Achieving business goals
Donald Forsyth is chair of The Institute of Directors in the Highlands & Islands and a partner in Saffery Champness LLP.
At secondary school, I was interested in guitars and a particular girl. I didn’t engage in the academic side of school-life. Not surprisingly, I wasn’t a fan of report cards. The end of year summary was too accurate for my liking. A single letter grade and a sentence for each subject has proven to be an effective way of summing up a school year and provides a reliable indicator of future exam performance.As business professionals we have much to learn from the school report card. Does our management information match their level of accuracy and brevity? Can you get an overall picture about past and future performance from one side of A4? Many law firms have robust financial systems and reporting tools, yet fall into the trap of having too much data and not enough information. Whilst there is no silver bullet, here are seven principles to improve how you monitor your firm’s performance that will help management achieve their goals.
Take a strategic approach
The partners and heads of finance should have the greatest awareness of the financial and operational goals. As such they should not accept the basic output of the finance system as a fait accompli. It is natural for finance teams to design systems that make it easy to record transactions. Business leaders need a system that reports business performance and enables them to monitor progress against goals. Reporting should take a top down approach.
Identify business drivers
A law firm recently confided that despite initially heading for good financial results, the last few months of the year were disappointing. By the time the partners realised that billing in the final quarter was slipping, it was too late to intervene. The partners now receive information on the activity and success rate of their fee earners and tender activity, in addition to the bare billing. They have gone beyond looking at the financial results to monitoring what drives fees.
Can you measure the drivers of the firm rather than just the results?
Use key performance indicators
KPIs (key performance indicators) are an effective and brief way to report business performance. The KPIs should reflect performance, be capable of being measured, compared and acted upon. By definition there can only be a small number of key performance indicators. Try to limit the number of KPIs available to the partners to between five and nine balanced measures. Just as the overall goals cascade through the organisation and often become more granular, so can the KPIs. Operational management and staff will need to monitor performance in a greater level of detail than the partners.
Make the right comparisons
There can be a tendency to compare performance to last year. Being up on last year can provide a sense of comfort. Firms anticipating change are better served by comparing actual results to targets. For businesses in a growth phase last year’s results will usually be exceeded. It is more pertinent to know if the firm is on plan, rather than simply being in line with last year.
Don’t sweat the small stuff
It is important to recognise the competing pressures of timing and accuracy. Generally, the accuracy of information increases as time passes. For example, management accounts could be produced very soon after a period end and before accurate unbilled work in progress figures are known. At the operational level it may be worth sacrificing some accuracy for the sake of speed.
Take a balanced approach
Whether at board or operational level it is important not to focus overly on one aspect of performance. For example, a firm that only values chargeable time and thereby fails to value business development may not thrive in the long term. Clearly sales and profitability matter but don’t ignore client satisfaction, staff turnover (both fee earners and support staff), new client enquiries or other non-financial measures which may be key to your future success.
Use consistent presentation
Irrespective of the level of financial expertise at a partner level, using a consistent format for your reporting should improve its effectiveness. Providing a brief commentary in addition to the numbers, graphs etc is also useful. This can drill down into more detailed operational matters to provide appropriate explanations.
Following these principles should improve reporting and give information on the drivers of future business performance. Act on this information and it will help to achieve the firm’s goals.
By the way, I still play the guitar and I married the girl.