Tag Archives: Balanced Scorecard

Intentional Management: Saying What You Mean and Doing What You Say

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Over the past year we have noticed an important word showing up more often in the strategy deliberations of our law firm clients.  That word is intentional, literally meaning “done in a way that is planned or intended; thoughtful; deliberate; goal-directed.”

Frankly, we could not be happier to see our clients embrace the term intentional to describe strategic and managerial priorities.  For far too many law firms, for far too long, many aspects of firm and practice management have been anything but intentional.  On the contrary, many firms – including many with smart, well-conceived strategic plans – accommodated highly autonomous action on the part of practices and (especially) successful partners.  Firm strategy was essentially subservient to the needs and interests of individuals and small groups within the firm.

In his landmark article “Patterns in Strategy Formation,” (pdf) Henry Mintzberg accurately characterized this as the strategy of “muddling through.”  This approach is inherently reactive and leads to continual bargaining vis-a-vis priorities and goals.  As a result, strategy is fragmented and often reflects the narrow interests of powerful individuals, rather than the proactive pursuit of best opportunities available to the organization as a whole.  Sound familiar to anyone?

What do we mean by “intentional management?”  It simply means saying what you mean (i.e., being clear about the direction the firm is heading and the priorities it will adopt in its pursuit) and doing what you say (i.e., following through on those priorities).  Now, it is easy to define intentional management, but more difficult to live it.  Living it requires linking strategy across and through the firm.

Cascading

It also requires actively managing, monitoring and measuring progress toward the firm’s primary goals.  Passively waiting for annual (or less frequent) partner compensation discussions is not sufficient.  There need to be clear commitments to action at the firm, practice, departmental, and individual level.  And, the whole endeavor benefits immensely from tracking what is working (and what is not working) via outcome measurement.

After all, we adopt strategies and implement those strategies with particular outcomes in mind (e.g., revenue growth, improved realization, stronger client relationships, a more effective work force, etc.).  If we are following through on our commitments (i.e., managing intentionally), then we can use outcome measures to identify what is working, make appropriate adjustments, and challenge the strategy when circumstances dictate.

Intentional management applies to virtually every aspect of the law firm.  For instance:

  • We need to be intentional in our approach to people management – especially in recruiting, training and professional development.
  • Client relationships benefit from intentional management.  That is particularly true for relationships threatened by clients’ demands for greater value and/or cost reduction (e.g., where project management, knowledge management, or other aspects of the ACC Value Challenge are in play).  It is also true of relationships that can benefit from greater breadth and/or depth (i.e., where others in the firm can help substantially in cementing the client relationship).
  • It is certainly a requirement for effective business development if that is going to be anything more than heroic individuals going to market on behalf of the firm.  Any meaningful targeting, leadership in industry segments, and/or team-oriented selling is a function of intentional management.
  • Pricing decisions (e.g., rate setting, creation of alternative fee arrangements) and other basic economic decisions (both revenue and cost related) benefit from intentional management.
  • Finally, the ultimate decision of who owns the law firm (and at least here in the US, that means who becomes and remains an equity partner) should be driven entirely by intentional management.

So, three cheers to the firms out there embracing an intentional approach to management.  It will serve you well as the legal marketplace becomes increasingly competitive.

Five Tips to Better Align Budgets with Firm Strategy

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Most law firms are deeply in (or about to enter) budget season.  We surveyed law firm leaders last year regarding best practices around budget development.  As a seasonal follow-up to that survey, we offer the following five tips to improve the alignment of law firm strategy with annual budgets.

Engage Practice Group Leaders Directly in the Budget Development Process

A surprisingly high percentage (44%) of firms in last year’s survey reported that they do not build budget projects from the practice groups up (i.e., direct costs, gross revenues, realizations, etc.).  The budget development process provides an excellent opportunity to cascade firm strategy (and strategy implementation) to the practice group level.

Engaging practice group leaders in budgeting – in thinking about cost drivers, revenue drivers and factors that contribute to client satisfaction (which often translates to realizations) – helps to “connect the dots” for people.  It highlights how strategies are being operationalized in the practices and makes those connections tangible in financial terms.

Budget for R&D

What does the average partner (i.e., the partner not involved in management) think about budgets?  Mainly, he/she wants the firm to beat its budget so that distributable income is higher than projected – creating a pool of funds that can pay partners more than their “expected compensation.”

By explicitly budgeting for R&D (both time investments and direct costs), the tension between partners’ desire to distribute all income at year end and the firm’s need to invest for the long term is mitigated.  Essentially, R&D projects should be prioritized along with other investments (see the next section).  At year end, assuming the firm had a good year, everyone is happy.  The firm has made needed investments for its future.  The partners get distributions above what was budgeted.

Prioritize Budgets in Financial and Strategic Terms

Law firm leaders (especially COOs and CFOs) are very comfortable thinking about projects and initiatives in financial terms.  Projects with high returns on investment (ROI) and/or fast payback are a higher priority than low return projects – a blinding glimpse of the obvious (a la Barbarians at the Gate).

In addition to the financial perspective, we recommend adding consideration of the expected strategic impact of a project to the prioritization process.  Essentially, projects that contribute to multiple strategic goals (i.e., that are more “mission critical”) are higher priority initiatives.  For example, a Knowledge Management project may contribute to achieving goals associated with client satisfaction; improved efficiency/value; and improved predictability.  Contrast that with a project to reconfigure office space – which may have a high ROI, but relatively little strategic impact.

 Priorization matrix

Prioritization across both dimensions (financial and strategic) yields added clarity on what the priorities really need to be across a range of projects – and may even lead a firm to delay or spike selected projects.

Validate Revenue Projections by Taking a Client (bottom-up) View

Revenue projects are (more often than not) built on the basis of headcount, anticipated hours, and rates (i.e., FTE x Hours x Realized Rates = Gross Revenues).  That is entirely logical and appropriate.  However, a nice check on that approach is to look at revenues from a client perspective.

At many firms, the top 50 clients (plus or minus) represent a substantial share of total revenues (often well over 50%).  By asking relationship partners what those major clients are expected to do in the coming year, a firm can help to validate its revenue projections.  If most of the major clients are expected to continue to generate similar or higher revenue streams, great.  However, if revenues from important clients are expected to fall (e.g., a major case has been resolved, the company has been sold, etc.), it may lead the firm to make important adjustments to its budget.

Align with Other Metrics – Financial and Non-Financial

Last December we asked law firm leaders where they had reliable metrics and where they did not.  Over 95% of firms have solid, reliable financial metrics.  Metrics associated with client satisfaction, people development, and business processes are more spotty – though those kinds of metrics do exist on at least a limited basis.

The budget process provides an opportunityfor firm and practice group leaders to think about and revisit financial and non-financial metrics.  Essentially, it is an opportunity to ask the question, “If we make or exceed this budget, will we also achieve our other measurable objectives?”  Similarly, it is an opportunity to ask, “Are the financial and non-financial metrics we have adopted to track the success (or lack thereof) of our strategy consistent with the budget we are about to propose and approve?”

Essentially, the budget process becomes another tool to help a firm and its practice groups effectively use a balanced scorecard to monitor and drive strategy implementation.

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As always we welcome your comments and insights – in the comment section below, via email at info@sterlingstrat.com, and over the phone at (312) 543-6616.

 

What Are the Prospects for Mid-Size Firms – and What Does Mid-Size Mean Anyway?

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The Executive Committee of an AmLaw 200 firm (aspiring to become an AmLaw 100 firm) raised the following question.  “(We’re at) an awkward size (roughly 500+ lawyers)…what should a mid-size firm like ours do (strategically)?”  Given their aspirations, the answer was to keep growing and become a ‘big’ law firm.  They certainly would not be the first to follow that road and some have realized their aspirations.  For instance:

  •  At the time of their merger in 1999, Piper Marbury was a 400 lawyer “Baltimore law firm” with most of its lawyers located outside money centers and Rudnick & Wolfe was a 350 lawyer “Chicago real estate powerhouse” with no New York presence at all.  According to the American Lawyer DLA Piper is now the world’s largest law firm, with over 4,200 lawyers in 30 cities worldwide.
  • Similarly, at the time Elliot Portnoy became chairman of the Firm in 2007, Sonnenschein, Nath & Rosenthal was a 600 lawyer “Chicago-based law firm,” with less than 20% of its people in New York.  Since declaring its intention to become leading global law firm, Sonnenschein scooped up over 100 lawyers from the disintegrating Thatcher Proffitt & Wood in New York, merged with UK law firm Denton Wilde Sapte, and simultaneously merged in international firm Salans and Canadian firm Fraiser Milner Casgrain.  Dentons now has over 2,600 lawyers in 80 offices across 50 countries.

“Moving up market” (as some like to term the strategy) is certainly not impossible.  But, the conversation with that aspiring AmLaw 200 firm raises a couple of pointed questions.  Is a 500-600 lawyer firm actually “mid-sized?”  And, is growth the only winning strategy for mid-size firms that intend to survive and prosper into future generations?

What is a Mid-Sized Firm Anyway?

Let’s deal with that first question – is a 500+ attorney firm mid-size?  Sure, if your frame of reference is the AmLaw 50 or 100, then an AmLaw 200 firm is mid-size.  That is especially true if your firm aspires to being part of ‘BigLaw.’  To generalize the point, defining what mid-size is depends largely on what you are comparing it to (e.g., an elephant is mid-size next to a brontosaurus).

That said, for many, many firms ‘mid-size’ is better defined in the context of nearby (i.e., local and regional competitors).  In other words, mid-size is a function of your size relative to other firms/offices in your primary (or only) city.  Firms that are mid-sized by that definition tend to share some common traits.

  • They tend to be general service firms (since “full service” is unattainable at any size) focused mainly on the legal needs of business clients and their owners.
  • They have a number (perhaps a majority) of clients who are classic middle market companies – and that means that legal costs are paid out of the owner/CEO’s pocket (if it isn’t insured risk).
  • They have people and/or practices that are the absolute best in the local/regional market in their areas of expertise.
  • They have at some point (perhaps frequently) been approached by another law firm (probably a larger law firm) interested in merging.

Is the only (or even the most logical) strategy to say ‘yes’ to merger overtures and/or launch a search for suitable merger partners with whom to grow aggressively?

Winning Strategies for Mid-Size Law Firms

So, is aggressive, merger fueled growth the best/most logical/only strategy for mid-size firms?  After all the demise of the mid-size firm has been predicted for at least 25 years.  Our answer:  it is certainly not the only strategy, but it really depends on what your firm aspires to become.  We addressed that broader question in a recent article regarding strategic direction.

Mid-size firms can adopt a compelling strategic direction that does not include substantial growth.  Assuming there is widespread agreement among the partners regarding that direction (whatever it might be), there are a few things that you can (in fact should) do to turn that into a winning strategy.

Focus on a Few Things that Can Create a Competitive Advantage

Focusing a a few things that create competitive advantages requires a firm to do at least two things.  First, honestly assess what the firm is (or can become) truly great at doing – strengths that can become the epicenter of genuine excellence that cuts across the firm.  Second, get external validation that being great at those things is meaningful in the marketplace.  Focus on a handful of things you are great at (or can become great at) that also have meaning in the market.

A basic SWOT assessment (strengths, weaknesses, opportunities and threats) can highlight your areas of strength (actual and latent).  If you are not good at looking objectively at yourself, a good consultant can help.

External validation can and should come from your clients.  Your best clients want you to succeed into the future – they almost certainly consider your partners to be among their most trusted advisers.  So, ask your clients what you are good at and what you can do better.  It will inform your strategy and improve your relationships to boot.  It is amazing how few firms do this in any systematic way.

Think Strategically

What does that mean, to think strategically?  Well at a minimum, think about competitive advantage (those areas you might focus your energies on) through three lenses.

    • Consider whether you enjoy size or scale advantages over competitors – or more likely face larger competitors who have size advantages with which you must cope.  Large firms do have deeper pockets (or at least more equity partner pockets) over which to spread marketing, technology and other shared costs.
    • Identify factors that may help you to defend your firm’s market position against competitors (even much larger, better financed competitors).  It may be your knowledge of the local courts and judges, your reputation and brand may have deep roots in the community, you may have very deep and broad relationships with clients.  Consider how you can capitalize on and solidify those defensive advantages.
    • Finally and most importantly, take an indirect approach – occupy the unoccupied market positions and be willing to do things differently from competitors.  Precedent is a horrible source of strategy – don’t do what others are doing, do things no one else is doing.

Implement – Do What You Say You Are Going to Do

We have written extensively on implementation – through the balanced scorecard and through other means as well.  Successful implementation involves:

    • Cascading strategy implementation throughout the organization – from firm level initiatives to practice and departmental level activities to a vital and meaningful roles in implementation for all of the firm’s people (partners, associates and staff);
    • Measuring and monitoring implementation and the results it is producing – reinvesting in and celebrating the things that are working;
    • Adjusting as implementation unfolds – abandoning or recalibrating initiatives that are clearly not producing expected results and responding to new market challenges and opportunities as they arise.

In sum, if you think you are mid-size, you probably are – it is entirely a function of your perspective on the competitive marketplace.  Being mid-size is not equivalent to being diagnosed with a fatal disease.  You are free to reject the label and seek to grow – others have done so with remarkable success.  But, you can also adopt other winning strategies by focusing on few sources of competitive advantage, thinking strategically, and implementing with discipline.

As always, we welcome your comments and insights below, via email at info@sterlingstrat.com, and via phone at (312) 543-6616.

 

Implementing Law Firm Strategy Using a Balanced Scorecard

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We have seen a spike of interest in the Balanced Scorecard since our December 2012 strategy question of the month focused on what kinds of measures law firms are using.  As regular readers will recall, the only measures firms are using with a high degree of consistency and reliability are financial measures.  Other areas – client satisfaction/client relationships; people/professional development; operational improvement – are generally not measured.

The balanced scorecard, as originally described by Kaplan and Norton, envisions a balanced set of goals, objectives and measures in four areas (as depicted in the graphic below).  Those goals and metrics should ideally be focused on advancing the achievement of the firm’s vision and strategy.  While these four categories are logical and work for the majority of organizations, the authors (and experienced managers) recognize that measures should be aligned with the strategy (rather than aligning strategy with the generic scorecard categories).

Balanced Scorecard Graphic

The concept is easy enough to understand, but how does one go about implementing some version of the balanced scorecard in a law firm environment?  In our 2009 book on the topic, we highlighted the range of barriers law firm managers might encounter when trying to use this very powerful tool to facilitate strategy implementation.  We will leave those challenges for another post so we can focus on how to use the balanced scorecard in a law firm setting.

The real key to the process (and this is equally true in a corporate setting and/or a non-profit organization) is to ensure the strategy is aligned from the firm level to the practice (and administrative department) level – and from the practice level to the roles individuals play in strategy implementation.

Cascading

Obviously, this graphic assumes the firm has a strategic plan.  For those who might have missed it, our June 2012 strategy question of the month focused on best practices in law firm strategic planning.  Some examples of how this cascading works across the categories of a generic balanced scorecard follow.

FinancialA firm with clear objectives for profit improvement (could be margins, could be PPP, could be some other reasonable proxy) might ask each practice group to identify the profit driver that offers the most promise for improving performance in their area.  In this example, the practice has identified realization improvements as the most promising area.  They would then set a target for improved realizations and adopt initiatives to drive that improvement.  Individuals in the practice would then move those initiatives forward.  In this example, individuals would focus on getting invoices out on a timely basis, with higher levels of accuracy.  Thus, the firm’s goal for improved profit margins cascades to a practice’s goal for improved realizations, which in turn cascades to individual’s committing to more timely billing.

ClientsOur second example focuses on the client dimension of the balanced scorecard.  At the firm level a goal might be adopted to broaden client relationships where ever possible.  This might be translated into an objective measure that tracks how many clients are served by multiple practice areas and/or partners from different practice areas.  At the practice level, this focus might translate into a set of target clients for whom the practice wants to expand its relationships (either bringing other practices into their relationships or by beginning to serve clients originated by other practice groups).  At the individual level, that could lead to specific plans to introduce colleagues to selected clients (or conversely to seek introductions to colleagues’ clients).

PeopleOur third example focuses on cascading for people oriented goals and objectives.  A firm level goal focused qualitatively on having the best people in the market could be measured via the number and nature of external recognition(s) the firm’s people get (e.g., Chambers, Best Lawyers, Super Lawyers, etc.).  At the practice level, that could translate into initiatives and measures focused on getting people professional (or industry) certifications.  In turn, individuals can adopt specific plans to build certification into their professional development plans.

OperationsOur final example focuses on how operational improvement goals might cascade in a law firm.  In this case, imagine a firm that has adopted a goal to reduce costs related to delivering client services.  A litigation practice in that firm might adopt an initiative to engage project managers on some or all of their matters.  At the individual level, partners/engagement leaders would commit to actively partnering with those same project managers to capture the benefits of project management discipline on matters.

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These are obviously generic examples.  However, if you have clearly defined firm level goals, those can (and should) be translated into measurable objectives so progress can be tracked and the firm can make adjustments if the strategy is not working.  With clear firm level goals and objectives, practice groups and administrative departments can align their plans with key goals.  Note, not every department and practice needs to align with every firm level goal – but, every practice has some valuable role to play in the implementation of the firm’s overall strategy.  Finally, this cascading approach enables every individual to take meaningful action that contributes to the achievement of practice and firm level goals.