Blog Viewer

How to Measure if Innovation Is Helping You Make Money

By Damian Priamurskiy posted 27 days ago

  

Please enjoy this blog post co-authored by Damian Priamurskiy, Project Management & Delivery Specialist, Lowenstein Sandler LLP and
Sachin Gupta, Practice Innovation Attorney, Paul Weiss Rifkind, Wharton & Garrison LLP.

Innovation has become a cornerstone of success in the legal industry, driving efficiency, improving client outcomes, and reshaping traditional practices. How can law firms measure if their innovation efforts are translating into financial gains? This blog post delves into the intricacies of measuring profitability in innovation, understanding value in technology, and navigating the complexities of law firm profitability.

At the heart of measuring innovation's impact is defining value. While financial gains are a fundamental aspect, it is equally important to consider value generation, which can indirectly drive financial profitability. This includes solving existing problems, enhancing client experiences, and fostering long-term sustainability. By viewing profitability through a multifaceted lens, law firms can align their innovation strategies with strategic objectives and client needs.

Measuring the value of innovation and technology can be tricky. The challenge lies in looking beyond financial metrics to consider factors such as improved efficiency, client satisfaction, and gaining a competitive edge. Selecting the right metrics is important, especially when considering relevance of the metric and how difficult it is to measure. Metrics that are easy to measure might not necessarily be relevant and vice versa. Process measures are often tricky to quantify and benchmark, but these are often the most relevant to enable innovation in a firm.1

Figure 1. Relevance vs. Difficulty of Metrics.1
What are some of the key metrics you can consider when evaluating your innovation projects? We have selected a few sample key metric categories below. 
Efficiency Metrics:
To a large degree, a law firm’s productivity is determined by the amount of revenue it can generate for each hour that is billed to a client.  There are several metrics that measure that impact on productivity, including:
  • Time saved per task or process.
  • Reduction in manual errors or rework that can lead to billing write-offs.
  • Increase in the number of cases or clients served without an adequate increase in resources.
  • Completing tasks for clients on fixed-fee arrangements without any decline in quality.


Client Satisfaction Metrics:

  • Net Promoter Score (NPS) based on client feedback. 

A NPS is a commonly used metric to measure customer satisfaction calculated on a scale from 0 to 10 typically by asking this question: "On a scale of 0 to 10, how likely are you to recommend us to a friend or colleague?" 

Figure 2. Net Promoter Score Sample Survey.2

    Financial Metrics:

    • Cost savings from process improvements or technology adoption. 
    • Revenue growth attributed to new services or market opportunities.


    When it comes to law firm billing models, the debate between billable hours, flat fees, and client value metrics rages on. Each model has its impact on revenue, client relationships, and overall profitability. Alternative fee arrangements are gaining traction, prompting firms to explore innovative pricing structures that align incentives with client outcomes. Efficiency emerges as a primary driver of these types of arrangements as it can enable firms to deliver the same services at a reduced amount of billed time.

    For traditional engagements billed by the hour, efficiency can lead to lower revenue in the immediate term. However, the long-term benefits include repeat business, new client acquisition, and improved operational resilience. Quality enhancements also play a vital role in driving new business, attracting clients through superior work product and faster turnaround times without increasing costs. Internally, innovation projects that drive efficiency and remove some of the drudgery of legal practice which can in turn boost attorney well-being and even reduce turnover. Projects that optimize administrative functions directly contribute to overall profitability and firm sustainability.
     
    Despite the clear benefits of innovation, measuring its value impact within the law firm business model is not always a straightforward task. Traditional A/B testing is often impractical in legal services, necessitating alternative evaluation methods. Client feedback, performance analytics, and technology-enabled insights offer valuable avenues for assessing innovation's effectiveness. Embracing data-driven decision-making and leveraging technology tools can enhance firms' ability to track and optimize their innovation initiatives.

    Measuring if innovation is helping law firms make money requires a nuanced approach. It involves defining value beyond financial metrics, understanding the multifaceted essence of innovation, addressing key profitability questions, leveraging primary drivers of success, and overcoming measurement challenges. By adopting a strategic and data-informed mindset, law firms can ensure that their innovation endeavors yield tangible financial benefits and reinforce their position as industry leaders.
    Footnotes:
    1. Harbir Singh & Saikat Chaudhuri, Innovation Metrics for Success in the Digital Era - Mack Institute, MACK INSTITUTE FOR INNOVATION MANAGEMENT (2020), https://mackinstitute.wharton.upenn.edu/2020/innovation-metrics-for-success-digital-era/
    2. Net Promoter Score ® | NPS ® Survey, SURVEYMONKEY, https://www.surveymonkey.com/mp/net-promoter-score (last visited Apr 1, 2024).

     


    #PracticeManagementandPracticeSupport
    #Innovation
    #LegalServiceInnovation
    #TechnologyFinance
    #Firm

    0 comments
    150 views

    Permalink