Following the first part of the Viewabill webinar (recording with audio available here), we headed into the next presentation, "Measuring Up." Viewabill says:
It may come across as unseemly to acknowledge, but at its core, the practice of law is a business. What are some key performance metrics that firms use to determine whether they consider an engagement to have been "successful" and what is currently being done with those metrics in areas such as employee performance, operational efficiency, and predictive models?"
Clients apply their own set of metrics for determining quality, value, and success. What are some of the metrics they use when selecting outside counsel?"
Metrics and data are where it’s at these days, so it’s important to hear what both sides of the legal coin are doing. The speakers for this panel were:
Vincent Cordo Jr., Global Director of Client Value, Reed Smith, LLP
D. Casey Flaherty, Corporate Counsel, Kia Motors
Rick Howell, Director of Financial Systems, Perkins Coie, LLP
Michael Hourwitz, Chief Financial Officer, Venable, LLP
Kenneth A. Grady, CEO, SeyfarthLean Consulting, LLC
Moderator Ken Grady wanted to build off of the last comments from the first panel, saying that metrics are a fascinating topic. Years ago, they weren’t something we heard much about; but today, they’re on everyone’s list. In the legal industry, metrics are unique compared to what you see in other areas of a corporation – they tend to weight heavily in favor of talking about costs.
When Grady worked in operations management, they talked about internal costs, but external costs were something that was discussed only at the time you established the relationship. The metrics that they focused on after that were really operational metrics tied to business objectives, and not really on the cost side.
One of the themes he wanted to explore in this panel is how legal is using metrics in a broader way – not just to simply be descriptive, such as talking about what happened in the past and what it cost – but to also look at it in a predictive way. What can we do to change behavior based on what we’re seeing? Also, in a prescriptive way – how can we use metrics to look into the future and determine what will happen, rather than just tweak the model of how we see them happening?
20-30 years ago, metrics were talked about, but there weren’t any common metrics across the industry. The ones you would see were the ones that people could easily get to – how many lawyers per paralegal, how many paralegals per secretary, etc. Today, we’re in the "wild west of metrics," Grady says. He asked Casey Flaherty to comment on the key metrics that they’re looking at in their organizations.
Wild West of Metrics
Flaherty said that while there are metrics he looks at all the time, there’s no uniformity. That’s the case both organization to organization, but also within organizations – different people look at different metrics, to the extent that they’re looking at metrics at all. There are still a lot of in-house counsel, as well as outside counsel, who don’t look at metrics. They’re worried about the work or the motion, and their only metric is whether the deal gets done, or the motion gets filed or granted.
But there are a few cases where data is being used to drive decisions, such as Lex Machina in the patent space. Flaherty pointed out that it’s far less widespread though than cost metrics – and those are the ones that he looks at too, hopefully in conjunction with value.
For example, he did a document assembly project at Kia, where he focused on turnaround time, the time between the request and execution, and outside counsel cost. He shrunk the turnaround time by 60% and the outside counsel costs by 95% because there was a lot of self-service on the business side. The ability for the business people to do work on their own drove a lot of the savings and eliminated a lot of the waste. But it also moved things along a lot quicker – one of the ways they accomplished this was by adding e-signatures. Kia sends agreements all over to different parties, and they used to FedEx the everywhere. So you may have a contract done, but it would be weeks before it was signed – there’s a cost to that, more in terms of increasing the velocity of the business.
Because Flaherty was focused on that project, those were his metrics – but no one else in the organization was looking at those metrics at all. Flaherty mentioned his Legal Tech Audit, where he looked at outside counsel and measured them on things like knowledge management, document assembly, and technology utilization. Those things are about cost, but they’re also about quality. He doesn’t want his lawyers wasting their time on drudgery – he wants them doing the things where they really add value. Flaherty can’t tell them how to add value or be better experts, but he is pretty good at identifying waste.
Grady said that companies like Kia look at business metrics, and tie those to desirables within their business. Turning to the other side of the coin, he asked firms whether they’re similarly tying metrics to anything substantive – not just financial, but the actual delivery of legal services.
We Care About the Same Metrics, Just Not the Same Parts of Those Metrics
Vince Cordo said that there are a lot of them, and added that law firm metrics are similar to client metrics – it’s just that they need to be reported differently. There are different aspects of metrics that are important to him, while others will be weighted more heavily on the client side. For example, realization on the law firm side is important – that’s how much time is being billed and collected, so there’s a turn. If a person is working on a specific task, is 100% of that task going to be billed and collected on? That’s a turn. This could equate to a couple of things, according to Cordo. Do clients view it as acceptable quality that they will pay for when a firm is making sure that the turn rate is high? Hourly rates aside, clients need to be happy with what they’re being charged.
In order to get good assessments, Cordo says, you need to do task-based billing to a degree in order to ensure that you’re managing these phases of a matter properly, and that you’re reporting on them. Setting up the right budgets in place to make sure that each item has a task code associated to it is important.
On the topic of codes, Cordo mentioned that along with ABA task codes, there are also others, and clients are creating their own custom codes more and more. He emphasized the importance of asking the client what’s important to them internally, and to ask how they scorecard firms. The best way to do that is to create your own "gold standard," and if you want to be a firm that does business with them, you have to adhere to those service level requirements.
The biggest example for a firm, Cordo says, is missing time. A missing time component on those task codes is to make sure that people are putting in their time as "real-time" as they can, before it’s billed, so that you can project-manage the chaos throughout the steps of the matter. Transactional and litigation matters should be managed this way.
The missing time ratio is a key performance index (KPI) that they track internally – this is good for a law firm, because it invokes higher profitability. There are statistics that show more accurate time entry is a higher turn on time entered and a lower write-off.
It’s good on the client side too, because they see your average missing time and can see that the real time billing assessments are more accurate, and therefore their quality is at a higher level. That’s a level of granularity that clients are seeking.
When clients are looking at that as a portfolio, across all their law firms, they can see how firms compare to each other using that metric. They can then go back to their firm and ask them to improve.
Grady asked Rick Howell to weigh in on his firm’s perspective. He agreed that the "production time hygiene" is important, and is one of the key issues that they’ve begun to look at recently. Previously, they were just looking at how data drives profits per partner. It’s been difficult to change the conversation to look at metrics through the client lens, but it’s now how they approach things when they start new engagements. The reason behind this is an important point – they may be traditionally monitoring or on track for what looks like a successful engagement, but the client view of that may not tell the same story.
A big part of that for them is time hygiene, or missing time/time lag. Tools like Viewabill also expose that to the client. They measure, particularly as these time leaks occur, the age of time between when it’s worked and when it’s billed. They’ve learned that the write off total starts to go up after key points in time – and they’re not long. Usually, when you’re past 7-8 days, the potential for a write-off goes up.
That velocity for getting the time in, as well as some of the billing velocity, is another key aspect that ties into this time lag – to make sure that time worked isn’t crossing billing cycles. One of the metrics that has become more relevant to them recently as they try to strengthen the business arm of their firm, independent of legal services, is that crossing of billing cycles because problematic for budgeting on the counsel side. The more often that there are time results or cost results crossing these periods, the more often they have disputes with the client. It goes to the idea of quality of service – clients need to be able to meet their budgets.
When it’s applicable, clients will also work with them and share their metrics. The firm tries to build those into the dashboards that come around, both with alternative fees and budgeted types of engagements. Interestingly, Howell said that he believes that every key client should have a budget come with it – whether it comes from the client or not – just so you can track your performance against it.
As a firm, Howell says they’re beginning to look at what the clients look at. They look at utilization rates to make sure that they’re not seeing a lot of turnover among the FTEs that are doing business for them. They want to make sure that not only is a leverage ratio correct on a particular engagement for a phase or task, but that the resources assigned to it are maintaining some kind of consistency.
For example, a firm may look at a matter and say "hey, these 15 people worked on this, and that was very profitable for us because we served it out over these associates." But the client looks at it and thinks that they were expecting only three people of an FTE value to work on that, perhaps the same ones that worked on a previous matter, phase or task. Time lag, FTE utilization and billing velocity are three key metrics that Howell is seeing more focus on. And they do have an impact – when they let these slide, there are more disputes with clients, more time in collections, and there tends to be a higher percentage of write offs or write downs.
Code Sets – A Move Towards Standardization?
At this point, Grady invited one of the audience members to jump in – Jane Bennet was the president of leads oversight for 8 years, and said that standardization within the codes is very important to law firms. For them to try to keep these code sets straight, which are mandated for use by their clients, involves a lot of time to enter and record things properly. One of the previous speakers had mentioned that things are entered using an internal code, which is then mapped to the clients’ code set. She sees this happen very often, and commented that it’s probably more the norm.
Cordo disagreed, saying that firms are stuck with using these codes because of ebilling structures warranted by client guidelines. Firms couldn’t care less which codes are used, and many of them aren’t used properly because there are so many of them. For example, the ABA codes are litigation-heavy, and not transactional. But her point is a good one – firms should never tell a client to use their codes. Clients are now saying that although their billing system still works with ABA codes, they don’t want firms to change them yet, but to map them to more customized codes in order to get additional information that will allow them to gauge effectiveness and efficiencies.
Jane agreed, and commented that because firms are using their own codes, and mapping them to client code sets, there is often a lack of exactness that a client might wish. With a move towards more sharing of analytics from organization to organization to try to figure out better ways to manage matters, she thinks moving towards more uniformity in code usage would be beneficial.
Grady built on this, asking whether it would be beneficial to have standardized metrics that could be looked at across industries, and within industries across companies. Assuming technology isn’t a barrier, he asked if it would be helpful to have some sort of standardized metrics.
Cordo said that in a chapter he recently contributed to an upcoming book, "Buying Legal," he was asked to address this very thing. He used a net margin example – a firm has a net margin template, where we understand what our potential profit should be in certain matters. But a client should do shadow matters with their existing staff to identify what it would take to do the same matter in house, and then what it would be worth when they put things out to bid, rather than just having bidding wars.
Grady clarified by asking if this is trying to get to the issue of value – there is going to be a different net margin for firms and for clients, and doing a shadow matter is intended to show what the additional value that a firm brings. Cordo agreed, and said that companies are doing what law firms have been doing – saying that their experience gives them a sense of what something should cost. But he advises looking at what it will actually cost, with specific statistics.
With that in mind, he took a stab at creating some metrics, in an industry that doesn’t have accounting principles on these types of metrics that we’re trying to score. It would be great to put together a list of standard codes and the like, and that’s what we tried to do with about 15 metrics as a starting point. For instance, each firm cares about time entry and turn, but they all call it something different. So if firms got together and agreed to call it something like "missing time," and then have that evolve and grow, that would be useful.
He doesn’t think these discussions will ever end on the metrics side. On the code side, the ABA has tried for years – that’s a bigger thing to tackle because you need a lot of people to agree. So it has to be client driven rather than firm-driven. However, clients are more likely to standardize on their own. Cordo said that with the groups mentioned earlier working with ACC, they may help to make that change. He looks forward to that happening, because statistical reporting will be better and help them to be more competitive in certain RFP scenarios.
Client Groups Will Drive Change
Flaherty adding that the key is the groups – he said that Brenton underplayed the pivotal role that she’s played, not only in founding CLOC, but also in bringing together all of the groups and working with the ACC. He has high hopes that the group will be able to do a lot in this realm. For example, he’s on a task force for billing guidelines – they’re putting these together from clients from across the spectrum to create some kind of guide, and move in a positive direction in terms of standardizing metrics and the types of data that clients are asking for from their firms. But that’s only the beginning.
Clients also have to look at a lot of internal data, which has nothing to do with their firms. The scary thing is that, as illustrated by a comic Flaherty mentioned, the more things change, the more they stay the same. They need one universal standard, but that will ultimately have to be client-driven. The legal operations section of ACC that Brenton talked about earlier is the best opportunity they’ve ever had to do that, says Flaherty.
Grady asked the panelists whether they thought we’d reach a world where metrics are the ones that give a relative view. GCs always ask how they’re doing compared to their peers in the industry, and other companies generally, and there’s great value in knowing that. There has been the same debate in compensation for a long time for public companies, without a solution. He asked if the panelists thought there would be better success in the legal industry, or if they would continue to work on an absolute basis.
Flaherty thinks that there will be some of that, because it’s already happening. The industry groups that get together are similarly situated companies that benchmark against each other. It has been happening on a regional basis, and he wouldn’t be surprised to see it happen on a national and international level with the new ACC group. There seems to be a hunger for it, but there hasn’t been the organizational structure or individuals to facilitate it.
The Rise of Legal Service Delivery
The rise of operations people, non-lawyer professionals who may be lawyers, but their day-to-day focus is on the business of the legal department, puts firms in a much better position to do these comparisons and develop these kinds of relationships than those in the trenches. This rise is happening, but it’s a lot slower than it should be.
Grady asked if any of the panelists believe that there are metrics out there that will be relevant to both firms and clients as a determinant of performance. Robbie suggested that maybe the velocity of time entry may be a relevant one, and Hourwitz agreed. From the client side, on a transparent billing structure, the velocity of time entry gives you more real time data about where things are being handled in a matter.
Howell indicated that they already have several clients that look at that metric, and said it’s important to them on the productivity side. It may not be enough to say it’s just fees, particularly when dealing with budgeting patent matters, where there are associated costs that have to be managed on a monthly basis. The velocity of those costs are a scenario they struggle with in terms of how to maintain the same type of speed in trying to get those costs turned around, especially if you’re dealing with third party type of vendors. He feels fees are something you will see a lot of traction with, since time hygiene is something that has proven again and again for them that the more lag there is between work and posting time, the more likely the fees will be scrutinized and potentially rejected.
Hourwitz asked if there were instances where clients would reward or punish their firms based on this velocity of time entry. He said that of course, firms do a lot internally to motivate their fee earners, but have clients said that if a firm achieves an x percent compliance rate with getting time entries on their matters in, that would entitle them an additional payment or they would not hold back as much?
Howell hasn’t had that yet, but clients are more vocal about the budgeting process, and if the firm doesn’t have good time hygiene, it’s more difficult to serve the client needs. Hourwitz asked whether this is something they’re being asked for on RFPs as a process of obtaining work, and Howell said that they haven’t yet. But as firms start to unbundle services, each proposal will have to provide some type of incentive about how they will provide information to clients, particularly around budgeting and bills. If it’s not something that clients are asking for in the next year or two, he sees it as something they will be providing as a point of differentiation.
Cordo said that there are more ways for people to show the value of services, and by highlighting that you’re assessing these items shows that it’s more than just a response – it shows that the culture of the firm is promoting administrative collaboration with partners overlooking matter health as real-time as they can, and reporting on those metrics with clients. There’s a higher level of attention to the administrative, and yet very important, service delivery side, not just the substantive aspects of a matter.
He observed that law firms are the ones who have referred to this as "administrative," but this piece is as important, if not more so, than the substantive work. Howell agreed and said that in a traditional professional services organization outside of legal, there are people dedicated to the account who may not be the ones servicing it – relationship managers. That sort of maturity is beginning to happen in legal, and he sees there being a broader business side to firms that will be geared towards managing that part of the relationship outside of the legal piece at a professional level.
Hourwitz said that there is the substance of the law, and there is legal service delivery – the latter isn’t something that they used to focus on, but it’s elevated itself to being on the same playing field as substance. He said you can no longer just be good at substance; you have to be good at substance, and at legal service delivery.
Robbie used this opportunity to segue into the next panel, and the broader question of transparency. We’ll cover that piece in a later blog post!