Leading up to this final installment in our series – we have defined profitability for firms, described the four profit drivers and looked at how the market is pushing on all of this. In this post we take on how Legal KM can re-focus its efforts to help firms respond to all of this pressure.
The Hill Looks Steep
Significant challenges present significant opportunities. Yes – law firms are facing intense market pressures. No – law firms have not yet truly faced the challenge.
This presents a tremendous opportunity for Legal KM (LKM). Perhaps the biggest challenge here is the lack of understanding by law firm partners and leaders as to the underlying issues. Shockingly (or not), most partners have little understanding of what makes legal work profitable. They hold fast to the old model that hours and realization lead to more income for them. Although in some practices and markets a variation of this reality still holds true, for the most part it does not. Clients increasingly are holding the line on rates driving down realization. And clients are no longer willing to pay for however many hours a law firm bills on a task or matter.
Historically LKM has had minimal participation on the financial side of law firms. Many times client and matter billings are presented with portals or on dashboards, however these are usually relatively simple metrics. These tools do not typically show profitability or help partners appreciate the impact of our four drivers on their wallets. Firms will struggle greatly with change if they do not even know where to start. It is the old and familiar tale of “follow the money.”
Capturing, understanding and delivering this financial knowledge will have high value for firms. Better and easier to understand profit metrics will lead to improved decision making by firm leadership. These same metrics will also be used by the frontline lawyers enabling better resource management decisions.
Currently many law firm financial departments are being pushed to the limits just trying to stay up on traditional reporting requests, as more firm partners are demanding timely financial information. Run – don’t walk, to your financial department and offer to help them find some breathing room.
Another opportunity presented by this situation is what might be called “re-engineering the practice.” Without going into a lot of detail, it is obvious that firms will need to change the ways in which they deliver their services to drive profitability. The profit driver Leverage can be a powerful tool. But pushing work down only works when a firm has the right systems in place to support that shift. Legal Project Management (LPM) a current hot topic cannot function without supportive LKM systems in place. This does not mean LKM should necessarily try to co-opt LPM, but instead find ways to drive the success of LPM efforts. If a firm does not have any process improvement or LPM, then LKM can help initiate those efforts. If LPM is being utilized, LKM can supplement and enhance those efforts. Firms need this help. LKM is just the type of resource to step-up and make it happen.
Hopefully these two opportunities help illuminate the path forward for LKM. Find the pain in your firm and address it. Focus on the greatest level of pain. One might argue that “search” is a pain for law firms, and they would be right. But this type of pain is not touching the decision makers of law firms in meaningful ways. Instead, what most firms are concerned about right now is flat revenue, rising costs and the possibility of reductions in partner incomes. LKM will do well if it focuses on addressing those pain points.