Thoughts on ways to improve the management of professional services firms

Wednesday, December 08, 2010

The importance of a discipline of professional practice

Back in September 2006 in Towards a Discipline of Practice I began a discussion on the importance of the development of a discipline of practice that spanned disciplines. Here I said in part:

On the surface, the application of each profession in practice may not seem connected. What do, say, law and medicine have in common? At least this:

  1. Common techniques can be used to analyse the processes followed by professionals in their work.
  2. A least some of the elements in those processes are common. For example, both lawyers and doctors have to begin each engagement (matter in the case of the lawyer, consultation in the case of the doctor) with a diagnostic. Comparison of the different application of common process elements between professions can yield fruitful insights.

The commonalities between management of practices across professions are better understood. However, there is in fact a gap here.

If you look at the literature you will find a range of general advice and principles drawn from management. You will also find a volume of nitty gritty material classified under the general head of practice management. This is often encapsulated in specific practice management courses and qualifications.

The gap as I see it between the two, and I think that this holds even though David Maister among others has written on the topic, is the gap that Prem points to, the absence of a fully articulated philosophy of practice that takes into account the unique features of professional practice.

The link to Prem's comment is included in the original post.

Back in June in Reflections on professional experience, I said: 

I have been off-line for a little while simply because I have been thinking! Part of those thoughts relate to my own directions, part relate to the core focus of this blog.

Over the last few years, I have changed my mind on some issues. For example, I am a stronger supporter of partnership models than I was so long as the partners accept the limitations involved.

On some other issues such as the the profit per equity partnership concept, I think that they are just as dangerous as before unless very carefully defined.

Then, on some issues such as time based charging, I have formed the view that a lot of the discussion simply misses the point. Time based charging has its problems, but it still is the best approach in some circumstances.

I have also become frustrated about my inability to get advice across about the need for change.

Part of this relates to a purely professional question that I have discussed before. What do you do when your client wants advice that you know won't work or must be just plain wrong? Part of this relates to my own professional skills, my inability to get a story across. However, part also relates to current management structures and attitudes within professional services. Some of this is just plain wrong.

Over the next week or so I thought that I might record my conclusions from all my thought. It's hard for a professional to accept his/her failures. Yet if we don't, how can we improve? 

As so often happens, events intervened. However, experiences over recent weeks have reinforced the need to write something. Bluntly, we professionals are letting down our clients. Worse, we are sometimes doing it through our narrow definition of what constitutes professionalism.

I have no truck with approaches that guarantee clients higher costs and worse results, even accepting that clients are their own worst enemy!

So, given this, over the next few posts I want to continue my discussion on a discipline of professional practice.  

Wednesday, December 01, 2010

Blog performance November 2010

Stats Nov 10 2

End of month stats.

The  graphic shows visits (yellow) and page views (yellow plus red) for the year to end November.

The most visited posts over the last month have been:

Friday, November 26, 2010

Keddies, Slater & Gordon & the law

This cartoon is taken from the Sydney Morning Herald.

Shakespeare-420x0 In Corporatisation, Keddies and professional ethics, a post written back in July 2008, I reported on the problems faced by Australian law firm Keddies as a consequence of its billing practices. I gave a brief update in October 2008 in Keddies case threatens legal billing practices.

Although I really didn't say so at the time, I did wonder whether or not Keddies could survive. In fact, they did and have been purchased by listed Australian law firm Slater & Gordon for a reported $A35 million.

Russell Keddie, Keddie's founder, has admitted to the NSW Legal Services Commissioner that he was responsible for the gross overcharging of a client and plans to retire from practice.

All this has led to some scathing criticisms from regular legal commentator, the SMH's Richard Ackland.

I did wonder and still wonder about the wisdom of the Keddies' purchase. Time will tell.

Saturday, November 06, 2010

Canadian material on professionalism

In Lawyers like history, Christopher Moore reports on The Chief Justice of Ontario's Advisory Committee on Professionalism's 13th Colloquium on the Profession. The theme of this year's colloquium was History of the Profession: Lawyers, Legends, Legacies and Lessons from Ontario Legal History.

Chris's post led me to the Law Society of Upper Canada's page on the Advisory Committee. I mention this because the page contains links to material on professionalism, including papers from various colloquiums. I haven't had time to read the material yet. 

Wednesday, November 03, 2010

Blog Performance October 2010

It has been five months since I last posted here. You might think that traffic would collapse, but search engines have continued bringing people to this blog.Stats October 10 2

The  graphic shows visits (yellow) and page views (yellow plus red) for the year to end October.

The most visited posts over the last month have been:

Interesting that people issues continue to be so important after all this time.

Thursday, June 10, 2010

Reflections on professional experience

I have been off-line for a little while simply because I have been thinking! Part of those thoughts relate to my own directions, part relate to the core focus of this blog.

Over the last few years, I have changed my mind on some issues. For example, I am a stronger supporter of partnership models than I was so long as the partners accept the limitations involved.

On some other issues such as the the profit per equity partnership concept, I think that they are just as dangerous as before unless very carefully defined.

Then, on some issues such as time based charging, I have formed the view that a lot of the discussion simply misses the point. Time based charging has its problems, but it still is the best approach in some circumstances.

I have also become frustrated about my inability to get advice across about the need for change.

Part of this relates to a purely professional question that I have discussed before. What do you do when your client wants advice that you know won't work or must be just plain wrong? Part of this relates to my own professional skills, my inability to get a story across. However, part also relates to current management structures and attitudes within professional services. Some of this is just plain wrong.

Over the next week or so I thought that I might record my conclusions from all my thought. It's hard for a professional to accept his/her failures. Yet if we don't, how can we improve?        

Wednesday, May 26, 2010

Concept of sustainable profit

Only five posts this year. Talk about a useless blog!

Over on my personal blog, I have had two posts looking at profits (here and here). In the second post, I talked a little about professional services.

My problems with profits in professional services is two fold.

First, I Have come to feel that the overwhelming focus on profits is simply taking all the fun out of life, as well as creating clashes with our professional roles. Here I was talking to a former senior partner of a major law firm the other day who had decided to exit stage left.

Many things came into that decision. One was his feeling that his share of the profit pool, the attempts to increase the size of that pool and hence the size of his share, simply wasn't worth it. The extra dollars at the margin held little value.

Don't get me wrong, profit remains important. Without it, you can't do things. However, this brings me to my second point.

In thinking about profit, we tend to look to the immediate future. More and more, I think that we need to think about the concept of sustainable profit.

If the aim of the firm is to achieve maximum growth in profits per partner that's fine. However, it also carries costs in terms of life style and also risk. In many cases, a better question is how do we sustain our profit level, perhaps building in some growth, over extended periods?

This involves different strategic choices, as well as different staff management and investment patterns. It is both easier and harder to achieve. Easier in that the pressures are less, harder in that it requires action to insulate the firm to some degree from market changes. Survivability is increased, but at the cost of reduced maximum returns per partner.     

Wednesday, April 28, 2010

History of Canadian law firms

Christopher Moore pointed me to an interesting article by Christopher Guly in The Lawyers Weekly on the history of Canadian law firms, tracing the rise of larger firms.

Gully notes that the process has been slower than in the US. Its partly a matter of relative size of the two markets, but is probably also linked to institutional factors. My impression is that the sizing process has been faster in Australia, a significantly smaller country.   

Monday, February 15, 2010

Time based billing goes round and round

Interesting article by John Chisholm in Lawyers Weekly, A billing discussion worth its time, on billing principles.

Reading John's remark's reminded me how little had really changed over recent years where time based charging is concerned. The discussion on alternatives to time based billing in law seems to go round and round and round.

The real problem as I see it is a simple one. Time based charging is easy, whereas alternative methods are much harder, requiring very different approaches.

When I first started as a consultant, my firm actually used four different pricing models:

  • time based billing usually associated with a cost estimate up front
  • fixed price contracts, especially where Government contracts were concerned
  • retainer style arrangements where clients paid a standard monthly amount in return for exclusivity and an agreed package of services
  • and fixed prices for certain types of work such as training or information products.

Running four different pricing systems posed its own problems.

To begin with, we needed a practice management system that would allow us to measure time inputs and various types of disbursements. This had to mesh with the general accounting system. We still attached value to time via hourly rates not just because of the continued presence of time based charging but, more importantly, because of the need to monitor costs on fixed price jobs and to compare relative profitability between areas.

Generally in time based charging, things such as marketing time get allocated to firm time. We could not afford this approach because of, among other things, the presence of significant size fixed price bids. Marketing costs need to be measurable because they were a major cost component; in some smaller open tenders, the total cost to bidders of tender preparation can in fact exceed the value of the tender, creating a an effective zero sum game.

In order to get a better measure on marketing costs and to to aid recover, we created a special time code called work in anticipation. This covered all bid costs plus time investments in looking after specific clients.

General marketing was measured by another time code. The attachment of job and client codes to WIA allowed us to measure direct marketing costs, both time and disbursements. With client support, the aim was to recover WIA over time through new work from that client. With fixed price jobs, the aim was to recover the WIA through the tender price. This type of measurement has some salutary effects because it quickly throws up potentially unprofitable activities.

While the system did generate the type of information used in conventional billing and performance management systems, there were no charge targets as such. Instead, we used the concept of effective time. This varied from person to person and might include not just billable hours, but also WIA, other marketing and business development time and product and personal development time.

A person studying, for example, might have study time included in effective time, removing the conflict that can arise between approved study and billings. Similarly, the inclusion of marketing time in effective hours removed the conflict that arises in so many firms between getting the cash in now and laying the basis for later cash.

We used manual rather than computer based time recording systems. Our people travelled all the time and were usually working on multiple tasks. It was just easier to scribble on a time sheet once the necessary discipline had been installed. This also allowed for multiple time recording. For example, in travelling on a client job, travel time would be charged to the client. However, dead time might also be used on and recorded to another task.

Each Friday, all staff transferred their time data to summary sheets that went to admin staff for data entry. This was obligatory, no matter where staff were so that full weekly firm performance data was available for review by Monday lunchtime by management, client officers and project managers. Weekly data was essential because of the presence of relatively large contracts that needed to be closely monitored.

I am providing this personal example simply because it illustrates the type of complexities that can arise when you move from conventional time based charging to other models. Other models may be better, I believe that they are, but they also require changes in systems and culture that are not, of themselves, easy.           

Wednesday, February 10, 2010

More on Allen & Overy in Australia

Since yesterday's post, Allen & Overy to open in Australia, I have been mulling over just what the implications might be.

When i wrote yesterday I did not have the names of the people who had left Clutz - Australians like shortening things, so Clayton Utz is commonly called Clutz. Since then I have seen a list provided by ALex Boxsell in the Australian Financial Review. I can't give you a proper link because it's behind the fire wall.

This was quite some people raid. The fourteen who left Clutz included:

  • Geoff Simpson, partner in charge, Perth office
  • Michael Reed, national managing partner corporate
  • David Wilkie, national head of real estate
  • Michael Parshall, joint head of mergers and acquisition.

I must say that I was quite fascinated by the machinations that must have gone on to organise this coup.

There has been something breathless about the reporting on this issue. "British bombshell a shock for local firms" read one headline, "UK raider sparks legal talent war" another. Obviously this type of raid will force all major firms to review their strategies. However, I also think that we need to keep a bit of perspective.

  Allen & Overy is a big firm, with annual gross revenues in 2008-2009 reportedly at $A1.96 billion. However, the current strategy is essentially high end niche, with A&O planning to grow its partners from 17 to a possible 30 in the immediate future.

Depending on the average charge rate achieved and the leverage adopted (A&O is reportedly looking at 50-60 associates for the its starting partners), we are looking at a projected fee base of perhaps $A55-$A60 million in the first instance. Substantial, but still not large in a total legal services marketplace of around a reported $A12 billion, of which the top eight firms control perhaps $A3 billion.      

Tuesday, February 09, 2010

Allen & Overy to open in Australia

Interesting article in The Australian by Legal affairs editor Chris Merritt on the plans by Allen & Overy to open in Australia next month. The firm will open with seventeen staff, fourteen lured from national firm Clayton Utz.  

While Australia is the world's 14th largest economy, its relatively small size together with its remoteness from Europe and North America has kept it a little below the global horizon. This has actually given local firms something of a protected market. 

Australia's recent economic performance has been quite astonishing by global standards. This plus the China link has focused more attention on the country. 

Allen & Overy's core practice areas in Australia will be energy, mining and natural resources; finance; infrastructure; investment funds; mergers and acquisitions; private equity; tax; telecoms, media and technology.

These are generally all areas where Australia has a significant local market for legal services. It will be interesting to see how Australian practices respond.

Thursday, January 07, 2010

Why active listening is important to all professionals

Just back to duty and still very saddle sore.

The only really professional thing that I have done this week was a consultation for a manager seeking advice on how to manage a particular problem. This got me thinking.

Most professionals know, I think, that the capacity to listen is a key professional skill. This holds equally true for a lawyer, management consultant or doctor. The problem for most of us, however, is that time is limited and that as soon as we identify a problem we switch into problem solving mode. See problem, fix problem.

The difficulty here is that the first identified problem or problems may not be, often is not, the key problem. This is true whether dealing with individual or corporate problems. Too often, the first identified problem is either one of a number of problems or simply a symptom of a deeper underling problem. So we need to probe through active listening.

Active listening involves several different processes.

One is simply the gathering of information. We do this by listening and by asking questions. We also have to analyse the information as we go along. What does it mean? What additional information do we need? This leads to further questions. 

We also have to test the ideas we are forming. This may be done by asking questions or by summarising, testing our conclusions with the client.

Summarising can be used as a validity test, but it is also used to change a direction in the discussion. In this second case, we summarise and then ask a question, taking the conversation in a new direction.

We can all consciously practice these steps.