Fernando Leñero has more than seven years’ experience working hand-in-hand with lawyers, supporting them in the automation and management of their practices. Now CEO, he shares with us details of how tech is shifting, and will continue to shift, the paradigms of the legal industry.
Leader’s League. How has the legal industry evolved in recent years thanks to the use of technology?
Fernando Leñero. Partners have greater visibility of their business. They know what their lawyers are investing their time on, what services are the most cost-effective and which customers are those that generate greater profitability. Thanks to tech, partners manage information in real time and reduce the time spent on administrative tasks not billable to customers. Now, with little investment, partners can take the helm of their ship and stop making decisions blindfolded.
How does tech support the growth of law firms?
I see it in a very simple way. Tech, more than anything else, allows you to sort and optimize. It organizes both your processes and your information, and once you have your whole system in order, decision-making becomes easier, less risky and with less errors.
Implementing technology eliminates the "administrative mess" and allows you to clearly see areas of improvement, potential markets and the need to recruit more lawyers or more administrative staff. Tech allows us to best take advantage of the current resources and be more efficient in terms of time.
What metrics should a law firm measure its growth by?
To really be able to measure your firm´s profitability you should track four basic KPIs:
1.Utilization Rate (%): This KPI measures the efficiency of each timekeeper. First, you have to calculate the Real Production and the Production Capacity of each lawyer.
Real Production ($): Is calculated by multiplying the number of real billable hours worked by each lawyer (after write-down) by their standard hourly rate.
Production Capacity ($): You multiply the expected billable hours of each lawyer (the goal measured in billable hours) by their standard hourly rate.
Then you divide the Real Production by the Production Capacity. This reveals to us the efficiency of the team leaders and their lawyers. If you improve the Utilization Rate, you add profit directly to the firm's bottom line.
2.Billing Realization Rate (%): This KPI measures the ratio between the Real Billed Value divided by the Real Production. This indicator shows the efficiency you have converting the work you do into money. Having more than 100% in this rate shows the ability of the commercial partner to get more profit from a business deal.
3.Leverage (%): This KPI measures the cost structure for every partner. It represents the average ratio between the associates and partners. If the leverage is low, this means that probably the structure is forcing the partner to do work that would normally be delegated to the lowest competency level lawyers. The benefits of having higher leverage would be reducing the cost structure, and release time of the partners to build a long-term business. This indicator should reveal the strategy of each legal firm (massive or boutique services).
4. Margin (%): This KPI measures how well you manage your expenses in relation to your revenue. It is the difference between your revenue and your expenses. If we have this metric and check it every month, we can realize that a lot of the time customers who have the highest turnover are not necessarily the most profitable, because of the cost involved (number of hours spent on them multiplied by the cost per hour).
I've been meeting with plenty of partners and associates who believe that it’s not important to track the time spent if they don't charge per hour. This is a big mistake since it is strictly necessary to know what we are investing 100% of the time, regardless of how it is billed. Tracking worked time and billable time is the only way to have the exact information, and thus be able to compare if a project is more profitable than another, or if it is more convenient to invest, for example, in the litigation instead of the corporate governance practice area.
What does the future of the legal industry look like?
Tech in the legal industry will gradually replace all non-cognitive or repetitive tasks made by lawyers and assistants. Lawyers are going to devote more time to the tasks that generate more value. It is a fact that computers and robots are not only going to take care of these tasks, but are going to be more efficient and reduce human error. For example, in a short time and in some cases in real time, submitting lawsuits, reviewing information in the court, investigations of a law, basic queries, or the issuing of alerts or reminders in accordance with certain behaviors, are going to be executed by robots through artificial intelligence, deep learning and machine learning.
Operational costs in law firms and legal departments are going to be drastically cut thanks to this tech boom that will completely transform the legal landscape.