According to David Maister, a much-published authority on best practices in managing professional services organisations, profitability depends on five key factors: leverage, billing rate, utilisation, realisation and margin. The interplay of those factors in a specific law firm determines the net income per partner, which in turn drives profitability. As a result, business leaders in law firms spend a great deal of time thinking about how to influence those factors and strike the right balance leading to the highest profitability. Most focus on management strategies – only a few think about how technology might help.
Rethinking leverage
For at least the past 30 years, law firms have taken for granted their ability to easily manipulate the leverage component of the profitability model. Firms have assumed that they could set whatever leverage target they wished and that there would be a ready supply of qualified young associates to fill those ranks.
