Turning data into results
Firms generate plenty of data, but unless it is accurate, easily understood, and acted upon, it will not improve performance, explain Barry Wilkinson and John Humpherson
The business results achieved by law firms vary widely. Benchmarking surveys show that firms doing similar work in similar locations achieve very different outcomes, with top performers earning several times as much as their less fortunate peers, with far fewer borrowings.
Our workshops with finance directors and managing partners of high-performing firms have identified over a dozen key differences which make them successful, but two factors in particular stand out.
First, they have an absolute clarity of purpose. These firms are businesses: vocation and reputation are important, but not a substitute for commercial success. They treat staff well, expecting more in return, and they look after clients to justify good prices.
Second, they proactively use data to drive actions which create better results and to eliminate unwarranted exceptions.
The key steps to take in turning data into results are well established:
• What gets measured gets better, so decide what data to collect and where to focus most attention;
• Ensure key data is accurate and complete;
• Design output reports, making them easy to use and understand;
• Provide regular, rapid feedback information;
• Analyse output using comparators (such as history, budget, standards, and trends) to create context, and interpret it to provide insights into the action required;
• Follow up and act on anything which fails to meet the agreed standards; and
• Get the team to buy in to improving their performance with regards to key factors (for example, time, money, or accuracy).
It is a simple sequence: data > information > insight > action > results. Unfortunately, in many firms this sequence breaks down at some point. Data is generated but does not improve performance. How can it go wrong?
The most sophisticated firms use a range of key performance indicator metrics, but many successful firms keep it simple and focus relentlessly on four things:
• Matter opening: This must be complete and accurate, covering not only basic client information, but also agreed terms, estimates, and market source information. Otherwise, how can you thank your best work providers?
• Time capture: This is the single biggest differentiator between the profitable and the strugglers. For matters charged by the hour, time not captured cannot be billed. Also, importantly, to quote fixed fees you need solid cost information on which to base your quotes – if you do not capture time properly, you risk quoting loss-making prices on future work;
• Billing: This, of course, represents the firm’s fee income, and almost every firm focuses on it; and
• Lock up/time elapsed: This is crucial, both to the firm and its clients. Time elapsed from matter inception to completion determines your funding requirements. Slow work increases lock up and thus borrowings, and it also causes client complaints. If you measure and reduce the time that matters have been outstanding, turning them around more quickly, client satisfaction will increase, discounts and concessions will be largely eliminated, and cash flow will be improved.
Many firms fall at this first hurdle. Their lawyers disrespect the data, doing just enough to suit their own purposes but ignoring the wider business management needs. Matters are opened after doing the bare minimum to pass Money Laundering Regulations checks. Time recording is optional at best. Billing is not agreed with clients. Lock up (work in progress and debtors) is only as good as the time recording and billing.
Most legal accounting and practice management systems have reporting suites – but most reports are designed for ease of production, not ease of use. Well-designed reports should make the important information (and action) obvious: in colour, in bold, at the top, grouped by department, or even in graphs and pictures.
People can only put things right if they know that they are off track. So fee earners (and team leaders) need to have simple, regular updates. Dashboards are fine, so long as they do not become an obsession. But monthly reports long after the month end are too late to have an impact.
Analysis and insight
Analysis is a skill, and insight the result. Just as an experienced lawyer can spot flaws and omissions in a draft document, an experienced financial analyst can find a treasure trove of opportunity by pursuing anomalies in standard reports or creating special enquiries where something looks out of order.
All of the information in the world is useless without insight, interpretation, and, above all, the determination to follow up and act upon it. The difference between high performers and the rest is in the determination to maintain high standards and to follow up with corrective action whenever standards slip.
Even then, unless your team understand why things matter, and buy in to the concept that financial and commercial hygiene are part of being a true professional, your results will be held back. In the short term, or in a crisis, you can motivate lawyers through fear and enforcement. But this takes resources, including heavy-handed enforcers, and breeds resentment. It’s far better, if a bit slower, to use engagement. Train and educate your team to provide the maximum value for themselves, the firm, and the clients.
Your firm will be generating plenty of data. Unless it is accurate, clearly presented and understood, and then acted upon, you could be missing out far more than you realise.
Barry Wilkinson is the director and John Humpherson a consultant at Wilkinson Read & Partners