Case study: Herbert Smith

Measuring up

Herbert Smith has implemented a system that provides 'on demand' management information - MIS. Already available to all partners, it is now being developed for associates. It will form the basis for developing a 'balanced scorecard' for the firm - to address client, people, financial, process and commmunity information needs.

William Thomson (later Lord Kelvin) was knighted and then raised to the peerage for his work in engineering and physics in the 19th century. He famously said “to measure is to know” and “if you cannot measure it, you cannot improve it”. Yet despite the lapse of more than 100 years since his famous utterances, all too often key decisions are made in the absence of the right measurements.
Partnerships in general, and law firms in particular, have historically tended to produce fairly limited management information – typically financial analysis of profitability, billable hours and similar measures. Such analysis has tended to be locked away in a back-office accounting system, and getting this information to partners and fee-earners has relied on the accounts department producing reports, printing them, and circulating them. Often, these reports have been accountant friendly and lawyer unfriendly.
Over time, and increasingly, partners and fee-earners need what is very heavily hinted at in Lord Kelvin’s quotes – information on key metrics so they can understand how well they and the firm are doing, and work out approaches to tackling areas where improvement is needed.

Background to the MIS project
As with many other large law firms, Herbert Smith has historically been organised into divisions such as corporate, finance, litigation and real estate, and has international offices. Increasingly, clients ask for services that involve a number of partners and fee-earners from various divisions and offices, and so the need arises to be able to look at management information across practice areas, in addition to the traditional divisional and geographic organisational structure. More importantly, the range and types of reports to be produced will continue to change and grow over time, and so we made the decision to base all such reporting on a data warehouse, which is fed by, but kept distinctly separate from, ‘real-time’ live systems such as accounting, client relationship management (CRM) and human resources (HR) systems.
A common problem for many organisations is that they have multiple overlapping systems, and each of these can provide different numbers to answer the same question. An early decision, therefore, was that the data warehouse would be used to provide one definitive version of the truth, initially for financial information, and then, in due course, for the range of other information that will be built into the firm’s balanced scorecard. We also decided we would not aim for real-time updates, and that information that was up-to-date as of the end of the previous working day, was fully adequate for a balanced scorecard.
We undertook a rigorous selection exercise, involving six potential suppliers. At the end of that exercise we chose Business Objects as the underlying system for data-warehouse management and report production, because it was the best fit for the firm’s needs.

Building in lawyer friendliness
A repeated complaint within the firm had been that the presentation of financial information has been, to put it mildly, ‘lawyer unfriendly’. We were therefore keen to find a way of presenting financial and other information in a form easy to assimilate, and make it accessible in a familiar way.
The firm’s intranet has become increasingly popular as a means of finding out information without the need to ask ‘someone who knows’. The partners’ section of the intranet contains a considerable amount of information, ranging from strategy through to confidential minutes of meetings. It was therefore felt that making MIS appear to partners as an integral part of the intranet would be a very good way of presenting this information to them, and this has indeed proved to be the case. Coupled with this, we decided we needed to develop a ‘dashboard’, giving both a numerical and a pictorial representation.
The combination of presentation, content and location has made the MIS far and away the most popular system the firm has developed to date, at least with partners who, at the moment, are the only people to have access to the system. Partners can see any information on the system. In due course we will make the system more widely accessible, and before we do, will implement security to ensure there are appropriate restrictions in terms of the information available to each user.
The security model for the system will enable us to present each user with information that is directly relevant to them by tailoring the dashboard to meet their needs. In addition, specific items of information that should be subject to restricted access will be suppressed when reports are accessed or requested by others.

Drill down capabilities
A crucial aspect of the system is the ability to start with a high-level ‘helicopter’ view and then drill down in steps until analyses of individuals, or matters, are finally presented to the partner. When partners first access the MIS system they are presented with a high-level dashboard. However, each of ‘fee income’, ‘current WIP value’ and ‘utilisation’ tabs, when clicked upon, provide increasingly more detailed analyses. By way of example:

Fee income. Clicking on fee income produces an analysis showing both current month and year-to-date actuals, by region, together with an analysis of variance against budgets. Clicking on any region produces the same analysis, but for each department, right down to individual partners and their fee income from each and every client, including specific matters. The ready availability of this information online, rather than on paper and usually on request, makes it very easy for each partner to get up-to-date information as and when they need it rather than, as in the past, having to ask the Accounts and Management Information Group to produce it, and waiting for the printed report to eventually reach them. Wherever possible, the analyses produced show both numerical and graphical information, making it much easier to see significant variances at a glance;
Current work in progress (WIP) value. As with fee income, partners can click through to increasingly detailed WIP drill-down reports, including clicking through to a detailed analysis of WIP for each client and each matter;
Utilisation. A range of analyses, showing both percentages and actual hours recorded can be produced for the whole firm, for each department and its groups, and for specific individuals.

A phased approach
We adopted a phased approach, so that partners and other users of the MIS system were provided with basic facilities relatively quickly, and these were then developed further and added to with each succeeding phase. Below is a brief synopsis of the three phases that have been completed so far, followed by a brief description of how it is envisaged the system will develop in future. As with any partnership investment, each succeeding phase will have to be justified before the budget is made available for it.

Easy access to key financial reports
In the first phase of the project we concentrated on providing easy online access to key financial reports, which had previously been produced and distributed on paper. As detailed above, these reports included WIP, billing and utilisation, and they are available for the entire firm: for geographic regions or offices within those regions; for divisions or departments across all offices; and for individual partners.
Just as importantly, this first phase focused heavily on ensuring the design of the data warehouse was such that it could cope with the wide range of reports we envisaged would be needed in future phases, including trying to ensure that we could cope with any unanticipated reporting requirements.

Financial planning and reporting
The second phase of the project was focused on budgeting and management accounts. We concentrated on providing a consistent worldwide platform for all financial planning and reporting, and the decommissioning of some old software that had previously been used for management reporting.
Budgeting and management reporting were previously heavily reliant on (literally) hundreds of spreadsheets. These were notoriously error prone, and the new system has given us greater confidence, as well as cutting preparation time in half. There is still more we can, and will, achieve however.
One of the criticisms often levelled at financial information is that it is primarily backward-looking. We therefore built into phase two a range of forward-facing indicators of performance and trend-analysis facilities. The budgeting and planning capabilities were used as a base for scenario testing and modelling facilities, and a lot of the manual effort previously needed during budgeting and forecasting was eliminated.
One of the common complaints in any large organisation, particularly law firms, is that international offices have to rely on the head office for the production of any ad hoc reports that are needed. We therefore built in facilities for international offices to generate their own ad hoc reports.
Finally, we took a lot of information previously held on a range of spreadsheets and consolidated it into the data warehouse. This made it much easier to manage, back up and develop detailed analyses for all who needed them.

Time recording and ‘universe’ design
This third phase focused on providing partners and fee-earners with information relating to time recording, including early warning that timesheets were incomplete or overdue.
One of the great delights of information-systems projects is some of the terminology used. As part of phase three we undertook ‘universe design’ – no not the creation of a parallel reality – but rather the creation of capabilities in the data warehouse for ad hoc reports to be generated by users on a range of metrics, which have been incorporated into these data ‘universes’.

Future plans
A considerable amount of work is currently in hand, which will include further drill-downs; an easy-to-use enquiry tool for partners and others; and various reports for practice areas and for audit purposes. We plan to provide a full range of management information for associates directly – a significant step forwards in terms of the availability of management information to everyone in the firm.
At the beginning of this article, we mentioned that the intention is to use MIS as the basis for a balanced scorecard for the firm. The ideas concerning client, people, process and community information are well advanced, and the implementation of these areas will form subsequent phases of the project. In due course, we expect partners and others will be able to use the system for a wide range of non-financial information. However, before we move into these areas we will first complete the process of making comprehensive financial information available on a timely and readily-accessible basis to partners and associates. The plan is to use MIS and the intranet as a way of delivering a range of reliably-accurate information in a consistent format so that partners and associates do not need to use a range of back-office systems (such as accounting, HR and CRM) for getting management information; each of which has a different user interface as they are provided by different package software vendors.

Conclusion
A key lesson from our experience on this project is that its success has been massively underpinned by the ability of all those who need to contribute to the success of the project to work well together; and to tackle the range of issues that inevitably arise constructively – behaving as one team, rather than putting up departmental barriers. We set up a project room, where staff from the information systems department, accounts and management information group, and external suppliers working on this project, are all based. This has been crucial to ensuring full cooperation between all involved. We also set up a governance board, which meets fortnightly and comprises key stakeholders in the project, so that any project issues needing executive decisions are resolved quickly.
As a result, partners and staff at the firm are increasingly in a position to experience the reality that, as Lord Kelvin put it, “to measure is to know”, and also to realise and to prove that by measuring it we can indeed “improve it”.

George Kalorkoti is Group CIO of Herbert Smith. He can be contacted at george.kalorkoti@herbertsmith.com. John Mullins is Group CFO of Herbert Smith. He can be contacted at john.mullins@herbertsmith.com
This article was first published in Managing Partner, vol .10, iss. 8, February 2008.