The pandemic impacted the business of law in a variety of ways, and I was fortunate to identify shifts in the application of data to decision-making, the perception of profitability, and the pace of innovation for a new report — Implementing Financial Intelligence to Give Law Firms a Competitive Advantage in 2022 and Beyond — published by a consortium of companies that includes BigHand, BRYTER, and SurePoint Technologies. It features the perspectives of 20 chief financial officers, seven finance directors (three of which serve as the CFO since they are the department leader), and three accounting managers at law firms of various sizes (with a median of 103) throughout the United States.
The results revealed a striking shift in the role of law firm finance leaders, both in their value and impact. Many are using data to drive change in their organizations, amplifying the power of profitability, and leveraging their skill to fuel innovation. Ultimately, they are helping their firms gain a competitive advantage.
The Rising Role of the Law Firm Finance Leader
Two-thirds (67%) of the respondents reported that the skills required for financial leaders have changed. They now have expanded responsibilities, must adapt to new challenges, and wield higher levels of influence to positively impact decisions at their organizations. 43% indicated that their jobs have changed beyond the traditional remit of a law firm financial leader, consistent with the legal industry’s expanding focus on the business of law. “The report shows that not only do law firm financial leaders have significant visibility into an array of firm data and dynamically leverage technology, but they are also routinely driving innovation,” said Michael Grupp, the CEO of BRYTER.
To accomplish their goals, many finance professionals spoke of the need to build consensus and collaborate with individuals throughout their firms to simplify complex concepts to prompt action. This alignment of teams is generally related to the interest in leveraging advanced business intelligence to harmonize a law firm’s data to improve outcomes and opportunities. “If you’re able to foster a culture of business and financial intelligence within your firm, you can communicate those details to your clients and provide greater value to them,” said Rob Stote, the managing director of profitability products at BigHand.
Finance Professionals Are Influential Law Firm Leaders
When asked how much influence they have on the decision-making of other departments at their firms, almost half of the respondents reported that they have significant sway, with 47% indicating their level of influence at a four or five out of five. 40% of the respondents advised that the CFO is responsible for evaluating and approving most decisions, and 60% of the respondents are involved in the procurement and buying decisions for technology at their firms.
Technology and Data Are Fueling the Impact of Financial Leaders
While most professionals have enhanced their technological acumen, finance practitioners are being tasked with assessing tools as well. “The CFO is being asked to look at the firm’s technology portfolio to find ways to run the business more efficiently,” said a participating chief financial officer of an 80-lawyer firm.
In addition to understanding technology, law firm finance leaders are also responsible for gathering, interpreting, and distributing data on which practice groups, managing partners, and executive teams can rely to drive change. As organizations continue to leverage information to drive efficiencies, the delivery of key details will impact how they optimize the activities of their professionals to focus more time on higher-value, client service.
For many, the data is readily available. In fact, a majority of the respondents indicated that there are no challenges to accessing and viewing the reports they need in the way they need them, with 70% ranking their level of difficulty at a one or two out of five. 90% have access to the data they need to make informed business decisions. “To remain successful, law firms need to embrace technology and data to both meet client demands and to enhance their ability to predict outcomes more effectively,” said Tom Obermaier, the CEO of SurePoint.
Using Data to Add Value Is Giving Law Firms a Competitive Advantage
The research highlighted trust as a key component of value, with 87% of the respondents rating being a trusted advisor to their law firm’s partners and management team at a five out of five. And, 90% of the respondents indicated that data can help finance teams become these trusted advisors.
In addition, 93% of the participants reported that reliable, timely data can help law firms gain a competitive edge, particularly since it allows them to make decisions quickly. “The amount of information that is being distributed by the accounting team on a daily basis is constant and the partners rely heavily on those details to make decisions,” said a participating billing director for a large law firm.
Empowering Profitability Can Create Opportunities for Many Firms
When asked about analyzing profitability, 17% of the respondents admitted that their firms do not measure it at all. The remaining 83% measure it in some way, but their methods varied. Some simply compare collections to overhead, while others apply a complex formula to identify more granular levels of profitability.
Although a majority of the respondents (53%) expect to increase efficiency over the next five years to increase profitability, 83% are focused on increasing revenue. 60% of the respondents rated the value of increasing profit margins as a means of increasing profitability as extremely important (five out of five) or very important (four out of five).
Finance Leaders are Driving Innovation
Consistent with their contributions to fueling growth and efficiency at their law firms, about half of the respondents (47%) reported spending between 10-20% of their time focusing on strategy and innovation. More than a quarter of the participants (27%) are exploring other service delivery models as a tactic to increase profitability, such as selling products in addition to selling hours.
Looking Ahead to 2022
The participating financial leaders noted that law firms should focus on remaining cost-competitive, building better finance teams that support law firm growth, and enhancing the quality of and access to their data.
Legal industry analyst, Ari Kaplan, is the principal of Ari Kaplan Advisors. He produces a range of market research, serves as a ghostwriter for legal tech companies and law firms, and speaks at industry events about the changing nature of legal services. This article is an excerpt from the upcoming report prepared for a consortium of companies that includes BigHand, BRYTER, and SurePoint Technologies called: Implementing Financial Intelligence to Give Law Firms a Competitive Advantage in 2022 and Beyond. Download a copy here: https://bit.ly/3DpFssk.
This article appeared in Accounting and Financial Planning for Law Firms, an ALM/Law Journal Newsletters publication covering all financial aspects of managing law firms, including: building a law firm budget; rates and rate arrangements with clients; coordinating benefits for law firm partners; and the newest strategies to grow your firm and your career.