While there is no one definition of business intelligence, there appears to be general agreement on what it does: it converts operational data to knowledge, providing meaningful information that facilitates effective decisions aligned with firm strategy.  Offering unlimited analytical potential, BI is most successful when implemented with the support of senior management as part of a change initiative, often in the areas of enterprise performance management that employs elements of the balanced scorecard.  

Firms employing BI can effectively communicate strategy on a real-time basis firm wide through a combination of dashboards, event-driven reporting and report alerts reflecting specifically selected key performance indices (KPI) aligned with firm or business unit strategy.  Strategy-linked performance measures guide individual firm members to take timely actions when actual results fall short of expectations.

Profitability Metrics
Using matter profitability as an example, if a firm employs a fully loaded costing model that includes partner/shareholder compensation, the need for different strategies for each business unit often becomes readily apparent.  Assume that a firm has only two practice areas.  If one practice area makes a profit, then the other area racks up an equal and opposite loss.  The reason is that when the two practices are consolidated, the consolidated net income is zero—which is what the partnership achieved after it allocated all income to the partners.

By knowing this relationship, a firm is generally motivated to grow the profitable practice and restrict growth in the losing practice until it delivers a positive return.  A performance measure for the profitable practice may therefore be to set a growth objective of X percent in the current year, while performance measures for the practice in the loss may be to improve effective collection rates, leverage and/or utilization.

Business intelligence is most powerful when organizations learn through analysis how to set unique performance measurements.  Over time, as managers achieve their targets, new goals will perhaps emerge focusing on new metrics.  For example, growth may eventually become an objective for a once-losing practice.  Performance measurement systems therefore have a built-in continuous improvement component, provided measures are dynamic and evolve as the environment dictates.

Beyond Financial Measurements
Performance measurement systems should focus on more than just financial metrics.  Research proves that satisfied clients are strongly correlated with satisfied lawyers and staff, who in turn drive higher partner profits.  Lawyers often lament the myopic focus on financial results in their firms, insisting that being a professional is a vocation focused on helping clients and one in which recognition by your peers for excellence and community involvement is one of the more important measures of success.  To invigorate their professional staff, firms will have to heed lawyers who say they want to be measured on a more complete scorecard. 

We know that law firm corporate clients understand that the drivers of long-term financial success (maximum shareholder value) include client satisfaction, quality of product/service, efficiency and firm staff satisfaction.  Factors that lawyers often claim are soft are seen by firm clients as leading indicators of long-term success.  By inference, law firm clients are saying that a myopic focus on financial metrics without nurturing the well-being of the organization is akin to the children’s story, “The Goose that Laid the Golden Egg.”

Firms intrinsically accept this position, as references to client satisfaction, the importance of employees and other “soft” factors are appropriately reflected in firm strategies and vision statements.  The disappointment with many firm strategies lay not in the planning but in the execution.  The reasons most often cited were that firms did not know how to measure what they wanted, so they measured what they knew how to measure—namely, financials.

Business intelligence facilitates the measurement process as it reads and analyzes data from previous disparate sources.  BI technology supports holistic performance measures from four broad perspectives, including the financial, client, people and internal perspectives.  Potential measures and sources of the performance data under each of the perspectives include but are not limited to:

Finance
GOALS	MEASURES
Rates	Accounting data
Realization	Accounting data
Utilization	Accounting data
Leverage	Accounting data
Expenses	Accounting data
Bill/collect speed	Accounting data

Clients
GOALS	MEASURES
Satisfaction	Survey data; client review trends over time; increasing revenues from existing clients
Cross-selling	Cross tab of matter departments by timekeeper departments
Profitability	Based on cost accounting or activity-based accounting assumptions
Client industry-sector knowledge	Client surveys
Value	Success rates

People
GOALS	MEASURES
Satisfaction	Staff attrition rates; internal survey
Skill set	Recent experience on matters of industry code, task description, etc/
Continuous learning	Hours spent on education
Strategic awareness	Survey, improving results against KPI
Leadership / teamwork	Time spent on matters by other timekeepers; end of matter surveys

Innovation / Internal Perspective
GOALS	MEASURES
Consistent quality and standards	Internal and client surveys
Quality of firm infrastructure	Number of calls to the help desk; internal survey
Number of new practices / industry focus	Revenue growth by new sector
Ancillary services	Revenues by type of service
Timeliness	Time from opening to closing files

BI solutions promise spectacular return on investment (ROI) when designed to support strategy.  Studies suggest that most companies pay back their full investment within the first year of implementation.  Returns are typically cited in the following areas:

Tangible Benefits

Timesaving.  Staff spends more time analyzing results as opposed to preparing reports

Reduced cost.  Consolidation of reporting systems/warehouses 

New analytics.  Move the firm from gut-feel management, new opportunities for break-through improvement often identified

Improved resource utilization.  Timelier reporting of variance, implementation of leading indicators such as projected utilization

Intangible Benefits

Real-time information.  Faster and timelier intervention

Internal consistency.  Reports internally verifiable through corroboration-building credibility, and greater reliance upon reports and related targets

Better implementation of strategy and tactics.  Clearly defined targets communicated on a real-time basis

More efficient and effective processes.  Performance is regularly measured and processes adjusted when performance falls short of expectations

Greater partner and staff satisfaction.  Performance metrics measure and value total contribution

According to The Conference Board (www.conference-board.org), if you can’t measure it, you can’t manage it.  The real promise of business intelligence solutions is to help firms measure what they want rather than wanting what they can measure.

About our author ...

Steven Campbell, CPA, is the head consultant for Elite Business Intelligence, Thomson Elite's business intelligence solution.  He has more than 14 years' experience as the COO/Executive Director in law firms -- one of them voted as the best law firm to work for in the country.  He can be reached at scampbell@elite.com or 763.208.1741.