20 insights you need to run a law firm in the 2020s

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By Chris Bull | Feb 3, 2021

In 2021, there can be no doubt that we are living in a digital – and data – age. For most businesses, including most law firms, there is catching-up to do.  Law firms remain ‘data rich but insight poor’ and that will impede efforts to create the agile, insight-driven organisation you need to compete in the 2020s.  This short article offers a simple, introductory step to begin addressing the insight gap.

I encourage firms to adopt a more rigorous approach to harnessing the extensive data they have and creating insights that then support faster, better informed and actionable business decisions.  Law firms do face some challenges in doing this.  Some of them derive from a conventional approach to running the partnership model that has dictated reporting, reward, remuneration and performance management structures. The emphasis has often been on reporting and recording that supports profit allocation rather than profit generation. ‘Getting on with the job’, ‘we have always done it this way’ and ‘gut instinct’ can be valued more than making decisions based on data, empirical insight or trend analysis.

I have developed and used a tailored model for law firm leaders to improve and accelerate the process of converting data into measurable business impact – in the form of improved performance.  This approach synthesises best practices in business intelligence, analytics and decision-making. The Information / Insight / Impact (i3) model has five distinct stages: Information – Intelligence – Insight – Intent – Impact. It is often deployed initially to introduce more structure and rigor to core commercial decisions around fees, pricing, resourcing and profitability at firm, practice, team, client and matter level, but the model is designed to be applied to every type of business decision at every level from team through to the whole firm.

The goal is to take the entire firm to a position where it is genuinely and enthusiastically ‘insights-driven’; where every partner and manager in the firm is constantly pushing for deeper, better and more timely knowledge about team, practice, sector, firm and individual performance and acting on that insight; and where your people demand insights before taking big management decisions about new clients, pricing, hires, resourcing and expect valuable intelligence ‘on tap’, available in real-time and up-to-date.

Generating genuine insights that provide decision-makers with the input they need requires human as well as technology effort.  The advent of Analyst, Business Intelligence, Data Scientist and Pricing Analyst roles in large law firms has been a big trend over the last few years.  I expect that this marks the beginning of a new specialism most modern law firms will need on-board. I have spoken to a number of legal recruiters over the last few years who say this skillset is one of their biggest growth areas. Firm management teams need to understand better how to recruit and deploy these analysts and what the optimum blend of technology and people is.

Before you can begin to make those changes, you will want to be clear about what insight is. There are a few criteria that help distinguish insight from information or intelligence, mainly related to its value; its ability to be used directly to inform rapid business decision-making. Insight is:

Focused – insight is not generated by simply pushing out more reporting and information into the organisation.  Analysts need to understand what the user / decision-maker is trying to achieve and insight delivered should be focused tightly on that.

Usable and Actionable – insights should be influential.  Delivered in the right format, at the right time for the user and clearly explained, with the necessary supporting information for decisions to be made and action taken.  That creates a crucial distinction compared to conventional information reporting.

The result of systematic analysis – by human resources, technology or, commonly today, a combination of the two.

Extensive – typically multi-layered, pulling on multiple data sources and based on a series of ‘what’ questions, to get closer to the root cause.

Predictive – simply reporting a historic metric does not create insight.  Utilising that intelligence to suggest, anticipate or model a future outcome or trend does. An indication of what might happen next is more likely to trigger action from decision-makers.

Analysts and others involved in designing and then delivering insights to managers will often use established business tools, many of them, like Root Cause Analysis and Five Whys, closely connected with Agile methodologies,  The purpose of using these methods is to generate deeper insights that are not immediately obvious when you are presented with a static piece of information or intelligence; the insight is created by digging down, asking more questions, challenging the superficial or initial reading and synthesising multiple strands of intelligence. That mining for nuggets of insight seldom happens in an environment which relies on standard-form financial reports being served up at the same time each month to the same over-busy individuals, without any premium being placed on finding new revelations and inconvenient facts.

How to get started on delivering more insights in your firm? I recommend a very simple start-point which involves assessing how well your firm’s decision-makers – your partners and managers in the first instance – are being served with a stream of valuable insights, ‘oven-ready’ to inform their decisions.  I have refined a list of Business Essential Insights down to 20 questions that every firm should be able to answer at any time.  This list is, needless to say, not a comprehensive directory of every important dimension of performance and measurement.  But it does represent an attempt to pose the fundamental questions that any business leader and decision-maker would be expected to ask and have an answer to at his/her fingertips.  There is a further list of ‘Business Next Steps’ (the equivalent of a ‘deeper cuts’ playlist) which I will save for another day, as 20 is more than enough to start with?

Consider each of the dimensions below and score your firm* against each one using the following ratings (each question scores out of 5, with a highest possible total of 100):

  • I don’t have / don’t know if I have this information – 0
  • We can produce this information but it would require a special report to be designed – 1
  • This information is available at firm level as part of our annual financial reporting – 2
  • This information is available at firm and department level as part of our firmwide regular monthly reporting – 3
  • This information is widely available on-demand with analysis / insight at firm, department and team level – 4
  • This information is widely available on-demand with analysis / insight down to team, client and matter level – 5

*Don’t worry if you need to ask someone else in the firm – that is quite normal. But it does underline the fact that law firms have not traditionally put enough emphasis on the core business processes that distinguish insight-driven organisations.

Business Essential Insights
1.    What we sell Turnover by Product/Service Line. By practice group is fine as a way of consolidating this information but it is not enough: every business has to know what it sells – which for law firms means the services / products / worktypes – ideally by volume as well as value.
2.    What we generate Profit margin – Gross margin after direct costs and a realistic notional Equity Partner salary/remuneration (NEPS)

Running profitability for products/services, practice group, team, office etc. is essential – ‘sales are vanity, profits sanity’

3.    What we make Net margin – Net margin after all costs for team, practice group and ideally for clients and large matters too (latter should include Cost of Sales, include direct sales/marketing)
4.    What clients’ value and like / dislike What aspects of your service do clients regard as most valuable and where is your service positively differentiated from competitors.  You will need to collate and analyse client feedback using a tool. Try to get under the skin of what clients dislike, find frustrating and introduce delay or distraction into their lives
5.    Which features of our service clients use most often Which tools, documents, communication and collaboration media, software and value-added services do clients use, and not use: track using your information systems as well as client feedback
6.    How busy people are Total Time per individual / team / Group average – include all time working (should be the individual’s total time contribution to firm, not ‘chargeable only’)
7.    How productive people are Chargeable (plus any designated ‘investment’ categories – you may decide that some essential activities which you can’t charge for are nevertheless value-adding for clients and should not be reduced) time as % of standard working hours
8.    How much in the sales pipeline Sales pipeline analysis, highlighting target clients, work types and sectors.  Tracked regularly, using volumes and estimated value
9.    What is capital ‘lock-up’ Categorise between healthy/necessary working capital levels and delayed / excess ‘lock-up’. Report aged debt and work-in-progress
10. How are we leaking revenue & profit? For major matters, track ‘leakage’ from total potential revenue & profit, broken down by time write-off, invoice discounting, bad debts, fixed fee/AFA over-run [latter is critical] – you need to understand how & where you lose value
11. What is our client acquisition rate? How many new clients are we creating (monthly / quarterly / annually); usually quoted as a % of existing live clients
12. Which clients are loyal & growing? Track major client fee growth, cross-buying of services from additional practice areas (a good indicator of profitable client accounts).  Track fastest growing clients ‘bubbling up’
13. What is our client churn rate? How many clients do we lose (monthly / quarterly / annually), often quoted as a % of existing live clients – NB this is easiest to measure in retainer / subscription or recurring work practices.  ‘Returning clients within x years’ may work better in less regular practices
14. How does new work come in? Introductions (internal) – utilise ‘fantasy sports’ points for ‘assists’ as well as ‘goals’.  Remember to adjust periodically for actual fee outcomes or profitability
15. Where does new work come from? Referrals and channels (external) identified for all major new opportunities.  Do not allow tracking internal / partner originations to overshadow this activity; you should be doing both
16. What is our real achieved rate? Track actual achieved rate (after all write-offs, discounts etc.) for individuals and report against rate card
17. How we price work Total turnover (and profit) split by pricing mechanism – your firm (and practice etc.) should know exactly how much of your work is on standard hourly rates, discounted rates, fixed fee, capped fee & various sub-divisions of AFA
18. What resource capacity we have Rolling Forward View (3 months in detail, 12 month+ in outline) of lawyer resource based on current workload, matter plans, sales pipeline, vacation plans etc.
19. Are staff loyal & satisfied? Attrition/Turnover rates – Percentage of staff leaving per annum; split between various ‘good leaver’/’bad leaver’ categories. Conduct regular staff pulse surveys or similar.  Track how well staff felt the firm dealt with issues the survey identified
20. Where are people spending non-value added time? Use Total Time recording (where all time is recorded & categorized, including meaningful non-chargeable codes) to identify major admin burdens, downtime, duplications etc. and track impact of process improvement

These 20 Business Essential indicators could be delivered as flat reports or tables of information irregularly but, as my scoring mechanism suggests, that is not really meeting the need of providing decision support input to all of the right people at the right time. Law firms have not always put the emphasis on some of these ‘business 101’ basics that other businesses have; number one above underlines that point – how many leaders amongst your own clients are not able to immediately provide a breakdown of their turnover by product or service, citing their top selling and most profitable lines?

Oh – yes, the scores.  If you scored above 75 congratulations; you are providing much of the essential business information your decision-makers need and are addressing the triple issues of accessibility (making it easy for a wide spectrum of people to access), timeliness (providing up-to-date input for decisions whenever they need to be made, rather than on a rigid monthly or annual cycle) and insight (providing more than just flat reports).  If you scored 51-75; there is a way to go yet in terms of meeting those criteria but you have built a solid base of information on which you can build.  Below 50; I would advise you to make the information-insight-impact process a priority for 2021 and demand more of the people who are responsible for managing your information and reporting environment.  Please don’t hesitate to drop me a line with any questions or comments  you have about the Business Essential Insights, your score and how to address any gaps you have found at chris@edge-international.com .

The key lesson from the i3 model is always to begin with the outcome you are looking for – what business performance impact or improvements are you looking for – and work backwards: asking yourself what decisions (‘intent’) need to be made, how often and by who. And then what insights are required to inform those decisions.

 

This article was written by:

Chris Bull is an Edge International Principal and strategy, operations and change consultant who has established himself as one of the leading advisors to legal businesses in the dynamic and innovative UK market, as well as working in the US and internationally. He has built a reputation as a legal market pioneer and innovator, having worked for all four of the Big Four accounting/consulting firms, been one of the first partner-level chief operating officers at a law firm and overseen some of the largest global legal process outsourcing deals at ALSP Integreon.  Chris is one of the three founding Directors of The Intuity Alliance. His latest legal business book, The Agile Law Firm, will be published Spring 2021: chris@edge-international.com