Productivity versus Growth - Using non-billable time to guide Law firm growth

The business model underlying law firms is a well recognised one - fees are earned for professional services rendered. Profits are derived by charging the client more per unit of time than the costs of solicitors time.

Whilst this model allows very measurable evidence of a firm¡¦s current productivity, what is less clear is the likelihood of future growth.

Through the application of practical, common sense measurement principles, a firm can move beyond traditional indicators of productivity to measure and influence the drivers of future growth.

From a practice of one fee earner through to firms of hundreds, most solicitors are conscious of their billable time. Many firms use a small set of measures such as billable hours or fees earned to monitor the productivity of their fee earners.

For medium and larger firms, additional measures may provide a more comprehensive view of productivity, such as utilisation rates, write offs and debtor days to determine actual earnings per professional.

These indicators reported on a regular basis (like the split times in a rowing or running race) show how well the firm (and individuals) are faring against expected performance. This is critical to run a profitable firm, and to receive feedback on any trends or issues that may be inhibiting productivity.

Whilst productivity measures are important, it is vital to recognise their limitations. Financial measures only provide a picture of current productivity and earnings, but do not indicate the likelihood of future growth. Other factors such as the ability to attract quality new clients, to recruit and retain talented lawyers, and to effectively manage matters and knowledge within the firm all have an impact on tomorrow¡¦s results, and are more directly linked to future growth than today¡¦s productivity.

Said another way, it is not so much the number of billable hours that determines future success, but the valuable use of non-billable hours.

Consider for a moment.. How do your solicitors spend their non-billable time? Do they consistently spend it on an agreed set of firm wide priorities, or is it not really clear? Do they record all their non-billable activities accurately and honestly, or are there reasons why they don¡¦t?

We have put these questions to many firms, and have been astounded at the lack of clear understanding of how lawyers really spend their non-billable time. With the long standing pre-occupation on productivity measures, it is no wonder that the picture of growth activities is hazy and measurement of non-billable time inaccurate. In the absence of such clarity, firms have less ability to influence and manage growth activities and therefore can not be as certain about future success.

Many partner groups may benefit from recognising that ¡¥measurement motivates behaviour¡¦. When partners accept that the measures they review and reward are motivating certain types of behaviour, they will then be ready to consider a better balance of measures.

Firms wishing to create more balance between productivity and growth can begin by looking at the current reports used in regular senior partners meetings. Research we have conducted shows that over 85% of all measures contained in standard Partner reports are productivity measures. A shift in balance can be introduced with the inclusion of ¡¥growth¡¦ measures, including the use of non-billable time. Rather than detracting or diluting the emphasis on productivity, these indicators can highlight the cause and effect relationships between growth activities and financial performance.

But what measures might be useful, and how would they be of benefit?

The Balanced Scorecard suggests 3 separate domains of ¡¥growth¡¦ activity from which measures could be chosen; namely Clients, People & Processes. Measures can be selected from these domains that most closely reflect the growth behaviours a firm wishes to encourage. Specific thinking and decision steps are used to arrive at the most useful measures, however some examples will highlight the range of possibilities.

For example, one firm may wish to encourage client relationship building. A simple record of Client Time as one non-billable time code can help to track the extent of client interactions. A more sophisticated firm may wish to focus on growth of national commercial accounts. Thus, Key Account Penetration can indicate the breadth of contacts within key accounts using a more detailed level of recording and analysis.

With regard to people measures, a firm may wish to encourage non-billable time spent on coaching and mentoring. Alternatively, Reading Time may be a provision for junior solicitors who need to do reading that cannot be justified as billable time.

Process measures may relate to workflow efficiencies, use of knowledge databases, or perhaps encourage a new process, such as the signing off of new client protocols before a client matter is opened.

The inclusion of selected growth indicators as part of a Partner report, may be initially met with some scepticism. At first, partners may see the data as unreliable given the track record of fee earners in recording non-billable time, there may be no prior benchmark standard or there may be some confusion about what a new time code includes.

Rather than dwelling on the validity of data, benefits are soon seen with the improvement in the quality of partner meetings that ultimately has the greatest impact on growth activities.

By persisting over a period of months, partners will begin noticing trends and imbalances. For example, a downward shift in the number of hours spent mentoring juniors may become a topic on the agenda.

Rather than the existing ad-hoc conversations about growth activities, the quality of conversations become more focussed, because they are supported by data about what is happening and what could be happening, in relation to the few chosen priority areas.

The selection and reporting of a balanced set of measures, and the subsequent improvement in quality partner conversations can be supported with LawScoreþ.

LawScoreþ is a coaching and software package that supports the practical introduction of these new habits and helps partners use their existing time in partner meetings more effectively. The software is web based and does not require any particular existing Practice Management solutions.

With more awareness of the performance of growth activities, the perceptions of what is important across the firm begins to shift. When partner communications become more balanced regarding productivity and growth performance, the daily consciousness of fee earners begins to encompass not only productivity for firm viability, but growth for tomorrow¡¦s success.

Some firms may be so bold as to adjust their performance reward programs to include a mix of non-financial measures. Or further, a solicitor who has performed strongly on productivity and growth measures may be offered a partnership ahead of another with better financial, but poorer non-financial results.

If these final stages seem too far out of reach, then we have simply got ahead of ourselves. Instead, think again about your current partner report, and look at whether the measures you are using are motivating a balance of desired behaviours.

If your firm is using a set of mainly financial measures, look at the impact this is having on conduct and recording of growth activities across the firm.

Tomorrow¡¦s productivity result will be impacted by today¡¦s growth activities, and this is why a clearer picture of the use of non-billable time will create more certainty of future success.

By David Pointon

DaPo Consulting

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