Law firms must have a clear strategy to survive unparalleled change in the market
While the legal profession has seen a slight recovery from the dark days of 2008, the sector is still facing challenging times. This recession is unlike any other. The market is going through unparalleled change, is increasingly oversupplied and is facing mounting regulatory pressures. So what can law firms do to survive and prosper amid the turbulent headwinds? In my role, I deal with a diverse range of legal businesses, from magic circle to high street firms.
February 21, 2013 at 07:03 PM
5 minute read
The businesses with foresight and ambition will outperform those unwilling to embrace change, says Tom Wood
While the legal profession has seen a slight recovery from the dark days of 2008, the sector is still facing challenging times.
This recession is unlike any other. The market is going through unparalleled change, is increasingly oversupplied and is facing mounting regulatory pressures.
So what can law firms do to survive and prosper amid the turbulent headwinds? In my role, I deal with a diverse range of legal businesses, from magic circle to high street firms.
The ones succeeding are those who have the foresight to adapt to changes in the market, and who can spot the opportunities in this shifting landscape.
These businesses understand that, in order to be winners, a clear strategy is crucial.
Connect strategic plans to growth
For those firms looking to grow, they may need to look beyond the UK market, which is largely flat apart from in specialist practices, and instead consider expanding into areas such as Africa, Asia and Western Europe.
While this has been a successful move for some firms, it can be a high-risk strategy because of the costs involved. Knowledge of the local market is also essential for any firms considering this approach.
That said, international expansion is not the only way to grow a firm's top and bottom lines, and isn't always a viable option for smaller practices.
Growth can also come from being niche in practice areas or locations, and n increasingly those with a unique differentiator in the way they serve their clients will grab market share.
Mergers are also increasingly popular, but there must be a clear synergy between the merging firms and a clear competitive advantage, either created or enhanced, as a result of the fusion.
Control costs carefully
Another challenge facing law firms is the balancing act of increasing client expectations and their desire to drive down costs. Most firms will have already implemented the most obvious cost-cutting measures.
Now it might be time to look at longer-term structural changes to manage the cost base.
This could be achieved in several ways: for example, outsourcing certain activities, consolidating offices, ensuring client billing processes are slick, and only operating in profitable disciplines.
Structure for success
The Legal Services Act and the arrival of alternative business structures have led to a great deal of debate surrounding the structural set up of firms. The key point here is the flexibility of the model, to retain clients and staff.
Having a diverse management board can bring significant benefits, and we have seen a move towards having more non-legal professionals in decision-making roles.
This has often led to a more corporate, profit-based approach to leadership, and a greater focus on business development, cash management and margins.
While there are clear benefits to this model, it has also been met with opposition from traditional partners who believe the short-term focus on profits goes against the traditional values they uphold.
Look after your own
A business is only as good as its people, and it's no different for law firms. Careful succession planning is vital to allow lawyers to move up through the ranks and, if they want, reach partner level.
Many of the larger firms are adept at this and now the smaller firms need to follow suit, so that partners of retirement age can leave the firm and clients can be confident of a smooth transition.
As partners exit the firm, thought also needs to be given to the young talent coming in. While technical ability is important, business development, management and teamwork skills should also be part of the mix.
Firms must also be committed to developing their employees and fostering a culture of loyalty to aid retention.
It is widely accepted that the remuneration of partners needs to be addressed and that the traditional 'time in role' reward structure does not acknowledge outstanding performance.
Many forward-thinking firms are adopting a performance scorecard approach to recognise high-flyers.
The client is king
Given the difficult economy it's more important than ever to focus on client relationships and understand the dynamic of their client base.
Flexible fee arrangements driven by alternative working models may be one impactful way of adding value to clients.
Looking closer to home, firms should consider their funding model and decide which option best suits their objectives, in terms of fixed capital levels, profit retention policy and debt/equity balance.
Third-party investment using alternative business structures is an exciting prospect. External investment into the sector is slowly growing, and I expect to see a steady increase in interest from third-party investors in the coming years.
For those considering bank lending, Barclays is participating in the Bank of England's Funding for Lending Scheme and has launched Cashback for Business, whereby clients can receive cashback loans, equal to 2% of the loan amount.
With interest rates at an all-time low, borrowing is the cheapest it's been for more than 25 years.
Looking ahead, I believe the two most important elements for law firm leaders to embrace are a willingness to adapt and to be flexible wherever it's needed.
Firms must innovate to stay ahead and pre-empt what their people and clients need and expect from them.
By taking a longer-term view and honestly scrutinising all areas of their business, leaders will be laying the groundwork for future success.
Tom Wood (pictured) is head of the professional services industry at Barclays.
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