A. We are regularly asked by law firms if practice management is just the latest fad in law firm management -- akin to TQM in the early 90s. Actually, for some law firms it likely will be just a fad because they are not implementing it for the right reasons or because they are unwilling or unable to implement it effectively. In numerous instances, firms have not implemented all the key aspects of practice management to enable it to work. Then, when it failed, they blamed practice management instead of their ineffective implementation and they quit trying, believing that practice management would not work.
On the other hand, for most firms practice management will not be just a fad. This is because practice management is simply a process for organizational management, which by other names has been implemented in the corporate world for many decades. It is simply the concept of managing large organizations through proactive leadership at the strategic business unit level and it has been proven effective in thousands of organizations.
Why Implement Practice Management? The Business Case for Practice Management
The business case for practice management centers on the benefits of such programs to clients, the law firm and individual professionals. As described in more detail below, effective practice management can result in (1) better, more efficient and more cost effective service delivery for clients; (2) better use of a firm’s resources resulting in improved financial performance; and (3) a more satisfying and rewarding practice for individual professionals.
Benefits to Clients
For a client, effective practice management can result in better service by encouraging the professionals who serve the client to think and work together as a team. By working in groups that are focused on the client’s current and future needs and by developing tailored plans to address those needs, practice groups can share information and resources and use their collective knowledge and experience for the client’s benefit. Practice groups are also ideally suited to provide better supervision and training to their member professionals, thus resulting in more efficient, cost effective, “value added” services for the client.
Surveys have consistently shown that clients prefer for their lawyers to work together in a team approach in addressing their problems.
Benefits to the Firm
At the firm level, effective practice management can:
- Improve the profitability of the firm and its practices through better management of the firm’s lawyers, reduced attrition of desired lawyers , more focus on those clients and matters with respect to which the firm has a competitive advantage and better client intake processes and standards;
- Enhance the firm’s market position through more strategic and focused business development activities, more selectivity as to clients and matters, better cross-marketing across practice groups, and higher public visibility in areas where the firm has a competitive advantage;
- Better leverage junior professionals through improved workload management, training, development, mentoring and accountability;
- Provide a manageable sized business unit that can help professionals maintain a sense of collegiality or “small firm” culture even if the firm grows very large;
- Improve the likelihood that the firm will achieve its overall strategic objectives since the critical implementation of firm strategic plans normally occurs at the practice level; and
- Provide a vehicle for developing current and future leaders of the firm, thereby ensuring the firm’s long-term stability.
Of these benefits, three deserve special mention in today’s highly competitive legal market. First, an effective practice management structure can help a firm focus its key practices on those specialties and subspecialties and on those clients or industries where the firm can have a sustained competitive advantage. This, of course, requires considerable clarity about the firm’s market position and a realistic assessment of where the value of the firm’s services rank in the minds of its key clients. Once such a strategic focus is agreed upon, practice management is essential to implement it – and to avoid an inadvertent change in focus, as through a “devaluation” or “commoditization” of the services the firm offers.
Practice groups help maintain a firm’s focus by:
- Working together to continually enhance the reputation of the firm’s key practices;
- Carefully monitoring client intake to assure that clients and matters inconsistent with the firm’s strategy are not accepted;
- Developing new, “value-added” services; and
- Encouraging lawyers to specialize in those areas of practice that are needed to achieve the firm’s overall goals.
A second significant benefit of practice management (as mentioned above) is that it can help partners have a true sense of “ownership” of their firm. This is particularly important in large, multi-office firms where it is difficult for all of the partners even to know one another, much less have the benefits of working together. In such settings, alienation from the organization can easily set in, and partners can lose the sense of connection that may have existed when the organization was considerably smaller. As a consequence, focus can easily shift to individual practices and away from the firm’s larger objectives. Practice groups can help to ameliorate this problem by providing a firm-oriented focus through groups of more manageable size, thus allowing partners – even in very large firms – to connect with like-minded professionals working in their own areas of specialization and toward common goals.
Finally, in a time of rapid firm growth and consolidation, effective practice management can help firms to capitalize upon their growth and effectively integrate other practices obtained through acquisition or merger. A firm wide practice management structure provides a ready platform for integrating people and practices and for maximizing the potential of any particular acquisition or merger. With a practice structure in place, firms have a natural vehicle for bringing together all the people necessary to develop common practice goals and business strategies – all factors necessary to the successful integration of newly joined firms. Without effective practice management, many firms never fully capitalize upon the expansions they undertake, and are left only with greater mass and not the real benefits that can come from growth. In fact, data on the growth of many AmLaw 100 and 200 firms from 1995 to 2002 indicate that a high percentage of them grew larger but did not significantly improve their market positions or their Profits Per Equity Partner (PPEP).
Benefits to the Individual
There are several benefits to an individual professional in being part of a firm with effective practice management. They include, first, reduced personal risk and more risk sharing for the success of the firm’s practice. Historically, in most firms, partners were measured almost entirely on the basis of their own individual performance. With tremendous pressure to “make their numbers,” partners were expected to be equally good at production, marketing and matter management. The individually focused compensation systems in most firms also placed tremendous psychological pressure on partners to perform year after year. An effective practice management structure can go a long way toward relieving these pressures by allowing each partner to contribute to the success of the group in a way that best suits his or her own talents and experience, while relying on others in the group for other functions. By spreading the risk in this way, an effective practice group enhances the likelihood that all of its partners will be successful not by relying solely on their own individual efforts, but rather on the collective efforts of the group.
An ancillary benefit of practice management is that it can give partners an opportunity to take on new challenges. Many partners find that the activities needed by their practice group – and valued by the firm as part of their commitment to practice management – can provide an interesting balance to the day-to-day practice of law. For example, many lawyers like teaching and, as part of a practice group training program, welcome the opportunity to fill a teaching role. Others enjoy the challenges of strategic planning or targeted marketing and, through practice group activities, have the chance to pursue these areas. Still other partners enjoy the challenge of creating new products and services for clients and, through their practice groups, eagerly take on “R&D” roles. In short, practice groups can provide opportunities for many lawyers to spread their skills beyond traditional legal practice, and many partners find doing so very rewarding.
Finally, practice groups that develop focused business strategies and succeed at getting their members to work together to enhance the group’s market position are better able to create a public “brand” for their services. By so differentiating themselves from the many other firms offering the same service, such groups are also better able to attract and retain top-flight professionals who further elevate the stature of the entire group.
How To Implement Practice Management To Achieve These Benefits
So, you want to achieve all of these benefits, what must your firm do? Practice group management requires six key elements to succeed, each of which will be addressed below.
Many firms today have had limited success implementing practice management because they did not start with a clear vision for the firm or a strategy that set forth the goals and objectives they were trying to accomplish. Without a firm strategy that differentiates the firm from many other similar firms, a practice group structure and effective management can go only so far. The buggy whip manufacturers of years ago may have managed their companies well, but they lacked a strategy that reflected market changes, namely, changing modes of transportation.
In most cases, a firm that does not have a clear strategy will not be hurt if it implements a stronger practice group structure. However, it will not enable your firm to achieve the real goals of practice management described above. Practice management is not a “magic bullet” or panacea that can substitute for a strategy.
If a firm has a clear strategy, and is striving for a definable position in the marketplace, then practice group management is often one of the keys to achieving the strategy. There are three overall objectives of practice group management:
- To help the firm implement its strategy,
- To build firm competitiveness, and
- To manage the work, the people and the clients.
Each of these can be achieved if you implement all the key elements required for effective practice management.
The second element critical to successful practice management is compensation. One psychologist we work with in our leadership training says the research shows that despite the articulated goals of your strategic plan, if there is any disconnect (we stress any disconnect) between the plan and your compensation system, your compensation system is in actuality your firm’s strategic “plan.” The point is, if you hope to implement strong practice management, then your compensation system must be aligned to support strong practice management.
This includes several components. First, the compensation system must value non-billable or “investment” time for activities that are necessary for strong practice groups, including practice group business plans. This includes valuing the effort and time that Practice Group Leaders and other lawyers devote to their practice groups. The valuing of investment time occurs in two ways:
- There must be significant compensation to motivate and reward the Practice Group Leaders (PGLs) for spending significant time performing their roles. While the time demands of PGLs will vary by the maturity and competitiveness of the market, the size of the group and the “personality” issues in the group, most PGLs in large firms spend between 400 hours and half of their working time (total billable and non-billable-time) in this role. Investment time (often referred to as “non-billable”) for good management must be highly valued. In firms with strong practice management, between 10% and 50% of a PGL’s individual compensation is based on how well he or she performs the job and the size and type of group he or she is managing. A practice group leader’s contribution to the firm is not measured simply by his or her non-billable time on practice group management. Success in the role is a key factor.
- There must be incentives for partners to contribute to group activities instead of focusing on their individual practices. Most significantly, a portion of the partner’s compensation should be based on the contribution to his or her group. There should be an expectation that all group members contribute to group goals and activities (in many firms, this is approximately 300 investment hours per lawyer). In many firms, providing this incentive poses one of the most difficult challenges because their compensation systems primarily focus on individual origination and production. However, there are in some firms today that are making fast strides away from individualistic systems toward a practice group-driven system; partners are even penalized for a purely individualistic focus that undermines group activity. Firm management needs to define for the lawyers what constitutes valuable non-billable or investment time. This can include client relationship management, matter management, firm and practice management, new product development, target client plans and implementation, credibility builders (e.g., well-placed articles and keynote speeches), pro bono matters, professional development and training, associate mentoring and associate supervision and training.
Second, Practice Group Leaders must have input into the compensation of all members of their group. Again, organizational psychologists will tell you that managers or leaders will not be effective in their jobs without having input into the compensation of the people they manage. In most law firms currently implementing strong practice group management, the Practice Group Leaders have lengthy meetings with firm management, providing detailed input about each of their people. On the other side, each partner, in his or her compensation interview, is asked about the colleagues he or she worked with firm-wide and, particularly in the group, as well as the Practice Group Leader.
Third, Practice Group Leaders should be involved in the post-compensation feedback sessions for each partner in their group. It is not feasible for Practice Group Leaders to manage their people without knowing what messages firm management is giving them at compensation time.
The third element is partner buy-in, or, as some firms describe it, a “willingness to be led or managed.” This becomes even more critical if the firm does not have (1) a clear strategy or (2) a compensation system that promotes the desired behaviors to implement the firm’s strategy and support practice management.
Partners must accept the importance of management, both at the firm level and at the practice level. Unless the individual partners are willing to relinquish some of their autonomy and accept individual and group accountability, effective practice group management will be impractical.
Partners in the firm must value the management of the firm and of the practices and be willing to put the interests of the firm and their practice group above their own. In some instances, lawyers will be required to sacrifice what is in their best interest for the greater good of the firm or the group. Partners must function like “owners” and major contributors of the group. This demands a significant contribution of investment (nonbillable) time to the firm in the form of associate management, recruiting, training and development, research and development, business development, knowledge management, etc. In many firms today, partners are expected to devote about 700 hours a year in addition to billable time. They are also expected to integrate their practices into that of the firm.
Support from Firm Management
Practice management is rarely effective without real support from firm management, rather than mere lip service. This means:
- The members of firm management who decide compensation must value effective management of the practices,
- Firm management must spend time providing guidance to the practice group leaders on firm strategy and holding them accountable for their group’s activities and performance.
Members of firm management must be role models for the behavior they want their partners to exhibit.
Leaders with Clear Authority and Responsibilities
The role or job description of your practice group leaders needs to be defined and clearly and widely communicated. It is amazing how many law firms set up practice groups and even appoint leaders, yet have no clear job description detailing what the Practice Group Leaders should do strategically and operationally. Some cynical types might argue that the lack of job descriptions – an articulation of what is expected – was a way to “avoid being managed” or not be accountable. A key characteristic of successful organizations is role clarity – people know what is expected and what the “roles” are.
Thus, the PGLs need a clear job description that vests real authority, including significant input into the compensation determinations of their group members. At a minimum, PGLs must have authority in the areas of intake; workload management and staffing; profitability, pricing and budgeting; and planning and business development.
Then, firm management must appoint as PGLs strong individuals who are willing and able to put their role as Practice Group Leader above their personal practice and who will be accountable for the success of the group. Just as a managing partner must treat the firm as his or her most important client, the group should be the most important client to the PGL. Practice Group members should not elect their respective PGLs; this typically results in the selection of those who are the most popular, not the most effective.
Firmwide Practice Groups and Primary Assignments
The seventh element required for strong practice management is having firmwide, not office-by-office, practice groups and primary assignments. Office-oriented practice groups (such as the real estate group in the New York office) typically result in internal competition, balkanization and a lower external market profile.
In addition, all lawyers should have one primary practice group assignment. This is critical to internal accountability, group performance (i.e., group members contribute significant time to their primary group) and in the long term, market position. In most firms, lawyers can also have one or more secondary groups. The number depends on the firm’s desired market position (being known as experts externally), the number of practices the firm offers and what they are (i.e., how much synergy there is between practices, how insulated they are from economic or other downturns) and how sophisticated and specialized the work the firm handles is. In some firms, the associates are given a primary assignment in the first one to three years to a department, rather than a practice group.
If your firm implements each of these key elements, practice management can enable you to achieve the many benefits to the clients, the firm and the individuals that were described above.
Susan Raridon Lambreth is a nationally recognized expert on practice management issues and has worked with over 35% of the AmLaw 200 firms on these issues. She welcomes your questions on law practice management topics including law firm management, practice groups, client relationships and the care and feeding of legal professionals.
Susan Raridon Lambreth is a consultant with Hildebrandt International who concentrates on practice management issues and heads the Hildebrandt Institute Practice Group Leader Training Workshops.