7 April 1995
Productivity in a law firm is difficult to define. In essence, it is the comparison of fee income generated per head, compared with the cost of providing that intellectual capacity for clients.
Understanding the client's requirements and commercial objectives enables you to select the team of fee earners best able to provide skills and expertise appropriate to your clients' needs.
Because price is necessarily a limiting factor, it is important that law firms adopt a flexible approach to building the teams who will source the client work.
Where price is not an issue, then it may be easier to choose the best legal minds.
Law firms are not good, however, at reacting to situations where price is a limiting factor.
The key to management of law firm productivity is, when a price is agreed, how your team can be managed to perform the work within the constraint of fixed fees.
However, few law firms do this. They say 'how long will it take us to do this job?' rather than 'how can we do this job to an excellent standard within the price which has been agreed?'
Ideally partners should delegate their work to an experienced team and be providers rather than doers, since their control, monitoring and review of the underlying work is vital to the quality of advice.
This is difficult to put into practice when times are hard because partners will feel under pressure to prove that they are productive.
And there will always be fee earners who "overkill" matters and charge more than a job is actually worth. Realisation by those fee earners that a more commercial approach is needed can only come with training over a period of time.
Because of the advances in computerised communication systems and word processing software, firms need to ensure they are operating competitively and with the same service and quality standards as their peer group.
Any deviation from this will be noticed by a client who may be procuring legal work from several firms.
Because technology is expensive and complex, firms must have sufficient profitability to be able to invest in enhanced systems. Firms are therefore having to provide both an adequate return to partners and sufficient funds to re-invest in the business to maintain a competitive edge.
Firms which recognise this divide and have tackled the dual requirements of reward and investment are more likely to succeed in a cut-throat market place.
Building a database of prices achieved for individual pieces of work and different types of fee structure which have worked successfully with clients can lead you towards more effective pricing structures.
Too many firms still work on the basis that costs are broadly fixed and income is flexible and income budgets are set unrealistically high in the vain hope that they will cover a bloated cost base.
Expenditure should follow income not lead it. For example, cost benefit analysis can be put to useful effect on a project-by-project basis to measure whether or not a particular investment or piece of expenditure can be forecast to be worthwhile and generate a specific return for a few years.
One must have a clear forecast of the likely demand from clients in the coming year by understanding their business, talking regularly to chief executives and understanding the dynamics of their market place.
As the chairman of one public company recently put it "there are high seas and choppy waters, our clients are out there and we are there with them".
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