CHANGING MANAGEMENT STRATEGIES MID-YEAR TO IMPROVE FIRM'S FINANCIAL RESULTSby Joel A. Rose
Now that the financial results of the first six months of 2017 have been distributed to the partners, the challenge confronting managing partners is whether to continue, or revise, the strategies and tactics that were employed during the first six months, to address those internal and external developments that have influenced and will continue to influence their firms' financial performance going forward.
If change is called for, this article describes the recommended processes that will enable managing partners to re-think how they should address those developments that will affect their firm for the rest of the year, and longer.
The managing partner, assisted by members of the management committee, should survey all or a representative number of partners to determine their basic priorities and the general goals the firm should be aiming for. They should find out if the firm's recent progress, when compared to competing firms in its marketplace, is advancing, falling behind or holding even in terms of professional competence, prestige and money.
Partners should be asked about those internal and external developments that may influence the future of the firm. These issues usually include re-assessing partner satisfaction with gross revenue and net profit, individual net income, hourly and billing expectations, firm resources and capabilities, perceived strengths and weaknesses, reputation and position in the marketplace and the willingness and ability of themselves and other partners and associates to sell the firm's legal expertise and cultivate new prospects within the firm's current and potential market.
Partners should be surveyed to determine the types of strategies the firm should develop and implement to improve the firm's economics. For example, should the firm increase billable hours for partners and/or associates? Drop unprofitable clients? Reduce overhead? Improve billings and collections performance? Reduce selectively non-billable activities? Address the problem of less-than-profitable partners?
Analyze the Firm's Competitive Position
The Managing Partner should assess those trends, positively and negatively, that may affect the firm's competitive position regarding its existing and potential client base. Examples of these trends may include fee pressures from clients, changes in the industries the firm services, aggressive marketing by competitors, the firm's competitive advantages and disadvantages, mobility of partners among firms, and anticipated changes in the partnership as the result of retirement, withdrawal, etc.
Identify Objectives and Develop Strategies
The information obtained from partners, combined with an analysis of the firm's financial position and client data will enable the managing partner and other partners to formulate plans for improvement that will be presented to the partners. For example, should the firm consider improving service by broadening its focus? Is there an area of practice the firm ought to be in so it can provide better service to key clients? Should the firm improve its service by narrowing its focus? In terms of client service and perceptions, is there an area of practice in which the firm is so weak that it would be doing its clients a favor by eliminating it and referring them to better specialists? Are there any steps the firm ought to take to improve quality control? Should the firm redefine or consolidate its current practice groups that naturally relate to each other?
Increase Marketing Efforts
Should the firm's marketing activities be re-organized and/or coordinated by a "marketing partner" or a marketing committee, rather than by partners in an ad hoc manner? Should the firm utilize its website differently to more aggressively market its expertise? Should partners be obligated to prepare personal marketing plans and be accountable to the marketing partner or committee for their business development plans and efforts to increase revenue and profitability?
Depending upon each partner's experience for marketing the firm's expertise to existing and potential clients, how practical is it to expect every partner to be an effective "rainmaker"? Should attorneys have variable hourly production budgets of time for business development activities, depending upon their success developing new business from existing and potential clients?
Survey the Firm's Significant Clients
Client surveys are usually conducted by mail surveys, telephone interviews and personal meetings. The approach that law firms use varies based upon the nature of the firm's practice, the number of clients to be surveyed, the relationship between the client and the firm, and the firm's objectives to be obtained from the survey.
The marketing partner or committee should coordinate a client satisfaction survey to obtain feedback about the firm's attorneys and staff, and the timeliness, responsiveness and value of the work performed. Survey results will frequently reveal the client's expansion or contraction in particular areas of work, specify work in practice areas needed to be performed by the client, and determine other areas of legal expertise the client might use if the firm had the expertise.
Manage the Firm's Culture
A major component of the planning process is the ability of the managing partner or the management committee to assess the firm's culture to determine whether the current culture reflects the type of internal culture the firm should aim to create. Even though it is not easy to change a firm's culture, partners may be more willing to modify established behavior patterns if they have the opportunity to evaluate and recommend on modifications to the firm's culture, especially when a firm is facing a difficult situation.
During the initial partner survey process, if a significant majority of the partners indicate they want the firm to become larger and more profitable, they must be willing to undertake activities that will influence the future of the firm to accomplish their goals. If the partners indicate that they want the firm to be more aggressive, democratic, sensitive to quality of life issues (especially family life), the managing partner and the management committee must be prepared to address these issues with the partners.
Assess the Components of the Partner Compensation Plan
The most effective partner compensation plans will reward partners fairly for their total contribution to the firm and encourage them to perform those billable and consequential non-billable activities they do best, to achieve the firm's immediate and long-term objectives.
As a long-time management consultant to law firms, I have learned two important principles: (1) the elements of the partner compensation plan and how they are administered will set the direction of the firm; and (2) it is difficult to change the direction of the firm unless the compensation system also goes in that direction.
Clean Up Dated Unbilled Time and Accounts Receivable
The adage, "Cash flow makes the world go round," has never been more important than in today's law firm environment. If the firm has a cash flow problem because clients have not paid their bills in a timely manner, the managing partner should consider providing incentives to delinquent clients, such as a one-time 25 percent discount credit for cleaning-up accounts receivable and unbilled time that are more than 180 days old. This extraordinary action plan should be undertaken by the individual lawyers who provided the services, with the approval of the managing partner. This collection may provide a stream of operating capital that may not otherwise have been available. Further, these monies should be utilized to fund strategic planning activities and/or operationsâ€”not automatically distributed to the partners.
Implement the Plan
As long as the managing partner has confidence in the firm's current cadre of lawyer managers, the recommended plan for improvement should be implemented through the firm's existing organizational structure, i.e., the managing partner, the management committee, the marketing partner or committee, the heads of substantive practice areas, etc. Individual partners should be assigned responsibility for accomplishing their respective objectives and held accountable for the satisfactory implementation of each phase of the plan in accordance with an agreed upon timetable.
Partners responsible for various aspects of the implementation phase should report to the managing partner, the management committee or other group designated to oversee the planning process. The managing partner should review problems and progress on a routine basis. Ongoing assessments should be made to determine the most appropriate strategies to be followed. Status reports should be provided to the other partners on progress and/or problems in each phase of the plan in order to keep them apprised about the results of the planning activities. Further, the implementation phase must be monitored by the managing partner to assess the effectiveness of the plan and to recommend that corrective action be taken, as required.
ConclusionGood lawyering is a prerequisite for any law firm to be a successful organization. However, performing excellent legal work by itself is not sufficient for a firm to be a financially and professionally successful organization in today's competitive environment. Business skills and acumen are essential and sound management practices are required to manage the firm's resources, ensure adequate cash flow, and develop and implement the marketing and planning process for the partners to achieve their professional and financial objectives.
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