Managing Under Productive Partners – August 2012 Strategy Question of the Month

Last month’s law firm strategy question of the month asked law firm leaders to create a ‘model partner’ (i.e., a partner with the optimal balance of positive characteristics).  The ‘model partner’ results can be found in the July 2012 archives here.

Obviously, few partners actually deliver the perfect balance – but, the right balance is achieved across the partnership.  Unfortunately, some partners’ contribution to the firm erodes – sometimes dramatically – over time.  That may be the most vexing challenge for managing partners – turning around the performance of an under productive partner.

So, this month’s quick strategy survey will help us put some data around the question – what works and what does not work in helping under productive partners turn their performance around?  The quick 5 minute (or less) survey is embedded in the window below.  If for some reason you do not see it, click this link and you will be taken directly to the survey.

Deadline for responding is the end of business PDT on Wednesday, August 29, 2012.  Individual responses will remain confidential (as always).  Results will be published on this blog at the end of the month.  Thanks you for your insights and participation.


SURVEY RESULTS – Creating the ‘Model Partner’ – July 2012 Law Firm Strategy Question

Our July law firm strategy question of the month focused on the characteristics that comprise a “model partner.” While crafting the balance of behaviors and traits of an ideal partner is a bit more fun (and bit less strategic) than previous months’ questions, the results (and the thought process) are useful. In particular, in an era of increased partner mobility and a tighter reign on entry into partnerships, it is very important to understand what your firm expects and needs from its partners (or at least its hypothetical “model partners”).

As some were quick to note in the open-ended comments section, few partners are actually a perfect balance of the positive characteristics highlighted in the survey question. In the real world, partners’ individual strengths and limitations tend to balance each other out across the firm. Thus, some are much stronger business originators, while others are extraordinarily creative lawyers and problem solvers. Some are exceptional relationship managers and some are truly gifted in their ability to bring people together and to develop the talents of their peers and subordinates.

The “model partner” question was structured as an exercise in balance. Survey participants divided 100 points across a range of positive characteristics good partners exhibit. Thus, the overall result produces a pie chart that visually depicts the “ideal” balance of positive traits we want in our partners. Note that in the pie chart, we have grouped multiple characteristics into larger themes (for instance, training, professional development and mentoring were grouped together into people development).

The idea of balancing a range of positive characteristics is undoubtedly the most productive way to think about what constitutes a “model partner.” But, the characteristics can also be view through the prism of a simple list as well. In that context, business origination was clearly the most important characteristic (over one-third of the aggregate weighting was given to origination). Working attorney receipts and the set of qualitative factors that make-up a “good citizen” of the firm were roughly tied as the second most important factors (both slightly under 20% of the weighting). People development, outstanding legal acumen, and participation in the management of the firm each received slightly less than 10% of the weighting.

As noted above, the survey provided an open-ended question to allow for further comments and/or additions to the list. As is virtually always the case with these “question of the month” surveys, the open-ended responses were thoughtful and added important ideas to the conversation. Several characteristics not specifically noted in the “divide 100 points” options were mentioned by multiple respondents including:

  • Positive attitude, upbeat, optimism in the face of challenges;
  • An ownership mentality;
  • A team player, willingness to help others;
  • Client focused.

In addition, a number of other terms offered in the open-ended response help to define some of the more qualitative aspects of good partners including loyalty, integrity, responsiveness, self-directed, and “servant leadership” (a term coined by Robert Greenleaf in a 1970 essay).

Finally, for those who completed the full survey exercise and are interested in the detailed responses, you will find those in the chart below. Note that the weightings do not add to 100 in this chart, since they represent average weightings regardless of the number of responses given to that characteristic. In that sense, it gives added weight to the lower rated items (which were given de facto ‘zeros’ by some respondents).

As always, we welcome your comments below or off-line via email at Thank you for reading and for participating in the July 2012 strategy question of the month.



Strategic Planning for Law Firms – Best Practices Survey Results

Our June 2012 law firm strategy question of the month focused on best practices in the development of firm wide strategic plans.  Survey respondents answered three related questions:

  • When was your most recent strategic plan developed?
  • What practices did your firm adopt as it developed its strategic plan (a “check all that apply” question with 18 options)?
  • How successful has your firm’s strategic planning endeavor been (i.e., its impact on the firm’s performance)?

Frankly, we were relieved to see that over 85% of the firms responding had updated their strategic plans since the market crash of 2008.  Even a strategy with solid logic and widespread buy-in across a law firm needs to be revisited following an external market dislocation of that magnitude.  One managing partner gave tremendous credit to his/her COO relative to keeping their firm’s strategic plan current, “We are continually reviewing, adapting our strategies with a dynamic, flexible plan that get implemented via a set of core strategic goals that change on a regular basis.”

The survey provided a helpful snapshot regarding what practices are most (and least) prevalent in the legal industry today relative to strategic planning.  Those general results (the most common and least common practices) are covered in more depth below.

However, what we find most interesting is the contrast between the practices employed by firms reporting the most success with strategic planning (“the plan and the process developing it have had a clear and positive impact on our law firm and its overall performance”) with those reporting disappointing results (or a “total bust”).  There were dramatic differences between the most and least successful strategic planning processes.  Note that this mirrors in many respects the findings in our February survey on practice group management (where the most successful firms were taking a clearly different approach).

  • The three biggest differences between the most and least successful plans relate directly to what is articulated in firms’ strategic plans.  The most successful firms are much more likely to articulate shared values or principles; a long term vision or mission for the future of the firm; and measurable objectives (to help assess the effectiveness of plan implementation).
    • Those first two points – articulating a set of shared values and a long term vision – were at the heart of Jim Collins’ and Jerry Porras’ landmark strategy book Built to Last.  Yet, even with extensive research supporting the value of establishing that type of strategic direction, the highly successful firms were 72% more likely to have articulated shared values and 67% more likely to have articulated a long range vision or mission.
    • Similarly, multiple studies have found that organizations that track performance against measurable objectives report better implementation of strategy and deliver better results.  Highly successful firms were 67% more likely to track performance against measurable objectives.
  • Another clear distinction between firms reporting high levels of success in strategic planning and those experiencing disappointing results involved partner engagement in the process.  While nearly every firm surveyed and/or interviewed their partners at the beginning of the planning process, only the more successful firms engaged partners throughout the process and into the implementation of the strategic plan.  The more successful firms were more than 50% more likely to have:
    • Tied the overall strategic plan to individual partner plans and/or to partner compensation;
    • Solicited partner feedback and/or affirmation prior to formally adopting and implementing the strategic plan;
    • Tracked performance against goals, objectives or other milestones;
    • Reported to the partners on progress against goals, objectives or other milestones.

Over the years, we have found that gathering client input in the early stages of a strategic planning process is extremely valuable.  Firms that report having “very successful” planning processes were 45% more likely to have solicited client input than were firms that reported disappointing results.

We have also found that implementation improves substantially when clear responsibility for leading the implementation of key initiatives is assigned to individuals and/or standing committees.  Again, firms that are very successful were over 40% more likely to report having assigned clear responsibility for implementation to a champion or a standing committee.

As most readers know, we have a book out on this topic through Managing Partner magazine – Strategic Planning for Law Firms: A Practical Roadmap.  So, at the risk of droning on about best practices, we will stop here and report the balance of the survey findings.

The most commonly applied strategic planning practices (i.e., at least 50% of firms reported adopting these practices) were:

 The least used practices were:

The distribution of experiences with strategic planning (i.e., from very successful to total bust):

As always, we welcome your comments below, as well as your dialog via email (

Strategic Planning – Best Practices – June 2012 Strategy Question of the Month

This month we are exploring the factors that make law firm strategic planning processes more or less effective.  As always, the survey is designed to be quick and easy to complete (no more than a two minute investment).   Deadline for responses is end of business Friday (PDT), June 29, 2012.

We will post the results of the survey over the weekend and look forward to learning from your collective experiences as law firm leaders.

If you do not see the survey in the window immediately below, please click here to be redirected to the survey.


Survey Results – Alternative Fee Arrangements

In the midst of the market meltdown in the fall of 2008, we were in the field doing research on behalf of DRI (Defense Research Institute) on the Future of Litigation.  Alternative Fee Arrangements (AFAs) were one element of that research.  Extensive interviews with general counsel and law firm leaders highlighted three primary motivations behind the search for AFAs:

  • Some simply needed to cut costs.  Fee arrangements trend toward discounts and blended rates in these contexts.
  • Some needed predictability, particularly if they have a block of recurring or continuing litigation.  Fee arrangements in this context trend toward fixed caps for matters – or more often for blocks of business.
  • Some were driven by risk management models or strategies.  In this context fee arrangements trend toward some form of contingency.

Now, that research focused solely on litigation.  Further, there has been considerable growth in non-hourly based fee arrangements since that time.  For instance, in early 2009 only 29% of law firm leaders believed growth in non-hourly billing was a “permanent trend.”  That has grown to 80% in spring 2012 (see Altman Weil’s Law Firms in Transition survey).

Our  law firm strategy question of the month focused on AFAs this month.  Roughly, two-thirds of respondents indicated that AFAs are growing (about a third find AFAs continue to grow at an accelerating pace).

Anecdotally, we have seen many clients ask for AFAs only to revert to a simple discount off standard rates – continuing to rely on hourly billing for a variety of reasons.  For purposes of this month’s survey, we did not include discounts as an AFA – focusing instead on non-hourly forms of fee setting.  In order of most prevalence, AFAs in use today include the following.


The question also allowed respondents to add other AFAs (not on the list above).  Other AFAs in use include collars/monthly retainers; deferred billing arrangements for start-ups awaiting venture funding; and highly customized approaches that provide predictability for clients.

Finally, an open-ended question at the end of the survey invited people to share “unique insights you have gained from the deployment of AFAs.”  People were very generous with their insights and the key insights are summarized in the following points.

  •  Firms have learned the value of well analyzed data – on costs and on the work being subjected to an AFA.  For instance, one firm reports very good results on contingency oriented arrangements – in cases where experience informs their understanding of the  upside for recovery.  Others noted that they have learned to improve the profitability of fixed fee arrangements – by understanding underlying costs and their approach (staffing and work process) to the work.
  • Many have found that effective communication with clients and prospective clients is a key to success.  That enables the firm to provide the predictability (or other objectives) the client is pursuing.  Further, it reinforces the strength of the relationship – clients appreciate the fact that their law firm is listening and responding.  Finally, it ensures that when risks are being shared (such as in a contingency arrangement), both the firm and the client are prepared for changing conditions.
  • Many also noted that effective AFAs are not easy to construct.  They take time to get it right – for the client and the firm.  They require attorneys to approach both the client relationship and the legal work differently.  And, they end up simply being a margin reduction if time and intellect are not invested in their creation and execution.
  • A few people noted that one key to success is doing effective post-mortem reviews of AFAs.  As one managing partner noted, “the most difficult part is circling back to see if the arrangement worked…”

Note that firms who have a higher proportion of their fees earned via AFAs were more likely to be experiencing a slow-down in the growth of alternative fee arrangements.  Certainly, the move toward non-hourly billing is not a passing phase.  Knowing your own cost structure, being able to manage the work consistent with the AFA (either via project management or via staffing models), and being able to learn from each experience are critical to success.

We thank the many law firm leaders who continue to share their insights and experiences via these questions of the month.

Practice Group Portfolio Management

One of the key findings of our April 2012 “strategy question of the month” involved the strategic importance practice groups (and filling out the practice group portfolio) have in determining law firms’ merger and acquisition strategies.  In the write-up of those survey findings, we promised to pull out and abridge a section of John Sterling’s book Strategic Planning for Law Firms: A Practical Roadmap.  The book includes a lengthy chapter explaining the background and the application of several proven strategic management tools and models – including applying portfolio management tools to practice groups.  What follows is an excerpt from the book addressing the portfolio management concept.

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Portfolio analysis (and portfolio management) traces its origins to the leading management consulting firms of the 1960’s and early 70’s. There were several variations on the same underlying idea. Namely, that the key to effectively managing a business with multiple product lines and/or multiple divisions was to understand the role each should play in the company’s overall strategy.

Further, each approach to portfolio analysis examined products or business units from two fundamental perspectives. First, they looked at the relative competitive position of the business or product line. Second, they assessed the market in which that business unit or product competed.

Law Firm Application

The application to law firms – particularly general practice business law firms – should be quite apparent. As law firms have grown, developed multiple practice and industry specialties, and become more managerially complex, the need to apply some order to that increased complexity has grown. Portfolio analysis and portfolio management provide a set of tools well designed for precisely this type of organizational complexity.

Essentially, practice groups (generally including industry groups) are in most respects like a strategic business unit in a diversified corporation. They offer distinct services, have unique underlying “production” or operational capabilities, face identifiable competitors, and compete in markets that differ (sometimes dramatically, sometimes subtly) from the markets of other practices. Further, it is entirely possible (in fact advisable) to measure the financial performance of a practice group – if not on a fully loaded profit and loss basis, then certainly on the basis of contribution to firm profits (e.g., revenues net of direct expenses before the allocation of firm overhead).

Further, given the inherent limitations on resources, it is not feasible to treat every practice the same. Nor is it sensible to expect the same results and contributions from every practice. Some practices are well suited to attract new clients to the law firm. Some are well positioned to drive profitable revenues. Some are integral to maintaining a deep and lasting relationship with clients. Ideally, a firm should be able to define its expectations of each practice based on a portfolio analysis – and the practices should be able to pursue a valuable role within the firm in response to those expectations.

Using and Applying the Tool in a Law Firm Setting

Portfolio management is a straightforward process in which management (or a strategic planning committee) ranks practice along two critical dimensions. The attractiveness of the market in which the practice group competes; and the relative market position/strength of the practice group. Each of these dimensions is discussed in more detail below.

Market Attractiveness

The attractiveness of any given market is a function of a variety of factors – some purely objective, others more subjective. The key to using the portfolio analysis tool is to agree on a consistent set of “attractiveness factors” and each factor’s relative importance.

Some examples of market attractiveness factors follow.

  • Competitive intensity influences the attractiveness of a market. Highly competitive markets may not be as attractive as those with less competition. Note that a separate tool designed for assessing competitive intensity is discussed in some depth in a subsequent chapter.
  • Rate sensitivity is an issue in many legal market segments. Markets or specialties that do or can bear premium billing are clearly more attractive than those with a high degree of rate sensitivity.
  • Market growth is another obvious factor in rating the attractiveness of markets. Patent litigation was attractive throughout the 1990’s and 2000’s in large part because of the consistent growth in that market.
  • Market size must also be considered. A large market is generally more attractive than a small one. A large, growing market is even better.
  • The needs and demands of the firm’s existing client base is usually a factor. For instance, if virtually all of the firm’s corporate clients need and use the firm’s tax services, the tax market would be rated favorably on this particular factor.

Other factors might also be included in this analysis such as historical or future profitability; regulatory and other external influences on the market; and the technology required (now and in the future) to compete effectively in the market.

Relative Market Position/Strength

The other dimension to consider in a portfolio analysis is the relative market position of each practice group. The key word is relative – to key competitors and to the needs and expectations of the market.
Again, a variety of factors determine the relative market position of a practice. Some examples follow.

  •  The relative quality of lawyers and/or work produced is a key factor, but is often difficult to rate objectively. Third party ratings can serve as a proxy here (e.g., number of attorneys listed in Leading Lawyers or tier ranking in Chambers).
  • Practice profitability (measured by contribution, realization, revenue per lawyer, net income per partner, or other means) can be an indication of relative market strength. As noted above, profit potential can also serve well as a factor in determining market attractiveness.
  • Market reputation/perception can be a strong indication of a practice’s relative strength. Is the practice considered the leader, among the leaders, at parity with most firms, lagging other firms, et cetera?
  • Market share – locally, regionally, or nationally – is another key measure of relative market strength. Unfortunately, law firms generally have to rely on the number of lawyers they have in a given area as a surrogate for market share. Nevertheless, share and share growth are good measures of relative market position.

Plotting the Portfolio

Assessments of each practice group’s relative market position and the attractiveness of the practices’ respective markets can be viewed graphically by juxtaposing the two dimensions (market position and attractiveness) on a matrix. At a basic level, market attractiveness and relative market position ratings can be broken down to three “generic grades” – high, medium, and low.

The result is a three by three matrix like the one pictured below.

The matrix suggests relatively generic strategies.  Naturally, the specific strategies a firm should pursue depend on many factors, some of which reach well beyond the scope of this analysis.  Nevertheless, portfolio management is an extremely valuable tool in making resource allocation decisions among practices.

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There is considerably more discussion of both the generic strategies and a “how to” on applying the portfolio management tool in a real world setting in the book.  And, we are happy to discuss the tool with you directly over the phone (312) 543-6616 or in the comments section below.

Survey Results – Strategic Growth – April 2012 Strategy Question of the Month

Our April 2012 strategy question of the month focuses on strategic growth. The latest Am Law 100 found that headcount growth has resumed across the largest firms in the U.S. Further, those tracking law firm mergers found that activity in 2011 (i.e., competed mergers) had returned to pre-recessionary levels.

We wanted to get a sense for how integral mergers and acquisitions are to law firms’ growth strategies. So, we asked a very direct question, “Does your firm plan (hope) to complete at least one merger and/or acquisition by the close of 2013 that would grow headcount more than five percent from a single combination?” Those answering ‘yes’ were asked to rate the relative importance of a range of factors they consider when evaluating potential merger candidates. Those answering ‘no’ were asked to share the considerations that led their firm to opt out of merger and acquisition activities.


The survey split almost 50/50 relative to whether firms plan (hope) to complete a combination that will add more than five percent to their headcount. Slightly less than 50% said that strategic combinations (of at least the scale noted here) are definitely part of their strategy. Meanwhile, just over half the respondents noted that they do not expect to complete a combination of reasonable scale over the next 18 months.


Factors driving the evaluation of prospective merger and acquisition candidates break-down into a few categories. First, there are a couple of factors that appear to be foundation – that is, factors that are not so much a driver for seeking merger partners, but that a lack thereof will squelch discussions with prospective merger candidates. Second, are factors that are clearly strategic to an overwhelming majority of the firms actively evaluating merger candidates. Third, are factors that are strategic for many, but not for a significant minority of firms seeking a strategic combination.

Foundational Factors
Cultural fit appears to be an unquestioned foundational factor – over 96% considering it to be an important or critically important factor (and over 60% rating it critically important). Similarly, the ability of a combination to deliver long term financial improvement appears to be a foundational factor – again, over 96% consider long term financial contributions to be important on some level (though only 46% rate it critically important).

Practice Portfolio Considerations – Most Strategically Important Factor
Over 90% of the firms actively seeking strategic combinations are looking (at least in part) for a merger partner that can close gaps in their own firm’s practice portfolio or capabilities (i.e., rate it important or critically important). In fact, as an evaluation factor for prospective merger partners, it rates nearly as highly as the foundational factors. We have written extensively on strategies related to managing practice portfolios – most recently in our book for the Managing Partner magazine bookstore. We will likely provide an abridged discussion here on the blog in early May 2012.

Geographic Considerations – a Mixed Bag
Adding size and scale to existing offices is an important strategic consideration – a geographic factor that figures into the strategy of roughly three-quarters of responding law firms. By contrast, adding a presence in a new city is important to many firms seeking a strategic combination, but not on the level of ensuring “critical mass” in existing offices.

Client Considerations – Clearly Important, But Not Universal
A very strong majority (over three-quarters) of firms do expect a strategic combination to add important client relationships that their firm currently lacks. Likewise, a large majority of firms noted that their evaluation of prospective merger candidates in part “responds directly to the stated needs of existing clients.” Stated client needs are not as universal a driver as closing portfolio gaps – or even as adding important new relationships – yet, it is clearly an important consideration.

High Profile People – Important, But Not Critical
Firms clearly want a strategic combination to add high profile people to their firm. However, it is not a critically important factor (only eight percent of firms consider the addition of high profile people to be “critically important”).

Growing Maturity
Finally, we were pleased to see an indication of growing maturity among those looking for strategic combinations. Specifically, a large majority of firms are not looking for a near term positive financial impact from mergers and acquisitions – over two-thirds of respondents consider near term finances to be either not a factor or only a minor factor. Had that question been asked 10 years ago, the responses may have been quite different.


Most of those responding that they were not planning (or hoping) to make a substantial strategic combination of the next 18 months were kind enough to share their reasoning and rationale for opting out of merger activity. We have grouped those open-ended responses into the following points.

  • Nearly half of those not actively seeking a strategic combination noted that they are actively growing via smaller scale initiatives such as lateral hiring, smaller acquisitions (that would not meet the “five percent headcount growth” cut-off in the initial question), or via “strategic organic growth.”
  • Many noted – often in thoughtful and thought-provoking terms – that growth via mergers and acquisitions runs counter to their well-considered strategies (e.g., commitment to a “boutique” strategy, a “focused model,” or a solid existing market position).
  • Several respondents (roughly a quarter of those not actively pursuing a strategic combination) said that they remain open to discussing combinations when approached, but are not actively seeking a merger partner.
  • A couple of respondents recently completed major mergers and do not anticipate doing another significant combination over the next 18 months.
  • A couple of respondents noted that they are currently reevaluating their overall strategy and have not determined yet if they are in the hunt for a combination.
  • Finally, one respondent noted that they have looked in the past and do not believe there is an appropriate merger partner for their firm.

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As always, we thank the many firms that responded to this month’s strategy question. The response rates continue to grow, the insights are very helpful to us as strategy consultants, and we hope they are useful to you as leaders of your respective organizations.

The comments section is open and we welcome dialog – online here or off-line via phone and email.


Strategic Growth – Strategy Question of the Month – April 2012

When the National Law Journal published the new NLJ250 (now expanded to the NLJ 350) in late March 2012, the headline was “For Large Firms, Time to Grow Again.”  We certainly see an uptick in merger and acquisition activity among our clients, but that is not representative of the industry as a whole.  Both the Hildebrandt Institute and Alman Weil actively track merger activity – and their reports on mergers in 2011 suggests that law firm combinations have indeed returned (and even surpassed) pre-recession levels (see the links to their respective blogs).

This month we want to get a broader sense for what law firms’ future plans are regarding mergers and acquisitions.  In that context, we want to examine the factors strongly influencing the search for (and evaluation of) merger and acquisition candidates.  And, for those firms that are not pursing strategic combinations, to get a sense for the strategic considerations that went into the decision to forego mergers for the time being.

The survey embedded below (click here if you do not see the survey in the box) is entirely confidential and should take no more than two minutes to complete.  Deadline to respond is midnight, Saturday, April 28, 2012.  Thank you for your continuing help with these monthly strategy surveys.




This month we looked at law firms’ plans relative to profit improvement. Specifically, we asked law firm leaders which profit drivers they planned to use to improve profitability at their own firms over the next few years. We also asked each to share his/her expectations regarding profit growth in the next three years.

Starting with expectations, we were pleased to see a measured optimism coming from the overwhelming majority of law firms. Only about 11% of firms expect their annual profits to be flat or declining over the next three years. Conversely, roughly 60% expect profits to rise modestly (i.e., less than five percent) annually each of the next three years. None, however, expect robust profit growth of greater than 10% annually.


What strategies do firms expect to drive that measured profit growth? Two profit drivers were stood out as preferred strategies for the coming years – increased production (i.e., billable time) and improved realization. Meanwhile, increased leverage was far and away the least preferred profit improvement strategy – in fact a quarter of respondents consider increased leverage to be “not a viable driver for profit growth at our firm.”


These findings represent a marked departure from profit growth strategies of the past two decades.

  • In the 1990’s (and the late 80’s as well), leverage was considered something of a “holy grail” for driving profits – it is now the least preferred approach to growing profits.
  • In the pre-recession years of the 2000’s, rate increases drove profit improvement. Rate increases are now a somewhat distant third – and are even less important among firms expecting the most robust (5-10%) profit growth.
  • Tighter standards for equity partnership – including de-equitizations and wide-spread adoption of two tier partnership structures – were an important driver of PPEP across both decades. That strategy appears to have waned as well. As a profit improvement strategy, it rates nearly as low as leverage – and, over 20% of firms do not consider it to be a viable profit driver for their firm.


Looking at the most optimistic firms responding to the survey (i.e., those expecting profits to grow five to ten percent annually) – and comparing them to everyone else – reveals that those firms are pursuing a somewhat different strategy. Namely, the most optimistic firms plan to put a much greater emphasis on improving realization (they rate realization as a strategy more than 20% higher than their peers in other firms).

Since the questions made clear that alternative fee arrangements were one means for improving realization, AFAs could be an important part of the most optimistic firms’ strategy. More simply, the more optimistic firms may simply plan to discount less and/or write-off less time. The most optimistic firms were slightly less bullish on raising rates (compared to others), so those firms very well could be focused on charging (and collecting) standard rates.

Given these findings, however, we plan to take a closer look at AFAs in an upcoming “strategy question of the month.” Thanks for participating and for commenting below.


The average ratings regarding profit improvement strategies were based on a four point scale in which:

1 = Not a viable driver for profit growth at our firm
2 = A minor driver of profit growth for our firm
3 = An important driver of profit growth for our firm
4 = A primary driver of profit growth at our Firm

Our response rates continue to grow month to month (thanks again for that). We hope that continues to grow and we encourage you to share your experiences with your peers.

Strategy Question of the Month – Profit Drivers

Most law firm managers are familiar with the primary drivers of profitability – rates (i.e., the standard price per hour for professionals’ time); productivity (i.e., hours worked and recorded); realization (i.e., ability to collect on production at standard rates); leverage (i.e., the ratio of equity partners to other time keepers); and costs (i.e., salaries, benefits, overhead).

In the 1980’s and 90’s, profit growth at many firms was driven by increasing leverage – coupled with modest rate increases and improved financial management.  In the pre-recession years of the aughts, profit growth was driven largely by rate increases.  The “great recession” led many firms to turn to cost reduction – and many found that there was ample fat to be cut from the cost side of the business.

In addition, the high visibility of the American Lawyer’s AmLaw 200 rankings and their ubiquitous measure of profitability on a per equity partner basis (Profits Per Equity Partner or PPEP) has added a dimension to how many firms manage profitability.  Thus, many firms now also actively manage the denominator of PPEP as part of their respective approaches to profit management.

This month we are examining what firms’ priorities are going forward vis-a-vis profit management. Essentially, we are interested in identifying what profit drivers firm leaders believe offer the best prospects for growing profits over the next few years.  Further, we will look at how those profit drivers correlate to expectations vis-a-vis profit growth over the next few years.

Please take two minutes to complete the survey below.  If for some reason your web browser does not support the embedded survey (i.e., you don’t see it in the window below), click this link and you will be taken directly to the survey in a new tab.  Deadline for responses is midnight on March 24th – results will be published the following week.  Thank you for your help with this month’s survey!