Creating the best law firm MIS (Part One): Why most law practice management systems set law firms up to fail

MIS-google-imagesGeorge Bull of Baker Tilly is recently quoted as saying he believes that “of the 200 or so mid tier law firms, only some 50 may survive in the short-medium term.” Why is this?

In his paper, Are you going to be one of the fifty survivors?, he sets out 19 key issues that befall many firms. A third of these relate directly to firms being unable to extract and make use of good quality management information from operational data.

Law firms need better management information to survive, and many current practice management systems fail to deliver this. In part one of this blog post, I’m going to explain why management information is so important, and why most law practice management systems set law firms up to fail.

In part two later this week, I’m going to explain how to remodel your existing practice management system to deliver effective and timely management information, to ensure your law firm is set up to succeed.

Why do law firms need better management information?

Good management information is crucial. So why do so many practice management systems fail to deliver it? Here are some reasons and areas for focus:

(1)  To have a commercial edge

First and foremost, law firms are commercial organisations. I don’t think that’s a controversial statement any more. Commercial organisations need to make all decisions in light of complete, accurate and timely financial information. Without that, those decisions are made in the dark and the likelihood of a successful outcome is thus greatly reduced.

A law firm’s financial director is the key influencer here. The Institute of Chartered Accountants (ICAEW) published a new document last Autumn, Finance business partnering: a guide, which suggests that the introduction of “more business-oriented finance tools and techniques” can “enhance finance’s position as business partners”.

(2)  To engage fee earners

Secondly, in order to drive financial performance, firms need to engage all fee earners. In a law firm, overall performance of the business is the result of the aggregate performance of each and every fee earner. While lawyers are gifted with the persuasive power of words, they often don’t have the time to immerse themselves in the numbers. But all lawyers should be aware of the financial consequences of their decisions and their actions, so it is important to give them quick access to useful information about financial data.

(3)  To focus on team and individual performance

And thirdly, firms also need information to enable them to focus on the performance of teams, departments and offices as well as individuals. Managers responsible for particular areas of the business need to be able to monitor performance at the appropriate level.

And all of this information needs to be timely. I always have to question the value of a management meeting two weeks after the month end, which reviews the figures from the previous month. What action can those managers take to improve those figures? Obviously none, the opportunity has passed.

So why do I say they need better management information? I believe there are three fundamental problems with the management information that most law firms’ practice management systems deliver.

The fundamental problems with most law firms’ management information

For many years, I was technical director of one of the top practice management system providers in the UK. For over 10 years, I struggled with how we could provide better MI solutions for our clients. We tried standard reports, bespoke reports, 3rd party report designers and built in report designers. Yet none of these alone were quite up to scratch.

With the benefit of hindsight, I came to understand that practice management suppliers are just not best placed to help firms with management information.

Although management information depends on the transactional data collected by the practice management system, management information is a specialist topic, best served by specialists in the field.

An additional problem is enabling lawyers to “see the wood for the trees”. How many of you have worked in firms where at the end of every month a huge wad of printed reports are given to every partner, head of department and team leader?

We worked with the Chief Executive of a major south coast law firm who told us what he believed happened to the majority of the management reports his firm had been producing. Partners and managers used to get a serious, hefty pack of reports that they would have to wade through. There would be times when the report pack would go straight into the recycle bin because it was too difficult to find the relevant information hidden in all the numbers.

One of the key reasons practice management systems struggle with management information, is that it is absolutely impossible for them to give firms one version of the truth.

However, if your management information system knows your business rules, it can then present one single, consistent set of information to all decision makers, which represents one version of the truth.

Practice management systems are designed to record transactions – time recording, invoices, disbursements, matter starts. However, management information is not about transactions; it is about the financial measures you can calculate from those transactions: ‘Fees per month’, ‘Debtor Days’, ‘Average value of new matters’ etc.

So these measures, these useful indicators of firm performance, are not just made up of transactional data, they also require the firm’s business rules – the firm’s own definition of how these are calculated.

These business rules vary from firm to firm. And your practice management system doesn’t know your firm’s specific business rules.

So, that, in my opinion, is why most law firm practice management systems set law firms up to fail.

Do you agree? What do you think are the biggest problems with MIS and how has your firm overcome them?

You can tweet your thoughts to @EXENLS

In my next blog post, I’ll go on to look at how you can create a law firm management information system that sets your practice up for success.

If you’d like to discuss making improvements to your law firm MIS, contact us by email or call 0845 6806 843.

Blog post by Graham Moore, Managing Director, Exen Legal Solutions

GM

Law Firm Practice Management System and Business Intelligence expert. Managing Director of Katchr.

If you’d like to discuss how large or small law firm software and legal financial reporting systems could help you run your practice more profitably, please give me a call on 03333 010 766.