With the New Year comes an opportunity to re-energize your people and help your firm achieve its profitability objectives. The pandemic has created new opportunities which you can capitalize on as well.
Update Your Firm’s Business Model
The pandemic has created an impetus for law firms to accelerate remote working options and they have invested heavily in new technology to facilitate remote working as a result. This has spurred some firms to take this further and move to remote hybrid models which allow them to access talent they wouldn’t be able to access otherwise. The remote hybrid model usually includes a central hub with “spokes” out to remote partners who may be distributed in other states, provinces or countries. The advantage is that firms can now provide clients with top talent to meet their needs without the cost of setting up new offices in these jurisdictions.
Update Your Firm Governance Structure
Many firms are still run as democracies where every partner has an equal say in the running of the firm. Often firms have an assigned managing partner who is handling the firm’s management and administrative matters but does not have the authority to make optimal operational decisions on a timely basis. The managing partner’s job description should be updated to provide her the authority to make the best operational decisions and be rewarded accordingly. Firms that make this change usually increase their firms’ profit per partner significantly on a long term basis.
Review Associate Profitability
Do a profitability analysis of all associates taking into account all direct and overhead costs. Many firms find that a significant number of their associates are not profitable. That’s due to either a lack of production or work not being delegated from partners to associates. This may also require adjustments to your partner compensation system to incentivize partners to delegate more work to associates.
Create a New 5 Year Firm Strategic Plan
Many firms don’t have a written strategic plan. Create a new vision for your firm and agree on goals and strategies to achieve your vision. This will help you prioritize your goals and focus your planning efforts in an optimal way.
Update Your Partner Compensation System
Along with your new strategic plan, update your compensation system to motivate partners to align their personal goals with firm goals. Once you have firm goals established, your updated partner compensation system will help the firm achieve its goals.
These 5 strategies will help set your firm up for success in 2021. Please call me at (604) 512-8104 if you have any questions and I’d be happy to provide further information on implementing these strategies.
I recently provided my comments in James Careless’ article “When to Expand Your Firm, When to Outsource” in CBA Practicelink magazine. I said that “growth is only something to be looking at if it’s going to achieve particular strategic goals such as increasing profitability”. I have found that many firms set a growth goal for their firm without considering which practice or industry areas they should focus on growing in order to optimize the firm’s overall profitability.
The first step all firms should take before growing is to prioritize the strategic goals which will help them achieve their overall vision. Growth is just one of several strategic goals or strategies that firms might undertake in order to achieve their vision. If increasing profitability is a strategic goal, as an example, then growth might be one of the tactics your firm may take to achieve that goal. Then the question is where to grow and how to grow. Is the growth need permanent or temporary? In some cases, you can grow your firm’s capabilities and strength in certain practice areas such as personal injury by using outsourcing providers or freelancers. Often your costs can be significantly lower by using outsourcing providers and you risk less capital if the work is transitory but the opportunity is too good to pass up.
EY’s acquisition of Riverview Law has created a great stir in the legal industry. Legal pundits of all types have proclaimed their views on the subject. Here’s a couple of views on the subject and my own view:
Mark Cohen of Legal Mosaic has stated that the deal shows that legal practice and legal services are being separated as ALSPs (Alternative Legal Service Providers) get more legal market share and show legal consumers such as corporate legal departments that law firms aren’t the only alternative for legal services. In the past law firms were the only legal service providers, but now things have changed and legal consumers have many alternatives to satisfy their legal needs.
Mitch Kowalski says, “Riverview Law is not being acquired as a subsidiary to EY Law, nor as a subsidiary to EY UK, but rather, it’s being put into a vehicle that allows it to grow globally as part of the EY global family and will be known as EY Riverview Law…But what I find more interesting is the lessons that can be already learned from the Riverview Law journey:
Business people use ideas, systems and processes from a non-legal business to create new legal business.
Then new legal business:
- is run by business people, not lawyers;
- has a mix of investors who are not all lawyers, and who do not expect an immediate return on investment;
- retains earnings and invests them for the long term;
- creates unique customer experience that’s difficult for incumbent legal service providers to copy;
- attracts customers based on a unique customer experience that does not walk out the doors of the business every evening;
- does not attract customers based on personal relationships with individual lawyers who could leave at any time;
- experiences massive growth over first five years of existence; and
- is bought by Big Four firm because of the unique and successful mix of people, process and technology which creates a tangible, stable investment.”
In the above comments I believe Mitch effectively agrees with Mark that we are witnessing the evolution from lawyers determining what legal services are to now having business people and corporate legal departments take control and defining legal services as it meets their needs.
Given these events, law firms need to take action to ensure their clients know what unique value they offer as this evolution takes place. The Big Four have been developing their legal chops for some time and see legal work as an opportunity to add more profitable work to their top line and do it more efficiently than even the largest law firms. They are being very innovative as they penetrate further into the legal market and are unbounded by past legal industry norms.