The global economic crisis ended more than a decade of almost uninterrupted growth in demand, revenues, and profits for the legal industry. New levels of price sensitivity amongst corporate clients have since highlighted a need for greater efficiency, predictability, and cost-effectiveness in the provision of legal services. Leaders in law firms across the globe have been examining how best to balance these rising client expectations whilst maintaining profitability and growth.
Designing a strategy for professional services profitability can be difficult because clients expect to be charged fees at a fixed rate, but the costs of servicing clients can vary according to many factors.
Understanding those factors is essential not only to set prices at the optimum level and ensure the right resources are deployed efficiently, but also to demonstrate to the client the service value being delivered.
Here’s how one firm solved this challenge.
Case study – Bond Dickinson
Bond Dickinson is a full-service law firm in the UK that combined this year with US-based Womble Carlyle to create Womble Bond Dickinson – a global top 100 transatlantic law firm with more than 420 partners and 1,000 lawyers serving clients from eight UK and 15 US offices. The combination places Womble Bond Dickinson in the UK’s top 20 and the US top 80 firms, with combined revenues in excess of $410 million (£340m).
This success at one time looked unreachable. There was concern that the firm’s long-term ambitions could be hampered by a lack of visibility and control over underlying drivers of profitability. Market conditions were challenging too, as Bond Dickinson Finance Director Martin Lucas explains:
We operate in a very competitive market, one that is arguably over-supplied in the UK and Europe. We are batting all the time to secure client mandates and the pressure on our rates and costs is pretty relentless.
To strengthen its position, the firm’s leaders wanted to enhance its capability to measure performance against strategic targets more frequently and with greater confidence in the numbers, says Lucas
Our partners wanted better, more granular information about clients and matters to help them understand the factors affecting account profitability.
The objective was not to cut corners, but to assign resources more effectively. It was essential to give clients the very best service possible.
Selling your time as a service professional
Because of the nature of the service profession, Bond Dickinson had to calculate its fees based on time. Getting this right required understanding and conveying to partners exactly where and how time was being applied at the account level.
This meant getting more into details and conveying them explicitly to the client, taking into account the following factors:
- Type of activity to be done (also known as ‘matter’)
- Number of hours required
- Number of team members involved
- Levels of seniority working on the project
The firm’s partners also required a broader analysis. They wanted to monitor profitability within sectors, geographies, regional offices and functional teams. The more detail the partners could interrogate, the more choices they would have about how to achieve profit targets.
As Lucas found, accounting was done on a time- and materials-captured basis but profitability was a challenge. He explains:
People are our biggest cost. The trick is to manage how work is delivered to ensure that the amount of time is appropriate and the mix of team seniority is optimal.
The firm’s former systems had evolved over time, leading to multiple sources of information and a lack of data consistency, complicating agreement over what constituted key metrics. A new system was needed to achieve the partnership’s goals.
After evaluating several alternative platforms for analyzing profitability with data visualization, Lucas and his team selected prevero. This choice not only delivered integration with the firm’s data warehouse for profitability modeling, but will also serve as a platform for the addition of future Corporate Performance Management (CPM) applications.
Bond Dickinson was able to run profitability margin calculations according to various allocation rules and perform what-if analysis in order to drive behavior. The new solution helped them to understand variance reports, evaluate against allocation rules, and improve the basis for informed decision-making.
This modeling capability was key to the sense of accountability for the numbers the finance team wanted to create – giving visibility and greater ownership of numbers to partners. This was important as clients often purchase multiple services from multiple teams and the firm had to understand how services rolled up into an overall picture of client and service profitability.
What can other firms learn from this model?
Creating greater visibility and ownership of numbers to partners is essential. When clients may purchase multiple services from multiple teams, a successful firm must be able to understand how bundled services may appear to a client.
Managers must ask similar questions: “Are there enough details about the services for them to view and understand data from different cost and revenue perspectives?”
Lucas and his team empowered the firm’s partners to use its newfound data visibility to take different decisions on how to drive the business. This new level of detail allowed comprehensive, informed discussions around different clients, matters and teams.
In the same way, if service managers can ensure reports are provided in near real time, any course corrections can be made quickly.
People are the most important asset
It has never been truer that people are your most important asset. Therefore, it’s important to understand how you’re deploying them. With the right information, you can see how well you are servicing your clients, and ensure you have the capacity to meet their needs. You can also identify the clients where you are able to deliver the most value, at the right price.
Having this foundation in place is a must, to survive and thrive in the service industry and ensure Everything-as-a-Service business success.
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