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Balanced Scorecards for Law Firms

JOHN STERLING

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH
Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH
Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

PUBLISHED BY

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

IN ASSOCIATION WITH

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

Balanced Scorecards for Law Firms

is published by Ark Group

Balanced Scorecards for Law Firms is published by Ark Group UK/EUROPE OFFICE Ark Group Ltd Paulton

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Commissioning editor

Publishing director

US marketing enquiries Daniel Smallwood dsmallwood@ark-group.com

Anna Shaw

Lucy Brazier

ashaw@ark-group.com

lbrazier@ark-group.com

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Asia/Pacific marketing enquiries Steve Oesterreich aga@arkgroupasia.com

ISBN: 978-1-906355-55-5

Copyright The copyright of all material appearing within this publication is reserved by the author and Ark Conferences 2009. It may not be reproduced, duplicated or copied by any means without the prior written consent of the publisher.

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Balanced Scorecards for Law Firms

JOHN STERLING

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH
Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH
Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

PUBLISHED BY

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

IN ASSOCIATION WITH

Balanced Scorecards for Law Firms JOHN STERLING PUBLISHED BY IN ASSOCIATION WITH

Contents

Executive summary

VII

About the author

IX

Acknowledgements

XI

Part One: Theory and practice of implementing balanced scorecards in law firms

Chapter 1: The balanced scorecard – an overview of Kaplan and Norton’s system

3

The balanced scorecard in its most basic form

4

The balanced scorecard as a management tool

5

Rationale and arguments for the balanced scorecard

8

Looking forward towards law firm adoption

9

Chapter 2: Applying the balanced scorecard in a law firm environment – opportunities and challenges

11

Nature of the opportunity

12

Linkages to profit per partner

12

Effective implementation

13

Practice group performance

15

Challenges to adopting balanced scorecards in law firms

15

Chapter 3: Financial measures – applying the financial element

21

High-level objectives

21

Profit drivers

22

The constricting denominator – equity partnership

25

Conclusions

26

Chapter 4: Client relationship measures – applying the client satisfaction element

27

High-level objectives

27

Strategies and action plans driving client relationships

29

Conclusions

30

Chapter 5: Business process measures – applying the business process element

31

High-level objectives

31

Strategies and action plans for internal process improvement

33

Contents

 

Alternative fee arrangements

33

Conclusions

34

Chapter 6: Learning and growth measures – applying the people/capability dimension

37

High-level objectives

37

Strategies and action plans

40

Organisational capability assessments – an alternative approach for aligning capabilities with strategy

40

Conclusions

42

Chapter 7: Implementing the balanced scorecard at the firm level –

a

‘how to’ primer

43

Information gathering and background analysis

43

Vision and strategic plan development

44

High-level objectives

45

Engage the practice groups

46

Dialogue, evaluation and adjustment

48

Chapter 8: Implementing the balanced scorecard at the practice group level –

a

secondary ‘how to’ primer

49

Information gathering and background analysis

49

Vision and strategic plan development

50

High-level objectives

51

Action planning and balanced scorecard development

51

Dialogue, evaluation and adjustment

51

Part Two: Applying the balanced scorecard: case studies

Case study 1: Client relationship drive at Mallesons Stephen Jaques

55

Background

55

Vision, strategy and high-level objectives

56

Integrated implementation and metrics

56

The results

57

Case studies 2-4: Using client feedback to inform relation strategies

59

Background and strategic context

59

Overview of firm experiences with client feedback

60

Differentiation

63

Case study: moving from pilot to purposeful programme

64

Case study: client feedback and strategic planning

65

Balanced Scorecards for Law Firms

Case study 5: Bryan Cave – An integrated, balanced approach to strategy implementation

69

Background and introduction

69

Strategy development

69

Integrated approach to implementation

70

Results

72

Index

75

Executive summary

IT HAS been over ten years since Robert Kaplan and David Norton published their landmark strategy book, The Balanced Scorecard 1 . The book and the concept of a balanced scorecard (BSC) are now so entrenched in the field of strategic management that application of balanced scorecards is literally ‘old news’ to strategists. Yet the concept is only beginning to take hold within law firm management circles. In commercial, manufacturing and other service industries, balanced scorecards have proven to be an extremely useful tool in translating strategy into meaningful action and understandable, measurable outcomes. Naturally, that includes tracking financial outcomes, but in a law firm environment it reaches well beyond revenue per lawyer and profit per equity partner. It calls on management to identify meaningful measures and actions related to the development of top quality people, highly satisfied clientele and superior business practices and processes. The balanced scorecard is not a ‘silver bullet’ solution or an off-the- shelf prescription for effective strategy implementation. On the contrary, it requires creative thinking that connects firm and practice level strategies to action plans and measures that answer a critical question for lawyers and staff. Namely, an effective balanced scorecard answers the question, “what does this strategy mean for me?” Beyond the qualitative benefit of answering this critical question for people

throughout the law firm, adoption of balanced scorecards yields superior performance. Naturally, Kaplan and Norton’s own research underscores this performance improvement, but independent researchers have found similar advantages. Most recently, a study published in Advances in Accounting found that “firms who adopt the BSC significantly outperform firms that do not adopt the BSC over a three year period” 2 . Simply, shareholder returns are better at firms that employ balanced scorecards to drive strategy implementation. In an era in which law firm performance is increasingly public – and a determining factor for where the best lawyers decide to practise – it seems axiomatic that firm management would want to adopt tools that are proven to improve performance. This report provides the necessary introduction for firms wanting to adopt the balanced scorecard to improve their own performance. The report includes:

An overview of the balanced scorecard concept and tool – from Kaplan and Norton’s original conception to its practical application around the world and the results achieved from its adoption; A discussion of how the balanced scorecard applies in a law firm environment – including a discussion of the central opportunities created by balanced scorecard adoption, as well as the central challenges the tool presents for law firm management; and

Executive summary

An in-depth discussion of each of the major elements of a balanced scorecard

– with an emphasis on their meaning in

a law firm environment:

Financial measures – the most straight forward and easily understood element; Client measures – client satisfaction is generally understood and highly valued in most law firms; Learning and growth – a set of measures focused on the firm’s people, their knowledge and their capabilities; and Business processes – the most difficult element for most firms to conceptualise and measure, and an area that requires creative thinking and strong linkages to firm strategy.

This report is not about dogmatic application

of

the balanced scorecard. On the contrary,

a

rote and dogmatic application of the tool

is

almost certain to fail in a law firm context.

Yet, there are many examples where all or parts of the balanced scorecard have been used quite successfully – within and outside

the legal sector. For firms that have struggled with implementation in the past (i.e., that have agreed on a compelling strategy but fallen well short in implementation), this is

a tool that can dramatically improve focus,

accountability and execution. However, the balanced scorecard should be coupled with other factors that are equally important

in driving successful implementation (for

example, communication, involvement in the strategy development process, resource allocation and budgeting, organisational and technology alignment, etc.).

This report provides insights into how the balanced scorecard can be adapted for application in a law firm management

context. It includes pragmatic advice for tailoring the core elements of the balanced scorecard to law firms’ unique structural constraints. Finally, it includes real world case studies that illuminate how other firms are using financial and non-financial measures to drive effective strategy implementation.

References

1. Kaplan, R., and Norton, D., The Balanced Scorecard, Harvard Business Press, 1996

2. Crabtree, A., and DeBusk, G., ‘The effects of adopting the Balanced Scorecard on shareholder returns’, Advances in Accounting, Volume 24, Issue 1, June 2008

About the author

JOHN STERLING is a founding partner with Smock Sterling Strategic Management Consultants with 25 years’ experience in strategic management and market research. Mr. Sterling has worked extensively with law and other professional service firms, as well as with industrial and consumer product companies and not-for-profit organisations. His work with TimeLine Theatre Company in Chicago led to their winning the Richard Goodman Award for excellence in strategic planning from the Association for Strategic Planning in February of this year. Mr. Sterling is president of the Strategic Management Association in Chicago and is a contributing editor to Strategy & Leadership. Prior to co-founding Smock Sterling in 1989, Mr. Sterling was a senior consultant with Ernst & Young and a senior policy analyst at the University of Illinois at Chicago.

Acknowledgements

THE AUTHOR wishes to acknowledge and recognise the work of Robert S. Kaplan and David P. Norton – originators of the balanced scorecard. It is on their considerable shoulders that works like this stand. The author also thanks the contributors of case study materials – indispensible and greatly appreciated – and the firms profiled in those case studies. Finally, the author thanks his partners, John Smock and Peter Giuliani, for their continuing support throughout the development of this report.