Managing the Non-Financial Assets of the Law Firm
There’s no shortage of financial reports for Managing Partners and firm leaders. But some metrics, critical to the firm’s success, require a new way of thinking about the firm’s ‘financial’ reports. The job of managing a law firm can typically be boiled down to a few key responsibilities. These include client relations, organic growth, strategy and firm culture. However, few firm leaders have a reporting process to monitor these key responsibilities. Here are some suggestions for setting up a reporting system that will ensure firm leaders have the reporting structure to monitor these important drivers of the firm’s success.
1. Client Relations
Managing the firm’s reputation is critical. This can involve reviewing community service involvement, which boards the firm’s attorneys are on, the level of giving to charitable causes, the types of pro bono work performed, the diversity of the attorney mix, the firm’s ranking in various lists, client satisfaction, brand equity, press mentions and other tactics that give insight into the status of the firm’s reputation in the market. But this is cumbersome, time consuming and typically only episodic in its use. There is a better, simpler, more precise way to monitor client relations.
There is one driver that exceeds all others in telling you everything you need to know about client relations. It also happens to be a simple metric to monitor. It is called the Likely to Refer survey.
Use the single question survey to ask every client after each matter, ‘On a scale of one to five, how likely are you to refer the firm or one of its attorneys to your closest family, friends or business peers?’ This survey is surprisingly accurate and has been proven to correlate closely with revenue and profit improvements in the hundreds of businesses that have used this tool.
2. Organic Revenue Growth
There are two types of growth. Growth resulting from management’s decision to raise prices, acquire assets, eliminate assets, improve collections and improve cost containments is called ‘managed growth’. These are ‘managed revenue sources’ in that they are tools used by management to improve revenues. The second type of growth is organic growth which, is growth which results from the attraction of new clients or the expansion of work from existing clients. Organic growth is a more precise measure of the firm’s competitiveness in the market place and the degree to which it is meeting client needs and delivering quality services.
To benchmark organic growth, ask your CFO to break out revenues that are not the result of managed decisions. You two can agree on what those ‘managed decisions’ are but the key is to isolate those sources of revenue which come from client satisfaction, improved reputation and marketing initiatives. This metric is also a good barometer of the success of the firm’s marketing program.
3. Strategic Focus
Most strategic plans, if they are well done, will come with a list of action items and steps which must be taken to accomplish the plan. Monitoring the hundreds of activities in multiple departments can be time consuming. A better way is to monitor what does not get done. Strategy is the art of saying no. You will quickly find how focused your strategy is when you ask for the opportunities that are declined and the reasons that are declined. It will also help you ensure that firm leaders are using the strategy as a filter in how they conduct business—a key attribute of successful strategies.
4. Cultural Engagement:
The commitment to the culture of the firm can be seen in a number of ways, including the morale of people in the firm, the level of cross selling occurring in the firm, the level of trust that attorneys and staff have for both the leadership in the firm and among their peers and the pride that people show and speak of with regards to the firm. One key indicator of the level of commitment to the culture of the firm is the internal engagement in the firm. Engagement comes from a belief that contributing to the success of the firm will directly benefit the individual’s personal situation. This is the fundamental building block of the firm’s culture.
A strong barometer of this engagement can be found in the level of involvement in activities that are important to the firm. Identifying those activities and tracking the involvement of both attorneys and staff members on firm committees, charitable and community endeavors, attendance at meetings and training and other functions can be a strong indicator of the level of engagement that exists in the firm. In the end, the level of internal engagement is a proxy for the strength of the belief and commitment people have in the firm’s culture. If this commitment to the culture is soft, engagement will be weak.
Conclusion
Each firm will have to set these dashboards up differently depending upon the data and systems available in the firm. But set them up you should. Monitoring the important off-balance sheet drivers of the firm’s success is a critical responsibility of the Managing Partner.No related posts.