From next month, I will be writing a monthly column for Managing Partner magazine in which I shall examine the how law firms can position themselves to create a future that is both profitable and sustainable – the concept of ‘future-proofing’. To achieve this will mean being prepared to take decisive actions today (which some may regard as being unnecessary or overkill) to ensure that firms are able to cope with that which is appearing on the distant horizon, as well as whatever is just around the corner. Read more
My guest article for LexisNexis The Future of Law blog.
The core challenge, however, lies in developing strategy which is not centred on running the same race as everyone else, only faster or better. Such “me too” strategies in a law firm context are difficult to sustain in the longer term. This is because, within a peer group, incremental operational efficiencies can be relatively easily replicated and so any cost or profit advantage that has been achieved is fast eroded. The risk is that the reality of pursuing such strategies over an extended business cycle is simply a reduction in fees-charged per unit of activity in what fast becomes a race to the bottom. That is not to say that innovation in operational efficiency is not important but rather that it is unlikely to be sufficient.
My guest blog for Totum Partners (www.totumpartners.com) the leading law firm management recuitment consultancy.
This month we welcome guest blogger Andrew Hedley, who provides a few salutary lessons for law firms that are serious about attracting external investors.
There was much excitement from the private equity community a few years ago when the possibility of external investment into law firms first raised its head. I had a number of conversations with potential investors who waxed lyrical about the “mouth-watering” profitability available in the sector. They clearly had no understanding of the operating basis of the traditional law firm financial model!
There are a number of core strategic questions which firms need to answer when entering into an outsourcing arrangement. The most significant is to what extent a firm should be prepared to outsource areas of potential competitive advantage.
If one takes the view that outsourcing is driven by a desire to reduce costs, by buying into a consistent set of scalable processes which are shared across a number of organisations, then it follows that none of these areas should (or could) be sources of unique competitive advantage.
There is a management adage that “businesses that do well tend to be businesses that are easy to do business with”. Looked at from a client experience management perspective, it could be easy to believe that many firms adopt attitudes, approaches, policies and procedures which have quite the opposite intent.
My strong view is that client strategy must sit at the heart of all strategy – without clients we simply don’t have a business. What that means in practice is that any initiative must be stress-tested by looking at it through the eyes of the client. By asking a small number of core questions, based around new client benefits and the building of sustainable competitive advantage, it is quickly possible to identify the overall cost-benefits of projects competing for limited resources and make the best possible prioritisation decisions.
Understanding the client experience can be achieved by looking in detail at the touch points with the firm. Some of these will be physical, for example the accessibility of premises, the quality of the built environment or the efficiency of front-of-house services. Others will centre on service delivery such as the ease with which lawyers can be contacted, responsiveness and clarity of communication. Taken together this touch point analysis provides the management team with an accurate perspective on “how it feels to be a client”.
In the brave new world of Six Sigma, LPO and BPR it is all too easy to forget that, for the vast majority, this approach to legal service delivery isn’t what was signed-up to when entering the profession.
However, with pricing under pressure and a fixed-fee basis increasingly the norm, better management is needed. But modern business practices, information technology, knowledge management and the rise of artificial intelligence are widely viewed as the enemies. They are seen as disruptive forces altering a comfortable status quo forever.
“We can’t solve problems by using the same kind of thinking we used when we created them.” Albert Einstein
Operational efficiency is necessary but not sufficient. Simply being better at doing things the way that they have always been done may provide some respite, a way to carve profit from a market in which downwards pressure on price is unrelenting, but it is not a long-term solution to the structural changes which are affecting the industry. By running faster, you might win the price-cutting race to the bottom but the real issue is whether you will have a sustainable business when you get there.
“I am not concerned that I have no place, I am concerned how I may fit myself for one.” Confucius
As firms face the twin challenges of continued economic uncertainty and deregulation, those best equipped to prosper demonstrate clear alignment of vision, strategy, market positioning, target clients, internal structures and operational processes.
Law firm mergers are fascinating things. They mix high drama and Greek tragedy as courting parties – initially with uncharacteristic coyness and latterly with a disregard to sensible decision making – waltz towards ultimate consummation. However, much of the discussion is tangential to the real issues at play.
“If you don’t know where you are going, any road will get you there.” Lewis Carroll
“Activity is increasing but pricing is difficult” would be a fair summation of the views expressed to me by Managing Partners over the last three months. Firms across all segments of the market are running faster to stand still. Naturally there is a determined focus on the cost base and efficiency improvements but these do not address the long term strategic issue – in a market in which client demands, competitive forces and investment requirements are spiralling upwards, it is not enough to increase intensity without clear direction.