As our previous article has argued, managing performance in a law firm is a complex and demanding task and, for those firms faced with major issues, identifying the various factors contributing to underperformance is key. One of the main problems we have come across, which contributes in no trivial way to the situation in which many firms find themselves, is that consideration is only given to performance measurement once it becomes clear that there is a problem. In many cases, this is simply too late.
In most cases, even where there is no ostensible problem and the partners make very healthy profits, there is the potential to improve performance – often by a considerable margin. However, the difficulty comes in identifying ways to measure and analyse performance, and thus to improve it. This is where Key Performance Indicators (or KPIs), which have been commonplace in many other industries for many years, can make a real difference.
It can be tempting when seeking to identify key indicators to range too widely – after all, lawyers can be assessed on various measures of quality in relation to service and delivery, as well as a host of financial indicators. However, the management of any firm that tries to focus on too many different factors will ultimately be overwhelmed by data and the results will be close to meaningless. It was recently announced that NHS trusts will be assessed against 150 different indicators, but it is hard to see how such a wide range can allow management to focus on the big issues that will make the biggest difference.
Unblocking the Pipeline
When analysing law firm performance, we like to keep things simple using the analogy of a pipeline. Clients and instructions flow in at one end, with work being done in the middle, and bills raised leading to cash at the end. All sorts of issues can cause leakages and blockages, but to really make a difference to performance, we try to focus on just four key measures:
- New matter take-on
- Time recording (eliminating leakages)
- Recovery (eliminating leakages and minimising discounts)
- Time elapsed from matter start to completion (eliminating blockages)
The specific figures used under each of these KPIs will vary from firm to firm, often from department to department, and even between work types. But by homing in on the key areas that have the most significant impact on profitability, partners can turn performance management from a perennial headache into a tool that has a real impact on the bottom line.