Law firms have generally failed to understand the importance of Management Information in building successful relationships with clients yet MI is a key tool in communicating and comparing value.
Law firms produce a huge amount of data every month. Revenue numbers, time recording statistics, recoverability percentages, work in progress, and files opened are just a few of the data sets produced by the finance department. This data is quite rightly used to analyse the performance of the business, review trends and improve financial outcomes. A huge amount of effort goes into producing, distributing and considering this data. It has helped law firms professionalise their operations and enhance their performance by divesting themselves of under-performing lawyers, offices and clients in order to maintain profits during the recession and increase them when growth returned.
All this data shares an important characteristic - it is inward looking. It is about the law firm and not about the client. Law firms could and should use data in a different way - for the benefit of clients, and to demonstrate the value law firms provide.
This alternative approach to data can be a powerful tool in a legal market where law firms are often asked to demonstrate value to clients. The legal profession collectively failed to develop metrics to do this so buyers focus on fee rates and try and drive them down.
A different approach is for law firms to develop Management Information that demonstrates their value to clients by, for example:
o Identifying important trends in the delivery of the service;
o Measuring improved performance and outcomes in relation to the service; and
o Making consequential changes that enhance client profitability.
This data driven approach enables law firms to have a different conversation with their clients that moves from a discussions about fees (and how they should be reduced) to one about measurable client benefits where the value of the service is seen in relation to a broad basket of outcomes.
Take a company whose strategic goal is to reduce the time it takes to provide a service to its customer - as that will give the company a competitive advantage in its market by reducing the cost of delivery and enhance its profits. The law firm prepares and negotiates the legal documentation each time a customer buys the service. Typically the law firm will be asked to produce data on the number of open matters, the stage each has reached, the fees to date and the expected fees to conclusion. The client's goal is to control cost (fees) and budget its cash flow. Let's assume though that the law firm produced data that showed the average throughput time of each completed legal matter, included recommendations about improvements the client could make in their internal processes to reduce that time by 10%, and analysed the overall financial benefit to the client of doing that. That would be much more interesting and valuable to the client, and much more beneficial to the law firm. It should move the focus away from producing data to control legal fees into a discussion about how the law firm can help deliver much bigger savings by working with the client to improve throughput times. The law firm's fees now have a very different context and their value perceived differently by the client.
I've done this for clients and it works.
If you are a law firm, or in-house , and would like to discuss how to do this in your business and what the benefits would be send me an email or give me a call now.