More and more law firms are adopting meaningful profitability analysis tools to measure their financial performance. This is a noteworthy and positive development.
The development is noteworthy because firms traditionally have been reluctant to assess profitability explicitly because of the risk of incentivizing undesirable partner behavior, particularly the risk of undermining collaboration and the assignment of the most appropriate lawyer to matters. A combination of a greater appreciation for the value of profitability assessment and an increased confidence in the judgment of firm partners appears to have overcome these concerns. As well it should have.
The development is positive for several reasons, some more obvious than others. Most significant, in my view, is the capacity of profitability analysis to guide firms to more efficient ways of delivering service.