Sample balanced scorecard for ‘legal ops’ in a law firm

Defining, Streamlining, and Measuring Data-Driven “Legal Ops”

“Legal operations” was popularized by CLOC, ACC, and a hundred vendors capitalizing on selling to newly energized corporate legal departments.  It became shorthand for running legal departments as a business.  Then a funny thing happened — law firms realized that these departments were surpassing their own operational insights, efficiencies, and agility.  Law firms became the lesser informed party – a distinct disadvantage in a data-driven buyer’s market.

Indeed, this gap was one of the key reasons why, in 2012, I left a 20+ year career in legal IT consulting to join Winston Strawn: There was (and remains) a tremendous opportunity for law firms to develop a large competitive advantage based on Legal Ops. As a consultant, I often played a role in my clients’ strategy. But in this case, the real opportunity was to join an enlightened client so I could participate in the much more challenging task of a complex, multi-year implementation.

Now, seven years later, I look around and see that I’m far from alone on this journey.

Legal ops vs. traditional law firm operations

To catch up with innovative clients, law firms began adopting a ‘Legal Ops’ stance themselves. See, e.g., Post 071 (discussing rise of “P3” disciplines in law firms); Post 063 (discussing how Microsoft legal ops is engaging with law firm P3 professionals); Post 054 (Jae Um noting how legal ops and P3 are commencing a dialogue). Post 053 (discussing how legal ops / P3 is the core discipline of NewLaw).

Law firms have considerable investments in operations already, of course.  But the new Legal Ops approach has at least five distinctive aspects:

Legal Ops Aspects Description
Client-centered journey A primary focus on the client’s perspective; focused on aligning the business to better understand the client and provide services to them.  An advocate for the clients’ expectations and the “customer experience” to drive change in the firm.
Continuous service improvements In alignment with practice leaders, taking a strategists’ macro view of the market, peers, new competitors, and firm to help plan how the firm’s services should evolve.
Metrics and dashboards Reaching across the organization to create:

  • Defined and visible measures of business goals and trends, beyond the usual financial metrics
  • An understanding of clients’ own metrics and their measures of the firm’s effectiveness and value
Data-driven self-service for lawyers Getting intelligence into the hands of every lawyer, as a complement to services provided by staff professionals:

  • Blending of information from departments to provide 360 degree views of clients, markets, and what’s happening across the firm
  • Real-time information rather than periodic reporting or expecting lawyers to document information
  • Crowdsourced intelligence, such as what and whom do we know without having to ask
  • Analysis of everything, including predictive results (i.e., which opportunities should we prioritize, which strategies are relevant for this case, who should we hire, what clients are at risk of leaving)
  • Tracking firm assets, like new business opportunities and relationship heat maps
Resource management Creating an enterprise view of how the pipeline of talent and expertise (ideally, in and outside of the firm – including engaging with clients’ resources) matches with the pipeline of legal work.

But, differentiating Legal Ops from traditional law firm operations is similar to how the world used to differentiate “e-business” from business. We eventually matured and e-business just became the normal way to do work — no differentiation or special term needed.

Underlying processes across a firm

Law firms are organized by practice, industry, and geography, but also have key processes that cross these organizational boundaries.  Understanding, improving, and automating these processes can create tremendous transparency into a firm’s operations, which in turn enables lawyers and staff to see and act upon both real-time data and trends over time.

Below is a high-level perspective of key law firm processes, illustrated as beginning-to-end life cycles.

Source: David Cunningham, Winston & Strawn [click on to enlarge]
As we mapped this out at Winston & Strawn, we recognized that we used 19 systems to accomplish the seven distinct workflow processes, with gaps between them and some missing custom functionality.  It wasn’t feasible to provide seamless functionality and complete self-service information to our lawyers in this traditional situation.  To cope with these challenges, we developed roadmaps to (a) reduce the number of systems (e.g., a Talent system that addresses the lifecycle of people from recruiting to alumni), (b) make buy vs. build decisions for competitive edge tools like strategic matter staffing, and (c) embed apps into our WinstonWay system to provide a more personalized, all-in-one experience.

Addressing these processes and the intersections between them increases the pace and scalability of business with less manual human effort.  It also optimizes how effectively the expensive resources of the firm are applied.  Four key areas of optimization include:

  • Value and Pricing.  Matching value for clients with pricing that is neither too high nor too low
  • Supply and Demand. Matching supply of expertise (recruits, lawyers, talent network) to pipeline of client work
  • Lawyers and the Right Work. Matching lawyers to meaningful work for which their experience, relationships, goals, and availability are the best fit
  • Customer Experience. Making the firm simple to do business with and providing increasing transparency of experience, matter status, and billing accuracy.

‘Legal Ops’ metrics

Metrics in law firms have classically been financial metrics. Legal Ops in law firms includes a more balanced set of metrics. Financial metrics will always be fundamental, but introducing metrics that also represent the client’s perspective and the employees’ learning and growth perspectives fundamentally increase impact.

[click on to enlarge]
This ‘balanced scorecard’ approach – financial, client, and employee needs in balance, and good underlying business processes to make it sustainable and scalable – was introduced by Harvard almost 30 years ago, but is still new and relevant to the legal market. See lead graphic above and to the right.

A balanced scorecard designed for law firms will recognize that engaged, skilled employees are necessary to have satisfied clients, and satisfied clients are necessary to achieve long term financial growth. Further, it can often be reduced to a one-page “strategy map”, as Liam Brown of Elevate Services was transparent enough to illustrate in Post 088 back in March.

This perspective doesn’t shy away from a company’s mission to make money. Rather, it recognizes that these underlying client, employee, and process factors are foundational.

Financial metrics

Law firms are well-versed in financial metrics, but three emerging areas are important aspects of Legal Ops.

  • Matter Profitability. Automating the calculation and forecasting of profitability is beneficial for the firm, of course, but also a fulcrum for higher (or at least better managed) firm profitability when also made part of the matter budgeting process.  [Editor’s note: David is discussing the automation of profitability analysis; what happens inside a firm that has yet to implement an effective system for calculating and allocating costs? wdh]
  • New Business Pipeline. Firms are new to measuring the business development activities that affect financial results. Traditional sales organizations or even consulting firms have formal sales pipelines, central tracking of all pitches, and visible metrics such as pipeline size and velocity. However, in a recent exercise I participated in with a group of law firms, a majority of the firms struggled to produce meaningful insight into their own new business activities. In addition to degrading firm management’s ability to predict revenue levels and timing, it stunts Legal Ops’ ability to draw correlations between investments in services, customer service, and marketing with the acquisition of new clients and valuable new matters. Although tracking new business activity can be a sensitive issue in a firm that focuses on origination credit, unproductive friction can be reduced by limiting distribution to key managers and leaders.
  • Time and Budget Analysis. Firms may not realize that legal departments have tools (e.g., Bodhala, LegalVIEW) to analyze their bills beyond just Outside Counsel Guideline compliance to actually re-categorize time entries based on AI analysis of the entries. A Legal Ops firm should aim to never send out a bill that hasn’t already been analyzed by a similar AI-driven process for law firms (e.g., Clocktimizer, Digitory Legal, Ping).

Client metrics

Client metrics are a fascinating and timely topic. Consider them from three perspectives:

1. Firm’s perspective of the client. Beyond having profile information on clients and key people, metrics can help illustrate the existence, strength, and predictive future of the relationship with each client and potential client. Key metrics and underlying data analytics include:

  • Client engagement statistics, such as number of partners, practices, or offices actively engaged with a client, and frequency of their interactions.
  • Ranking, rating, and ideally a heat map-style grid of who knows whom
  • Strategic fit, based on firm’s experience and client’s industry and legal needs profile

2. Client’s perspective of the firm. Legal departments have been investing in matter management and data analysis systems that provide them with increasingly sophisticated buying and pricing information about each law firm.

  • Time Analysis: Using AI-based systems to evaluate law firm billing information, re-categorize it based on the type of work done and how much time was spent to do it, and recommending where write-offs or discounts are appropriate.
  • Competitive Analysis: Using billing, pricing, experience in achieving past results, diversity, and other information to not only rate and rank firms, but also to proactively assist with panel and RFP selections.
  • Post-matter surveys: It used to be exceptional but is now commonplace for legal departments to subjectively rate outside counsel after each matter. These Yelp-like ratings address not only matter results but also very personal aspects about how the work was delivered, such as subject matter expertise, project management skills, creativeness, listening skills, and perception of value.
  • Net Promoter Score (NPS): Generally obtained by the firm itself (or an independent third party it hires) by asking a simple question, “would you recommend us to others?”, the NPS provides an important, simple perspective of the client’s satisfaction with both results and value. Because it can be tracked over time and by practice area, it is an effective indicator of the relationship as well as cross-sell and referral opportunities.
  • Brand Score: Acritas and BTI provide annual ratings on brand awareness and perception, compiled from interviews and surveys of in-house decision makers. Partners in law firms are generally surprised at the gap between their perception and the market’s perception of their firm.

Since Legal Ops emphasizes an understanding of the client’s perspective, having insight in the above areas is fundamental. And it doesn’t have to be complicated – law departments I have interviewed said they would be glad to share if law firms would ask.

3. Client’s own departmental metrics. The General Counsel, practice leader, and Legal Ops leaders are likely to have personal or departmental goals they must achieve to reach their full bonus potential. Knowing their accountability is a smart way to be aligned to their needs. In turn, this helps the firm prioritize how it plans and executes each matter.

Employee / lawyer metrics

The Legal Ops approach bridges the classic departmental divides between talent, finance, and marketing. Three key examples include:

  • Strategic matter staffing. One of the most important business and data analytics opportunities of the coming years is the allocation of legal teams that includes more perspective on (a) internal staffing matters (e.g., experience, results, diversity, availability, efficiency, career plans, matter profitability), (b) expertise of third party partners, and (c) the client’s in-house legal team. Ideally, not simply a long list of people’s profiles from which to select but AI-based recommendations and what-if team scenarios.
  • Lateral partner integration. Defining the characteristics of reasonably-well embedded lateral partners and accelerating their achievement.
  • Flight risks, succession planning. Identifying the engagement and effectiveness of lawyers and professional staff to understand who is at risk for leaving and where to prioritize client or lawyer succession planning.

Calculating Legal Ops value

Improving processes and clarifying metrics are core business responsibilities, not luxuries for firms with excess time. But they do require a longer-term mindset, as upfront effort yields benefits over later years.

Some aspects, like analyzing time narratives to help with future budgeting, can be established within months and provide payback quickly. Overall, however, a firm should expect 3-7 years to transition from traditional operations to a complete Legal Ops program. Without strong leadership, it will take longer or, more likely, result in a failed implementation. Cf. Post 017 (Rogers Organizational Innovativeness Model showing that successful organizational adoption depends upon “innovation champions” in positions of influence). As pricing pressures and recession worries continue to build, it is inevitable that some firms have waited too long to begin.

It is still speculative to calculate the return on Legal Ops investments, but beginning the exercise is useful to cue discussions on assumptions, priorities, and expected levels of value.

At Winston, we drafted internal metrics, client-facing metrics, and the correlations between them, and shared insights with several law firms and key software vendors. Our exercise in guessing the future showed that investments in Legal Ops changes could provide 20x-30x returns annually (i.e., impact to profits) if the firm executes well. Just as importantly, success assumes that employees and clients are more satisfied, so it creates a better place to work and an easier future.

Excerpts from Metrics Workshop matching actions to metrics [click on to enlarge]
The calculations are too rough to bank on, but show directionally that it would be difficult not to receive significant value from a Legal Ops program. That said, no value can be assumed unless lawyers and leaders adopt changes in both technology and process and, consequently, make more informed decisions. And the increased ability to x-ray the firm with real-time information will reveal problems as well as solutions. How the firm reacts to all the new information is key to how much value is realized.

Legal Ops checklist

Is your firm traditional or ‘Legal Ops’? Few firms are yet all-in Legal Ops, but this checklist reflects what firms should have in the works.

 Check all that apply
Leadership understands and buys into the points made above. Plans and defined outcomes are underway.
Partners / leadership participate in legal department-centric events such as CLOC and SOLID so they hear progressive expectations first-hand from customers.
A central person or team is an expert in legal ops and is accountable for defining and driving change. This person need not have “legal ops” in their title.
Visual dashboards with financial metrics are in place with an expectation to add non-financial metrics.
Partners are able to compare, plan, budget, monitor, and analyze matters, either with assistance or on their own.
The firm proactively seeks client feedback on satisfaction, ratings, and metrics, even if by periodic interviews.
The firm has aggregated, cleaned, and enhanced its data, especially information on people, matters, and clients.
A system is available for lawyers to search experience, relationships, and client intelligence.
A system is available to identify and allocate matter teams based on data driven analysis, including priority aspects such as diversity and value.
Incentives are aligned to legal ops metrics, even if overall compensation is not fully aligned.
Beginning-to-end key processes that support the lifecycles of clients, matters, and employees are understood, improved, and have workflow applied.
Programs, if not technology, are established to engage all employees in submitting and assessing new ideas for improving the firm and the experiences of clients.
Total  (0 to 12)

This list is challenging in the context of traditional law firms, but is second nature to large consulting firms and newer law companies. And the line for what is expected will continue moving — project management, staffing matters across organizations, predictive analytics, and many other emerging practices aren’t yet listed.

This is an invigorating time to be a leader in a law firm that is making a legal ops transition. Firms are indeed making these investments in people, process, tech, and data – albeit at very different paces. Firms are not laden with long term capital assets like factories or machinery, so can invest, pivot, and see results quickly. It will certainly help determine the winners of the future.