Features - Delivering Actionable Information To Front-Line Lawyers
By John I. Alber, Published on July 15, 2005
John I. Alber is the Technology
Partner for Bryan Cave LLP, a diversified practice firm with offices across
the U.S. as well as in the UK, Middle East, and Far East. A former technology
company CEO in the transportation sector, he leads the firm’s Client
Technology group and sets technology strategy for the firm as a whole.
If a friend tells you that you have something in your teeth, chances are
you’ll visit a mirror and attend to the problem. That’s actionable
information. It is information (1) from a trusted source, (2) about something
that’s important to you, and (3) that, once known to you, will impel you to
Presumes the Wheat is There
Accounting and other
enterprise systems amass information that is, almost by definition, not
actionable by front-line lawyers. Volume of data is inherently at odds with
actionability, and a good enterprise system must accommodate volume. It must
account for every circumstance, every variable, every iteration. Much of this
volume is chaff to lawyers. To be useful, the wheat must be winnowed out and
presented to the pricing and staffing decision makers themselves (i.e., not
just to green eyeshade types deep in the firm).
The need for this sort of winnowing has long been recognized, and has given
rise to several generations of winnowing tools. Among the first solutions
created were so-called “reporting” tools, which take existing data from
enterprise systems and shape it into more intelligible formats. Such tools,
standing alone, have a couple of weaknesses.
In the hands of inexperienced users, they often perpetuate the very problem
they were created to solve. How often have you seen, for example, reporting
tools used to create practice group reports that must be weighed to be
appreciated — that tell you everything you never wanted to know? Reporting
tools make it easy to report unimportant data.
A more fundamental problem
with such tools is that they can only report on data to which they have
access. Core information for charting the course of a business often cannot be
found directly in basic accounting data; it must first be derived. To address
this need, businesses in general and law firms in particular have begun to
develop systems that aid in the derivation of core information. These have
come to be called business intelligence (BI) systems or business performance
management (BPM) systems.
Indicators of Business Performance
The term business
performance management gives a good sense of how such tools differ from
accounting or other enterprise systems, as well as from reporting tools.
Accounting systems amass information relating to every aspect of a business,
and a well-run business will certainly want its accounting system to tabulate
everything correctly. But a well-run business cannot operate from such a mass
of information. Rather it must focus on a few key performance indicators (KPIs).
KPIs are tied to a
fundamental business strategy. As often described in the business press, one
of Wal-Mart’s fundamental business strategies is to attract high-spending
customers. Wal-Mart’s BPM system tracks annual spending (“total dollar ring”)
by customer from the company’s accounting system, and integrates this figure
with data from its CRM system (and perhaps others) to ascertain the
characteristics of high-spending customers. Wal-Mart then structures its
business to pull in more such customers.
Wal-Mart makes most of
its key business decisions — product selection, pricing, etc. — centrally. Law
firms, on the other hand, distribute much of their decision-making to partners
and other relationship lawyers. That means law firm BPM systems must deliver
information that is meaningful to and actionable by front-line lawyers — the
partners and others making pricing and staffing decisions every day.
Increasing Awareness of Metrics
It is tempting for law firms to adopt a single metric as their focus — much
like Wal-Mart. Indeed, you might say that annual billings have been adopted as
a top-order metric, given that partners are often paid based on total billings
and little else. The difference between Wal-Mart and a law firm, however, is
that Wal-Mart controls its margins precisely. It manages price and cost better
than almost any business in the world. It knows that every dollar of sales
will yield a certain margin of profit (another BPM metric). With that degree
of discipline in place, it can focus on total dollar ring and achieve
Not so with most law firms.
Law firms with conscious, well-planned strategies are a rarity. Still rarer
are firms that have extended their strategies into economic fundamentals and
metrics. Who in most law firms can accurately say what a dollar of new
business contributes to profits, or what it should contribute to align with
the strategic plan? Imagine the advantage that accrues to those firms where
front-line lawyers can answer such questions.
To understand how
well-chosen business performance metrics might operate in a law firm, let’s
take an example, using my own firm’s unique BPM system.
Using Graphic Impact to
Imagine that you’re a partner in a large law firm. Things are going reasonably
well. Your billings are a tidy $2 million a year. You don’t feel too bad about
your rates and your clients aren’t complaining about them. That’s great.
What’s more, your realization is running above 90%. You are on top of the
world — and from that position oblivious to some fundamental problems with
your business. What business performance metric might give you critical
insight into the nature of your business? How about the Billing Contribution
gauge shown in Figure 1 below?
Figure 1. Billing
The gauge at right shows the combined “billing contribution” for matters
managed by the partner in question, compared to the firm-wide average.
Contribution is a measure of profitability calculated as profit per
equity-partner-hour times standard hours for the year (to annualize profit per
The resulting amount is indexed against the strategic plan amount for
profit per equity partner, and then expressed as a percentage.
accustomed to thinking of realization as a percentage are fairly comfortable
with this expression of profit. They come to know that 100% realization is not
necessarily good if it gets you only, say, 50% of the way to target PPEP.
With one glance at your BPM “dashboard,” you can see that your
matters contribute roughly half as much profit to the firm as the average
matter. That information is actionable: if you’re like most partners, you will
want to do something about it.
Your first reaction, which would seem a natural for lawyers, might be to
attack the system that gave rise to the troubling information. That is why
developing trustworthy data at the foundation of a BPM system is essential.
A more likely result, however, is for you to want to learn why your matters
are not contributing more profit. Lawyers will be curious about such things in
That has been carefully prepared with messages from top leadership;
That is carefully supported by marketing, business development, practice
management and other professionals who can advise working lawyers on their
That rewards curiosity by providing concise additional detail to help the
inquirer understand the significance of the metric. Our own system, the
development of which I’ll speak to below, provides such information in an
Hours Leverage gauge, as shown in Figure 2 below:
Figure 2. Hours Leverage.
The gauge at right shows
“hours leverage” for all matters managed by the partner in question and
compares it to the firm-wide average leverage.
Hours leverage is a ratio
of equity partner hours as against all other fee earner hours in the subject
In this case, the Hours Leverage gauge reveals that the ratio of your hours to
those of all other non-equity fee earners in your matters is only about a
third of the average for partners in the firm. It may be that such low
leverage is necessary, depending on your practice. But either that leverage or
the average per-hour pricing for all fee earners in your matters — which we
capture in another metric — has to rise for you to attain even average
(Controlling cost might be an option too, ala Wal-Mart, but since your
leverage is low, most of the costs you incur are related to you. You’re
probably not wild about having your pay cut, so it’s best to look elsewhere.)
How to increase profit margins in your matters is a discussion best had
with marketing, business development and practice management professionals
inside your firm. Note the implication: it is insufficient to simply offer BPM
software to lawyers. You must also offer practice support that is aligned with
and informed by the BPM system.
Developing Meaningful Metrics
These bits of information — profit contribution, hours leverage and average
rate — are among the half dozen “actionable” metrics that my firm carefully
chose to align with its business strategy. Choosing this set of metrics
required many long sessions with the firm’s chairman and executive committee,
and with our marketing, business development and practice management
professionals, as well as others. In all these meetings, we needed to think
about our business not just from a practice standpoint, but from a financial
standpoint as well.
As part of our strategic planning process, we chose our destination — where
we wanted to land. Our BPM metrics now serve as rudders to help our lawyers
guide us to that destination. BPM gives lawyers genuine control over where the
The benefits of using these BPM tools are extraordinary. Because we can now
model engagements to better understand the impact of alternative staffing and
pricing arrangements, we can bid on business that our old rules of thumb would
have prevented us from seeking. Our lawyers are also becoming increasingly
astute about the impact of their pricing and staffing positions on firm
profitability. Indeed, we have measured BPM dashboard use and correlated it
with the strength of BPM metrics. We find that there is a very high
correlation between use of these tools and strong metrics. The more they use
these tools, the smarter our lawyers get about economics and the more flexible
they become about what pricing and staffing structures they consider.
An Example: One Path to Implementing A BPM System
It would have been ideal had our core business metrics been readily
available straight from our accounting system, but they were not.. Arriving at
those metrics required that we pull together raw data and then perform some
complex operations on it. To do that, we collected all necessary data in a
In addition to our accounting system, a number of other systems now feed
the warehouse: data streams come from our timekeeping system, our new matter
and conflicts system, our HR system and other systems as well. The data
warehouse collects information in periodic batch updates and then stores it in
a manner that permits rapid and precise querying and reporting.
On top of our data warehouse we built a series of related applications that
permit front-line lawyers to manage the life cycles of their matters. One
application, for example, lets lawyers experiment with preliminary models for
new matters using different staffing and pricing mixes. Costs, rates and other
necessary data are drawn from the warehouse and then manipulated to show
lawyers the economics of their various mixes quickly and easily. With this
tool, lawyers can price engagements much more creatively and competitively.
Our BPM system also captures comparative historical data and lets lawyers
review all their clients and matters to see how their pricing and staffing
decisions played out. Comparative data properly presented can help lawyers
learn from their own decisions. Some matters will be more profitable than
others. Letting lawyers identify those matters and then drill into them to
understand their mechanics helps create an informed intuition. That intuition
will then manifest in later matters as front-line decisions more closely
aligned with the firm’s strategy.
Bryan Cave’s Client Technology group — an assemblage of lawyers, software
developers, business analysts and others focused on client-facing applications
as well as BI tools — is quite unusual in its capabilities. However, you
needn’t despair if your firm (like most others) lacks the resources to develop
data warehouses and the software applications that make use of them. There are
now several BI vendors that can assist in deploying warehouses and BPM
applications for law firms.
Indeed, having built our own system initially, we recently turned to a
leading BPM vendor — Redwood
Analytics, Inc. — to manage our warehouse going forward. This will enable
us to focus on strategy and create the next generation of BPM tools for our
We chose Redwood because of its extraordinary BPM acumen and alignment with
our needs, but there are other vendors as well. Finding the right vendor for
your firm will require that you begin to lay down your own strategy and match
your needs with the capabilities of those vendors. The best vendors will help
make that process straightforward.
article was first published in Accounting and Financial Planning for Law
Firms, in the August/September 2005 special edition on Business Intelligence.