Balanced Scorecards for Law Firms

Balanced Scorecards for Law Firms

JOHN STERLING

JOHN STERLING

PUBLISHED BY IN ASSOCIATION WITH

Balanced Scorecards for Law Firms
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 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

III
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

IV
 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

V
Executive summary
IT HAS been over ten years since Robert
Kaplan and David Norton published their
landmark strategy book, The Balanced
Scorecard1. 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
VII
Executive summary

„ An in-depth discussion of each of the context. It includes pragmatic advice for

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.
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

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

VIII
About the author

JOHN STERLING is a founding partner with SmockŠSterling 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 SmockŠSterling in 1989, Mr. Sterling was a senior consultant with Ernst & Young and a
senior policy analyst at the University of Illinois at Chicago.

IX
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.

XI