Law firms spend considerable time thinking about strategy. They invest in people, technology, business development and new markets. They introduce KPIs, purchase new systems and develop policies as the business grows.
Far less attention is often given to how all of these things work together.
Every law firm has an operating system, although few firms would necessarily describe it in those terms. It is the framework that determines how the business actually operates: how decisions are made, where authority sits, how clients and matters are managed, what is expected of partners and lawyers, how performance is measured, how business is developed and how technology supports those activities.
In some firms, this has been deliberately designed. In others, and particularly where a firm has developed over many years, different parts of the operating framework have evolved at different times and for different reasons.
The individual components may work perfectly well. The more important question is whether they work together.
How firms arrive at this point
There is rarely a single moment when a law firm decides how every aspect of its business should operate.
A new firm is understandably focused on winning work, serving clients, recruiting good lawyers and establishing itself in the market. Processes develop as they are needed.
As the firm grows, more structure is introduced. HR policies are developed. Finance establishes its procedures and controls. Risk and compliance requirements increase. Business development becomes more organised. A CRM may be introduced. The firm invests in practice management or other technology. At some point, management may introduce KPIs or a more formal approach to performance.
Established firms can have the opposite problem. They may have decades of policies, procedures and systems developed under different management teams, across different offices and at different stages in the firm’s development.
International firms have the additional challenge of ensuring that global policies and standards work effectively within local regulatory, cultural and operational environments.
In each case, the issue is not necessarily that anything is missing. It is whether the firm’s operating infrastructure still reflects the business and whether its different components remain aligned.
Having policies is not the same as having an operating framework
Most law firms have policies. The question is what those policies collectively achieve.
A comprehensive law firm operating framework should do more than address the areas where a policy is legally or regulatorily required. It should establish how the firm expects its business to be run.
Depending on the firm, that framework may cover:
- Governance and delegated authority
- Client and matter inception
- Risk, conflicts and compliance
- Matter management and supervision
- Finance, billing and collections
- People and performance
- Knowledge management
- Business development
- Professional standards
These areas cannot sensibly be considered in isolation because decisions made in one frequently affect another.
Consider something as routine as accepting a new client. The process may involve business development, conflicts, AML, pricing, engagement terms, approval authorities, matter opening and finance.
Who is responsible for each stage? Who has authority to approve an exception? What happens when an instruction is urgent? At what point can work begin? What information must be recorded, where must it be recorded and who checks that it has happened?
The policy, the process, the authority and the technology all need to say the same thing.
When they do not, people tend to develop workarounds. Over time, those workarounds become the way the firm actually operates, irrespective of what its policies say.
The operating framework should reflect what the firm expects from its people
This becomes particularly important when firms introduce performance frameworks and KPIs.
We have written previously about the importance of designing KPIs around the contribution a firm actually wants from its people. There is another side to that discussion: before something can be measured fairly, the expectation itself needs to be clear.
If partners are responsible for collections, the firm’s financial policies should establish what that responsibility entails and what authority partners have to manage it.
If utilisation is measured, the firm needs clear and consistently applied time-recording requirements.
If supervision and people development form part of partner performance, there should be standards governing what the firm expects good supervision and people management to look like.
The same applies to business development.
Many firms now expect partners, and increasingly lawyers at other levels, to contribute to BD. Yet the framework governing that activity is often much less developed than the framework governing their legal work.
For example:
- Who owns the client relationship?
- Who is responsible for maintaining information in the CRM?
- How should opportunities and referrals be recorded?
- What is expected in relation to cross-selling and key clients?
- How is contribution recognised where several lawyers or practice groups are involved?
These are not simply questions for the marketing or BD team. They affect behaviour, accountability and ultimately the commercial performance of the firm.
If business development is important enough to form part of someone’s performance assessment, the firm should also be clear about the policies, responsibilities and processes governing it.
KPIs should measure the operating model, not create it
The same principle applies more broadly to performance management.
The temptation is often to start with the measures: billable hours, utilisation, collections, business generated, matters opened, client activity and so on.
But before deciding what to measure, a firm needs to be clear about what it expects.
KPIs work best when they sit within the wider operating framework and measure responsibilities, standards and behaviours that have already been defined.
Otherwise, the KPI framework starts doing work it was never designed to do. It becomes an attempt to change behaviour without first establishing the operating expectations behind that behaviour.
A good performance framework should therefore reinforce the firm’s operating model rather than sit separately from it.
Technology makes alignment increasingly important
Technology has made the need for a clear operating framework more pressing.
Law firms are investing heavily in practice management systems, ERP platforms, CRM, workflow automation and AI. These systems can significantly improve efficiency and provide management with much better information, but they also require firms to make operational decisions.
Who approves this? What information is mandatory? What happens next? When should something be escalated? Who has access? What should trigger an exception?
Those questions can be surprisingly difficult to answer where working practices have developed informally or vary between partners, teams or offices.
There is a risk in configuring technology around an operating model that has never properly been reviewed. Rather than resolving inconsistency, the firm can end up embedding it into its systems.
The better approach is to determine how the firm wants to operate first. The appropriate policies, responsibilities, controls and workflows can then be reflected within the technology.
This is also an opportunity. Controls that previously depended on someone remembering to follow a policy can increasingly be built into the systems people use every day.
The managing partner should not be the firm’s operating system
This is particularly relevant for firms experiencing significant growth.
A smaller firm can operate successfully with a considerable amount of knowledge and decision-making concentrated among a few people. The managing partner knows what is happening. People know whom to ask. Issues can be dealt with individually as they arise.
That becomes progressively harder as the firm grows.
If routine decisions continue to make their way back to the managing partner because nobody is quite sure who has authority, the firm has not delegated effectively. If processes depend upon asking a particular longstanding employee how something is done, important institutional knowledge has not been captured. If partners operate the same process differently, the firm may have a consistency problem that management cannot easily see.
A good operating framework reduces that dependency.
It establishes where decisions can be made, when approval is required, what standards apply and who is responsible. It also captures knowledge that might otherwise remain with individuals and makes it available to the organisation.
This does not mean removing professional judgement or introducing unnecessary bureaucracy. Law firms need both judgement and flexibility. The purpose is to distinguish between the areas where individual judgement is valuable and those where consistency and control matter.
The need is different for every firm
For a new law firm, there is an opportunity to build the framework properly from the outset. Founders can decide how they want the business to operate and create policies, processes and systems that reflect those decisions before inconsistent practices have time to develop.
For a growing firm, the challenge is often ensuring that infrastructure keeps pace with growth. A framework designed, formally or informally, for 15 lawyers may not be appropriate for a firm of 50 or 100.
For an established firm, the issue may be one of review and alignment. Policies have accumulated, systems have changed and responsibilities have moved. The firm may be operating successfully, but not necessarily as efficiently or consistently as it could.
International firms face their own questions. Global standards need to be translated into local operations, taking account of regulatory requirements, local management structures and the systems actually being used on the ground.
A merger, new office, change in leadership, technology implementation or introduction of a new performance framework can also be a sensible point at which to look at the operating model more broadly.
The underlying exercise is much the same: understanding how the firm currently operates, deciding how it should operate and making sure that its governance, policies, people, performance measures and technology all reflect that decision.
The objective is alignment
An operating framework should not become a collection of documents sitting on an intranet. It should reflect the firm.
Strategy should inform what the firm expects from its people. Governance should establish responsibility and authority. Policies and professional standards should translate those expectations into the way the business operates. KPIs should measure what matters. Processes and controls should support consistent execution. Technology should make those processes easier to follow and give management the information it needs.
There will always be changes. Firms grow, regulation develops, technology improves and strategic priorities move. A good operating framework therefore needs ownership and regular review if it is to remain useful.
For firms considering whether their own framework is still fit for purpose, it may be worth asking:
- Do our policies reflect how the firm actually operates today?
- Are responsibilities and approval authorities clear?
- Do our KPIs measure expectations that we have properly defined?
- Are important areas such as business development governed with the same clarity as other parts of the firm?
- Does our technology support our operating model, or have we adapted our operating model around the technology?
- Would a new partner or senior hire understand how the firm expects the business to be run without relying on informal knowledge?
The starting point is not necessarily to ask when the policies were last updated.
A better question is whether the firm’s governance, policies, people, performance measures, processes and technology are all supporting the same business.
If the answer is unclear, it may be time to look at how the firm actually operates.
