introduce partner caps on billable hours. This is one I expect will be well-received by work hoarders. The idea is to set a maximum annual billable hour requirement - once reached, all further work must go to client development and all billable work must be shifted to available resources. This is a drastic measure and should be instituted only to initiate change when other attempts at shifting workload have failed. It is not feasible over the long term and in firms that have a lockstep compensation system it isn't a good idea period. However, excessive workload is an important requirement to increasing leverage. Client development is key to bringing in more work and partners are in the best position to do rainmaking activities. Whatever it takes to get partners to act like owners of a company (not a confederation of sole proprietors) is worth trying.
• Mentoring activities. Mentoring is a nonbillable but crucial activity. Encouraging mentoring will force partners to do things besides bill time - things that will ultimately make the firm more competitive and profitable. Mentoring is an art not used enough and associates who are properly mentored are in a better position to succeed and develop into good future partners. The work that would have been done by the partner will then get shifted to the associate. Partners should focus on doing work that demands the highest rate so that there isn't as much of a profit hit when implementing mentorship programs.
• Change the criteria for achieving partnership status. Do away with lockstep compensation and similar paths to partnership. In its place create compensation plans based not only on billable work but firm citizenship. Introduce non-equity partnership programs that provide a place for excellent associates who may not be good owners (ie, don't have the drive or talent for client development and management - ie, grinders).
• Change your compensation plan to reward not only billable activities, but non-billable activities. Make shifting workload with mentoring a measurable performance indicator for compensation purposes.

It takes planning to make leverage work to improve profits. Determine where you want to be in terms of fee earner headcount. Look at where you are today in terms of client development. Look at where you are in utilizing your non-equity fee earners. Make your objectives clear and measurable. Track them - and hold everyone accountable for the success of the plan.

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.

Related posts

• Law Firm Business Model: Margin
• Law Firm Business Model - Realization
• Law Firm Business Model - Measuring Rate
• Billable Hours vs. Head Count Leverage in Law Firms
• Best Law Firm Practices for Increasing Utilization

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Juris® Insight, a ground breaking peer group benchmarking services is now open for business. The new web-based service from Juris, Inc. went live the first week of February 2007.

Juris Insight will give participating firms relevant competitive intelligence and other tools to help the firm set and achieve its goals. Measurement improves performance. But setting goals and measuring performance with an internal focus alone is not enough to drive partner income to the optimal level. The most effective measurement systems must include comparisons with peers and competitors to set the right goals that, if met, will ensure the firm performs at the highest level.

Law firms spend hundreds of dollars purchasing outdated surveys each year. They incur even greater cost through invested staff time responding to survey requests and then manipulating and analyzing the survey results against the firm’s own metrics. Juris Insight eliminates that investment in staff time by extracting information automatically from the firm's Juris system and by providing comparative results in a format that is in synch with how the firm tracks its own performance.

Stephen Collins, President and CEO of Juris, Inc., explained: “Athletes always carefully study and measure the performance of competitors so they can adapt their training to win. They know that when you have a target, the odds of winning go up dramatically and goals are more achievable. With Juris Insight service, law firms will know exactly how their firm’s key performance metrics compare to peers.”

Juris Insight benefits include:

• Automated survey preparation and submission

• Relevant and comparable benchmarks designed around the law firm business model

• Peer group selection control for meaningful comparisons

• Customizable views and metrics

• Current information on an ongoing basis

• Goal setting models to increase partner income

• Confidentiality and security

You can learn more about new benchmarking technology by reading the following prior posts:

Law Firm Benchmarking Comes of Age

CitiGroup Private Bank Benchmarking Involvement

Benchmarking Services for Midsized Law Firms

Benchmarking Services by Redwood Analytics

The Importance & Power of Legal Surveys

 

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 don’t believe in strategic planning, you must read Rob Millard’s post Creating Prepared Minds. His post includes an excerpt from an article by McKinsey & Co.’s Eric Beinhocker titled Creating Strategy in an Unknowable Universe.

Breinhocker gets it right. If you think strategic planning is about predicting the future, you are dead wrong. If that is why you are not doing it, you need to revisit the issue. Assumptions (predictions) are inaccurate. If you get one right, it is just the luck of the draw. The first rule of the planning process is that you must plan to change the plan. As the future gets closer, you continually change your expectations and reactions to it until you arrive on target.

Planning gets the entire law firm team playing from the same play book. It prepares the team for the future and capitalizes on its opportunities. Rob’s post is a must-read that may inspire you to read Beinhocker’s entire article.

Chance does favor the prepared mind. Top performing firms do it. If you want a good reason to start, consider this reason: more than an eight fold difference in per-partner income. A soon-to-be-published survey of midsized law firms by Juris, Inc. discloses that the top performing 25 percent of firms earn more than eight times the per-partner income of the bottom 25 percent. That seems to be a good enough reason to start.

Three important rules for successful planning include:

• The planning plan must be to change the plan. Strategies are temporary targets based on inaccurate assumptions and estimated capabilities.
• The planning document should consist of words and phrases to facilitate frequent updating.
• The structure is a critical part of the process.

The structure for the strategic portion of the planning process that I have successfully used includes nine main areas to be addressed by the planning team in the order listed. The nine subject areas are:

1. Nature of the law firm (or activity, e.g., practice area or department)

2. Environment in which firm operates

3. Opportunities/Capabilities (SWOT)

4. Assumptions about the future

5. Objectives–Mission/Strategic Thrust

6. Policies/Procedures (changes or new ones needed)

7. Strategies–How we are gong to achieve objectives

8. Priorities and schedules for programs, new resources required, measurements

9. Organization and delegation

For more step-by-step suggestions, reread the earlier post The Structure to Structured Planning. I also suggest a reread of Consensus Building for a discussion of the role of the structured planning process in building a consensus, i.e., preparing the mind to deal with an uncertain future in pursuit of a common vision.

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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Law firms and commercial companies have been destroyed by slot machine management— a bad managing style that I call “the compulsive gambler.”

The compulsive gambler doesn’t understand “change”. As noted in my post dealing with change management, we implement change to move from one level of benefit or performance to another. But change creates a temporary downward spike that lowers benefit or performance.

The change curve turns up and achieves the targeted goal only through KASH. KASH stands for new knowledge which, with the right attitude, provides new skills which, through use, become habit. It is at the point where new skills become habit that the change curve moves up toward our target. But this takes time. The bigger the change, the more time required.

The compulsive gambler doesn’t understand the change curve. He or she reacts to the downward spike by pulling the slot machine handle implementing more change—“That didn’t work…let’s try again, again, and again.” The result is a downward spiral from one downward spike of the change curve to the next and then the next!

Managing change is a skill, and you have to know when to hold or fold your cards. You can’t stay with a change that remains in the valley of despair forever, but you have to give change enough time to work. The key is managing change. Change implemented with the command “Do it because I said so!” is unmanaged and may or may not succeed. Managed change will succeed unless the change itself is flawed. How do you manage change?

• Form change groups. Involve those to be affected by the change in the planning process. Put them in charge of developing programs to give those involved the new knowledge needed.
• Explain the change curve so that those involved in the change or affected by it understand not only the goals but the temporary reduction in performance or benefit that will occur until new skills are transformed into habit.
• Create programs to encourage the right attitude. Communicate why the change is being made and how the change is expected to benefit the organization, individuals in the organization, and the customers or clients the organization serves.
• Pay extra attention during the change period. The extra attention will tend to flatten the downward spike of the curve and help it turn up sooner rather than later. Set short-term, low goals. Measure and communicate progress. Use ceremonialism—recognize accomplishments with awards, certificates, or just plain old-fashioned public pats on the back.

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 experience of a client or prospective talent when visiting or contacting a firm is extraordinarily important. But the humorous Sean Carter is on target in pointing out that you can go “too far”. Read his post, Opulence Avoidance in the ABA Journal E-Report. Through humor Carter gives you a view of the opulent law office as it might be seen through the eyes of the law firm’s client.

Here is a little example:

"………as a former corporate client, I can envision what they will be thinking on their office tour:

Tour guide: I’d like to point your attention to the granite countertop at our reception desk. It was hand-carved in a Tibetan monastery over a 300-year period. It is estimated that 20,000 man-hours went into producing this one slab of granite.

Client (thinking): Wow! That’s 10,000 less hours than you billed on the Mauserwitz case. Who knew we could have bought a countertop instead?"

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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Measurement improves performance. It doesn’t take a rocket scientist to understand why athletes measure performance and why they so carefully study the performance of others. When you have a target and when you measure your own performance against that target, it becomes more achievable.

Intuitively, managing partners understand. For years they have purchased every law firm survey they could get their hands on. Unfortunately, the surveys were always at least one year outdated. Most firms could never find survey segmentations that represented a perfect peer group for comparisons.

That world is beginning to change. Live benchmarking and timely shared information among individual anonymous members of peer groups will give law firms realistic targets for identifying opportunities for improved performance and increased per partner income. Just as record keeping in sports has changed the quality of the game live peer group benchmarking will change the practice of law for the better. Consumers of legal services will benefit as law firms compete to provide competitively better service at lower cost through efficiency. Measurement, especially competitive measurement, improves results.

Who are the players?

Redwood Analytics: The first on the field is Redwood Analytics. Redwood has a significant presence among the AmLaw 200 law firms. Redwood works with each participating law firm to map data from the law firm’s existing business system to Redwood’s proprietary extraction tool. Once implemented, performance data is automatically extracted to provide actionable performance metrics for the individual client. The extracted information is stripped of its firm identify and added to Redwood’s database of participating firms. That anonymous database is used by Redwood to provide participating law firms with comparative performance metrics for their selected peer group. Those comparisons put Redwood clients on track to match and exceed their target group—driving constant improvement.

Thomson Corporation: Not to be left out, Thomson West recently announced the West PeerMonitor™. As with Redwood Analytics, the service is targeted toward large law firms. Thomson’s news release explained the new services: “Law firm leaders, often frustrated by the lack of real-time competitive information available to them, now have an answer that will help them to make more informed management decisions.” According to Thomson West, PeerMonitor provides law firms with competitive facts as current as the most recent monthly financial statements. PeerMonitor enables law firm executives to benchmark their business performance to a named group of peer law firms across a range of pricing, profit and expense categories.

Juris, Inc.: The Company is targeting a release of its new Peer Group Benchmarking service, Juris® Insight, for October of 2006. Unlike Redwood or Thomson, the Juris peer group benchmarking service is targeted toward midsized law firms. The service will eventually be available to both law firms using Juris law firm business systems and those using competitive financial systems. However, the initial release will be limited to Juris law firms which comprise more than one fourth of all US midsized firms. Like Redwood and Thomson West, information available to participating firms differs from traditional survey approaches in that it is collected automatically on a real time basis. Performance information is extracted from the financial systems of participating firms with all identifying names purged, and is held in a secure database. Participating firms can compare their own performance against a peer group they select. For example, a firm comparing its performance against a peer group of five firms may compare its performance to the aggregated results of the best two or three and worst two or three, but never against a single firm in the group. The identity of individual firms is masked at all times.

Today, law firm managing partners and executives invest significantly in the purchase of year-old surveys, and then invest their time and staff time in comparative analysis against imperfectly matched segmentations. They do this in an effort to collect competitive intelligence as a guide for improving the law firm’s own performance. This is all about to change—not only for the mega firms, but with Juris Inc.’s entry for midsized firms as well.

Real-time peer group benchmarking takes law firm decision making to new levels and promises to place participating firms on the track toward continuous improvement. Like athletes in training and competing against the best, the accomplishments of each contributes toward improvement across the entire field.

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 haven’t read the paper titled The Truth About the Billable Hour by the Yale Law School Career Development Office, you should. The paper illustrates just how difficult is it for associates to accumulate the billable hour targets placed on them. Set the target too high, and a host of other important aspects of an associate’s life and career suffer: That can send retention plummeting through the cellar. The firm becomes a supply house for law firms who depend on laterals to fill their talent needs.

Goals need to consider more than just billable hours. There are seven areas where we can invest our limited time on this earth. If firms value their investment in associates, they will establish targets that recognize the importance of those seven areas when it comes to developing a well-rounded, productive member of the firm. What are those seven areas? They are job, family, religion, civic activities, health, recreation and self-development. These are competing choices for the limited amount of time available to us.

Our young associates are willing to shift a disproportionate amount to time to the job during the first few years, but there is a limit. In addition, what those associates value most is their professional development. Shortchange their development by over emphasizing the “billable hour goal”, and the associate’s tolerance for an exploitative work schedule dissipates even more quickly.

The difficulty of accumulating “billable hours” is also important from another aspect. It points to the importance of mining the law firm’s business looking for “defined scope opportunities” that can be marketed for a “fixed price,” making the law firm less dependent on the important, but income-limiting, billable hour.

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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Races are won by fractions of seconds, but not by accident.  Athletes measure performance and train to win. Is your law firm up to the competitive race? How physically fit and well trained is your team? 

Athletes understand that they must measure everything they do to achieve exceptional performance. Marathoners can remember all their best times; everyone knows their heart rate training zones. Cyclists know their power and aerodynamic drag numbers.  In fact, Lance Armstrong’s cycling power output was a closely guarded secret because his coaches knew that if a competitor knew that number, they would have a target.  Athletes instinctively understand that measurement increases performance. They break down all the key components of performance and then develop training regimens to improve their fitness and skills in order to give them the best chance to succeed.  Fitness and skill development combined with the proper attitude translates to winning…in sports and in business. 

What about your law firm? How fit is it?  Do you measure and train for success? Do you know what your key performance indicators are?  Do you break down the components of those key performance indicators and train to trim off time? How does the time capture process work in your firm?  How long does it take?  What aspects are repetitive, error-prone, slow or wasteful? The difference between a champion and the field is usually less than 5%.  But the champion reaps all the benefits.

The cyclist in the photo is Stephen Collins, president of Juris, Inc. He along with other Juris competitors are members of TriStar CyclingTriStar, sponsored by Juris and Bank America, counts several doctors, lawyers, bankers, entrepreneurs and other professionals among their members. The team is a 501c (3) charitable organization focused on the development of junior cyclists (ages 10 to 18), providing mentorship, coaching, and financial assistance. This year, the team is promoting the Edgar Soto Memorial Stage Race to promote the Share the Road initiative to raise awareness for safe cycling.  If you would like to help TriStar with its charitable mission, send your donation to TriStar Cycling, c/o Juris, Inc., 5106 Maryland Way, Brentwood, TN 37027.

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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A couple of weeks ago I was meeting with a young professional. When I prepared to leave, he offered me a CD—a copy of a new release by an artist we both like. He explained that his firm had a CD burner and when he or some of the other associates purchased a new CD, they made copies and shared them.

I had just finished reading a short piece in the March 2006 Harvard Business Review titled Pirates Inside by Leigh Buchannan, a former senior editor at HBR. The above incident was anecdotal evidence that Buchannan’s comments were right on target. His warning was “…while organizations turn a fierce antipiracy face to the world, many of their employees are blithely downloading or swapping files illegally—and doing it at work.”

My livelihood came from intellectual property—software. Being a Nashville resident with friends in the music business, I understand the personal impact of piracy on the artist.

Consider for a moment the likely reaction of the law firm’s clients if they look to your firm as a partner in their fight against violations of proprietary intellectual property rights, but later they discover that that the law firm is manufacturing pirated works. If software is involved, the law firm could be opening itself up to fines of $150,000 for each unlawful use. By now, everyone is aware of the aggressive suits filed by the music industry targeted at the owners of computers downloading or swapping files illegally.

This problem faced by law firms and other organizations reflects erosion in respect for intellectual property rights. This is especially true among members of “Generation Y” who grew up with a no-holds-barred internet. The Business Software Alliance reports that two-thirds of college students think it is okay to copy, download, and swap copyrighted works.

As managing partner, this is an issue that you dare not ignore. To protect the firm and its partners from liability and damaging publicity, the firm needs to establish and publish a policy against use of any firm equipment or facilities in violation of the intellectual property rights of others. Specifically, the policy should state that except for “fair use”, copyrighted materials should not be copied and distributed to others. Downloading and swapping of copyright files is prohibited. Duplicating copyrighted software, except for vendor-allowed purposes, is unlawful. Using unlicensed copyrighted software is likewise prohibited. The policy should state that considering the ethical and professional expectations regarding the conduct of an attorney, violation of intellectual property rights by employees and member of the law firm (even if occurring away from the office and without use of firm equipment) could lead to termination.

The issue doesn’t stop with the law firm’s internal policies. Bringing this issue to the attention of clients and prospects is an opportunity for the law firm to add value to it relationship with both. Assisting a client in the development of an antipiracy policy and providing services in connection with compliance is a business opportunity for the law firm.

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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