As the saying goes” turnover is vanity, profit is sanity, cash is a reality”.
In a partnership the ultimate measure of profitability is Profit per Partner. It is the professional equivalent of Return on Equity.
Margin, productivity and leverage are the 3 main factors that drive profitability and there is no one size fits all or silver bullet answer to what the right mix should be. Having a high margin, low leverage, modest productivity form, department or team is no better than a lower margin, higher leverage, higher productivity model.
The key to driving business performance and enhanced profitability is Business Intelligence. In saying this I don’t mean just the implementation and one of the many software tools available to provide Dashboards and detailed analysis of operational and financial data within the Practice Management system, but rather the focusing by every Fee Earner on the metrics and measures that really matter in the different roles they must perform. These roles may include not just delivering their own work as a Fee Earner but also delivering in such areas as the commercial performance of a group of clients, the delivery of a group of Matters or steering the direction and structure of the overall firm.
Getting to the point where a firm is truly ‘Business Intelligent’ is not easy. The pitfalls are many.
Business intelligence tool vendors delight in demonstrating the latest dashboards and visual masterpieces, their abilities to ‘slice and dice’ data to the nth degree. Failing to distil available capabilities to a focused set of those that matter by role can result in Fee Earners having so much choice and complexity that they can lose the thread of what is important, and either fail to use the available insights or waste time, that would be better spent on earning fees, exploring information irrelevant to their particular responsibilities.
Assuming that truly focused sets of metrics and insights can be delivered there is then the challenge of using them. To move the business in the right direction insights provided by Business Intelligence tools need to be used by individuals, managers and decision-making forums to challenge themselves and others and be a catalyst for business improvement and change. This can be difficult to achieve; uncomfortable truths can come to light which are not easy to address in what is often a workplace often filled with strong personalities. Who for example would relish the challenge of asking a Partner to relinquish Client Management responsibility to a different Partner who is shown to deliver high growth, margins, profitability, or client satisfaction for that type of Client or industry sector? It is the culture and management of the firm and the change management approach deployed that will dictate if effective change can be made.
Growth in a Professional Services Firm is driven primarily by the need to attract and maintain staff. The structure of professional services delivery dictates that size is not a guarantee of higher per Partner profitability. The proportions of salaried Fee Earner costs, support staff and business overhead costs, and profit for partners are generally often much the same. Yes, efficient processes and slick finance and support IT systems can help with margins and short-term profitability, but most firms have reached the optimum level on these. Changes to core Practice Management and Time recording solutions are in themselves often hard to justify based on efficiencies and operational cost savings.
Where substantial improvements can be made to per Partner profitability is in areas such as improved margins through better commercial negotiation, better client satisfaction management and often by extension collaboration and leverage. In addition, the transparency and management of Fee Earner billable and non-billable time in a way that contributes to long term sustainable employee retention, growth and the enhancement of the Firm’s operational capabilities can yield substantial long-term benefit.
For those that can succeed with Business Intelligence the rewards can be high, as small improvements in margins or leverage or improvements in Fee Earner utilisation can add big numbers to the bottom line and pay back many times the investment in the essential, underlying, strong Practice Management solution and Business Intelligence tools required.
ITSS Limited works with Legal and Professional services clients to implement IT solution enabled business change such as PMS systems selection, Client-side implementation and Change Management, including the adoption of Business Intelligence solutions.
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