|Image [cc] J. Gabas Esteban|
Jordan Furlong takes on PPP in a recent post. In his usual fashion, he methodically explores what PPP is and makes a strong case for why it needs to be abandon as a profit metric for firms.
But, in typical Dan and Jane fashion, I feel compelled to raise my voice and retort, “Jordan, you ignorant slut.”* Although he makes many arguments for why and how PPP might be a negative force, he misses the main point of why PPP or any other law firm profit metric exists. They exist to drive behavior. Firms need their partners to behave in profitable ways and need to set clear expectations of what those ways are. Without a clear expectation, firms can fully expect partners to perform in whatever way enhances their self interest, regardless of its impact of the economic health of the firm.
Giving Jordan credit, currently firms seem to only have the goal of improved profits (however they might be defined). I am in complete agreement that for firms to be successfully for the long haul, they need a better goal: something like being the best and most cost effective at addressing their clients’ legal needs. Focusing on client needs does lead to success. But then we still need to define success. And ‘profitable’ needs to be part of that definition.
The fact that a given PPP number is not a true mean or median is beside the point. The real point is whether profits are healthy. PPP is actually a fiction, like most profit methodologies. However, without having profit be part of ‘success’, then a firm risks going out of business and ending its ability to be the best at addressing client legal needs.
I would add I believe there is a need for a real debate over which profit methodologies do make sense for law firms. The Law of Unintended Consequences is quite strong so a poor choice can lead to bad outcomes. For traditional business this same challenge shows up in how sales people are compensated. Various sales bonus incentives drive different behavior. When deciding on which approach to use, a business has to be very thoughtful of which behaviors will motivate salespeople while still driving a ‘successful’ business. This is why sales comp packages are constantly being re-tuned. Partner comp will need to strike the same balance alongside a thoughtful profit approach.
To our good fortune, the upcoming P3 Conference on Pricing, Practice Innovation and Project Management has a session on this topic. For those interested in participating in such a dialog, I encourage you to consider attending this excellent program.
Now it’s Jordan’s turn to make a questionable reference to my parentage.
*Jordan and I are good friends so he knows this is made in jest and with full expectation of a similar, Jane-like retort from him.