Redefining Law Firm Management
Where ‘The Rubber Meets the Road’

Prepare to approach the marketing, production and finance functions of the business of law differently as technology reshapes management concerns and client needs.

By Ed Poll

Such micro issues are where “the rubber meets the road” in law practice management. I heard about them at bar associations and in personal discussions, including my discussions with Canadian lawyers. In essence, technology has freed lawyers to do more, but it has also empowered clients to ask for more. That requires lawyers and law firms, as seen in the previous “macro” review, to partner with their clients, and work to reduce client legal costs through efficiencies that bring in more work and revenue and thus maintain overall profitability. This must be done within the unbreakable formula that defines all business success: P = R - E. Profit equals revenue collected less expenses. Following is where working lawyers see the pressure points in applying this formula, along with some thoughts on how the pressure can be relieved.

Managing client expectations

As technology turns more legal services into commodities, clients may expect the best possible results for the least possible cost. Firms will need to emphasize that clients should expect fees to be reasonable, not just low. Deciding a reasonable fee involves demonstrating whether the amount of the fee is proportional to the value of the services performed. The client’s concern is not with the firm’s financial performance, it is with the value of services received. The lawyer’s true obligation is not to be cheap, but to be fully committed to a collaborative client relationship that builds trust over the long term. Using technology to provide efficiency is essential to collaboration, while demonstrating value received is essential to trust.

Securing new business

At first glance, online electronic media are rapidly becoming the new seductive tools for approaching clients – not just through websites and blogging, but all the new and constantly expanding social networking innovations. However, such media are “broadcasting” in the purest sense of that now quaint word. They may reach a few potential clients, but they also reach many more people who don’t have the slightest interest in the law firm. And the firm is paying for all those disengaged listeners, in terms of the time that consistent online marketing requires. The far better alternative for any firm is to focus on existing clients. Bond with them, serve them in ways that create loyalty, and have these very same clients be your advocates with others. For such clients, you don't need the Internet. You need to visit and talk with them to learn what you can do to expand work with them.

Emphasizing collections

While current clients are important, the road to disaster is continuing to do marketing and production with these same clients if they are not current on payment, extending credit to them rather than collecting fees in the hope that the client will give you more work. Strive to get paid quickly for the work that has already been done, using such technology tools as emailing invoices in PDF form and enabling clients to pay by credit card authorization. If the client hasn’t paid the fee for the last matter while you begin work on the next, you have in essence extended a no-cost loan to the client. Just as most banks will not carry you in the hope that you will pay on an outstanding loan, it makes no sense to do the same thing with your clients on a vague hope of being paid as expenses and uncollected accounts receivable pile up. The simple fact is that no lawyer can be too successful at collections. Balancing collections with marketing and production is the real key.

Building firm collaboration

Clients who move at the speed of technology are losing patience with law firms that remain an amalgam of medieval fiefdoms. They know that Client Relationship Management (CRM) technology can bring consistency and efficiency to law firm operations. Shared CRM databases on computer desktops can make available to all firm members the type of client background and matter information that used to be stashed away in individual Rolodexes and personal files. Such information is the foundation to cross-refer practice services and reinforce contact relationships. Firms where partners jealously guard client information rather than share it, because compensation and governance remain highly individualized, have little future. For CRM to work, these firms must give up the “my client” mentality in favor of an “our client” approach. Clients and prospects want to do business with firms that will serve them with effective cross-office and cross-disciplinary teams. An effective CRM system will facilitate such service, but not if every lawyer zealously guards information to maximize individual pay.

Redefining time management

As technology efficiencies mean less time is needed to do the same work, the billable hour is increasingly depreciated as a time management tool. That means lawyers must shift their emphasis to knowledge management as a measure of productive time, and this is symbolized by the use of knowledge management (KM) databases. KM systems combine the work product of all lawyers into a single unified database that can be accessed by each lawyer to the benefit of all clients. Efficiencies from computer technology gives online database management the potential to turn a lawyer's or law firm's knowledge into a high volume commodity. But this is not possible in firms where lawyers believe that managing a file after the matter is completed is not billable time (so they either do not do it or do it incompletely) or where lawyers are reluctant to use billable time for a task that could boost the bonus of another lawyer. Such viewpoints conflict with what clients demand, and they will make firm profitability suffer.

Reshaping matter staffing

As technology leads clients to see legal counsel as a fungible commodity, they increasingly focus on the way law firms staff their matters. From the client’s perspective it is significant who the law firm assigns to a matter. Is it a partner with a higher rate who is experienced but not technologically savvy?  Is the associate whose rate is lower and whose ability to leverage technology is greater? Clients want a say in such matters, even if the firm is charging a flat fee. To address this, law firms must bring to the table a formal checklist that stipulates how the firm staffs each matter with attorney and legal assistant expertise appropriate for the circumstances, giving due regard for expertise, efficiency and cost.

Refocusing investment metrics

Spending for computer technology is a given in all these trends, but no matter what the reason or replacement cycle, there has to be a return on investment (ROI) for the technology. There is no one right or correct rate of return. The return selected or expected is a function of personal choice, available alternatives, and available resources for investment. ROI is positive when the cost of repair exceeds the cost of the investment minus the sales proceeds, if any, on the used equipment. And the expenditure is most manageable when the firm creates and buys according to a budget, not according to emotion fueled by what’s cool or what other firms are doing – that is, buying with the head, not the heart.

Accommodating generational differences

If all this sounds like a lot of change for individual firms to assimilate, it is. And the transformation brought by technology comes at a time when many firms are in flux as they confront generational differences. Large firms now can have four different generations to manage: the oldest “traditionals” with emeritus status, “Baby Boomers” in their 50s who can’t or won’t retire, “Generation Xers” and “Millennials” ranging from their 20s to their 40s who may understand the new technology better but may not have attitudes consistent with good client service. Such shifting demographics will increasingly compel older lawyers to decide that their practice has a value that can be transferred to someone else as they retire and sell what they have built rather than try to manage the stresses of practice in the new law firm world. Psychologists call this the “flight or fight” response, and the only path to successful flight is a well thought-out succession plan that makes leaving possible. Yes, that means more change. But as the song from way back in the Sixties put it, “You’d better start swimming or you’ll sink like a stone, for the times they are a-changing.”  

Edward Poll, J.D., M.B.A., CMC, a law practice management thought leader and contributor to CBA PracticeLink, recently completed a national tour to speak to bar associations and law schools. Ed’s extensive background in business and law have made him one of the nation’s most sought-after experts in law practice management.