Can a Strategic Plan Compensate for a Lack of Leadership?

The article below asks whether a strategic plan can compensate for a lack of leadership. I suggest that it can’t since you need leadership in order to execute a strategic plan. The answer for most law firms is that you need to address the leadership question as part of the strategic planning process. You may also need to appoint a managing partner to oversee the planning process and execute the strategic plan. The fact is you really can’t have one without the other. Without leadership your strategic plan will probably end up sitting on the shelf just like many other firms.

 

 

 

 

 

 

 

 

Guest Post: Why are we Really In the Business of Law?

I’m pleased to welcome Heather Gray-Grant as our guest blogger for this edition.  Heather is a marketing strategist, planner and implementer, and an executive coach.

The first question in a strategic marketing plan is always the same:  what is your purpose?  From there, we essentially determine how to fulfil that purpose in a way that demonstrates positive differentiation in the eyes of target clients.

Within the free world, “purpose” is clearly a desired understanding.  Amazon has over 53,000 books under that keyword search, and yet I couldn’t find a single one dedicated to the purpose of a law firm. You might suggest that’s because it’s obvious: to provide high-quality, cost- effective legal services together with outstanding client service.   But is it the truth?

Lately, I’ve been reacquainting myself with some law firm outliers , sometimes referred to as “new law” firms (as opposed to the “big law” firms from which they seek to differentiate themselves).  These new law firms purport to be changing the law firm business model based on a different set of purposes.  See if you can figure out what their purposes are:

Firms like Conduit Law, Delegatus and Axiom provide clients with flexible service delivery through such mechanisms as embedded lawyers (think secondments) on demand for projects, or for short or long term general placements.

Cognition motivates lawyers to provide outstanding client value and service with a “gamification process” that earns them redeemable points.  Miller Titerle focuses on the other side: providing exit bonuses to lawyers who aren’t fitting in with their service methodologies and client service-focussed culture.

The pool of professionals and how they operate are a little different at these firms as well.   Delegatus has no interns and is completely comprised of fully-trained lawyers from big firms.  This includes many part time and contract lawyers, and most of them work virtually, which means a 50% savings on overhead costs.  There’s no minimum target for their lawyers.   As you can imagine, they tout significantly reduced fees over their big firm counterparts.

Axiom professionals include lawyers but also business people (analysts, financial planners, accountants, etc.).  They maximize efficiency by eschewing the traditional law office layout.  Instead, they look a bit like a gaming company – endless funky cubicles surrounded by glass boardrooms for team work as needed.

Clearspire believes it has perfected the law firm business model by ensuring individuals stick to their core competencies.  For example, it has divided the firm into three disciplines: Law, Admin and IT.  These areas are run as separate units, and then collaborate as needed to run the firm as a whole.  (I`m over simplifying due to space limitations, and would encourage you to visit the websites of all of these firms to find out more about their innovative approaches).

The culture of an organization can often be gleaned through their recruitment marketing. In those materials, these firms all seem to share the desire to attract those unafraid of practicing differently than in the big firms, of feeling passionate about the law again, of connecting more with the clients, and of feeling better about where they work. Big firms say these things, too.  The difference is in how the two models operate to prove these aspirations.  Clearspire explains their views on this on their site.

“The big law firm model has failed to evolve over the past century. The focus on partner profits accounts for the gross misalignment of interests found within traditional firms…Attorneys and firms are continually at odds over billing quotas, rainmaking pressures and the absence of work-life balance – the byproducts of an economic model that leverages people and time rather than technology or business processes.”

The site goes on to explain how Clearspire believes the big law firm model accounts for itself.

“Within the typical firm, partner profits account for more than 30% of the balance sheet. Another third supports lavish office overhead. The remaining third pays the salaries of the firm’s lawyers who actually do the client work. In sum, nearly two thirds of the firm’s hourly rate offers little direct value to the client.”

Reality check: staff, IT and marketing costs also account for a sizable portion of the typical law firm budget, and I doubt that most partners would feel they provide little to no value to a client.  But I get the idea that Clearspire would prefer there was a better correlation between client value and service costing and I think most clients would agree.

I love the determined innovation of the new law firms referenced above because I believe their actions honestly stem from a purpose of providing better services to clients.   A business exists primarily for the purpose of selling its product or services to a consumer.  Big firms have often been described as operating more like “clubs”, in part because some of them seem to be focussed foremost on providing a comfortable environment in which the partners can practice.  In such environments, client focus is at best a secondary goal.

New law firms are reversing this order, winning market share and ironically, seem to be more successful in creating a meaningful career environment for their lawyers while doing it.

For more information on Heather Gray-Grant’s services, please go to www.heathergraygrant.com

 

Increasing law firm profitability – what’s working and what’s not?

Originally published in Canadian Lawyer

Leverage

One of the fastest and easiest ways to increase profitability is to increase leverage by moving work down to the most efficient staffing level.  I’ve noticed some firms are adding non-equity partners to increase leverage and profitability, and this is a trend that continues to build. Clients are pushing hard on rates and don’t want to pay to train associates.  Non-equity partners, by contrast, hit the ground running and don’t incur training and supervision costs. Firms don’t break even on associates until three to five years of call on average, while non-equity partners are profitable right away.

Other ways to use leverage:

– Large national firms are pushing out underperforming partners with practices that don’t meet their minimum size standards, as they continue to lever themselves for maximum profitability.

– Personal-injury firms are outsourcing legal work to India to reduce costs.  This is quite a step forward in Canada, where until recently our privacy laws have made law firms hesitate to make this move.  If the outsourcing company’s servers are based in Canada and the work is being checked by Canadian lawyers, then this option can work well.

– Large national firms have outsourced administrative tasks such as word processing and billing to reduce costs.  Many firms are also outsourcing entire facilities-management, technology and marketing departments to local outside vendors such as Ricoh and Pitney Bowes Inc.

Cost Containment

“New business-model firms” such as Delegatus services juridiques inc. in Montreal and Cognition in Toronto are effectively acting as outsourced general counsel for large clients.  They operate on a virtual basis to contain premises costs and have also stripped down the management infrastructure required to run their operations. Their lawyers spend most of their time at clients’ offices, using clients’ support staff on files, which helps keep overhead costs down to as much as 50 percent of the average large firm.

Some firms are getting into project management in a big way, and find that clients are very happy to work with them to reduce their overall legal costs by getting more effective and efficient in how their legal matters are handled. This is a significant trend, and one that some law firms are using as a warm-up to alternative billing.

Centralized Management

Firms of all sizes are centralizing their governance systems to increase their efficiency and profitability. By giving managing partners the power to affect partner compensation, these firms allow the managing partners to motivate partners to do non-billable tasks that help to achieve strategic objectives.

Setting up file-approval systems under the control of a managing partner can lead to significant gains in profitability. In my experience, top-down, centralized management is the most efficient and effective way to manage.

Selecting the right clients is also crucial to becoming more profitable. Successful firms evaluate clients for their profitability, their ability to pay, and their fit with the firm’s strategic goals.

Utilization

Some firms are using “full-day” time accounting where lawyers track all non-billable time in addition to billable time. The idea is to get lawyers to account for all of their available time at the office, e.g. eight or 10 hours a day.  By having lawyers and staff account for all of their time, firms are capturing 10 to 20 percent more billable time and adding significantly to profitability as a result.

Firms should also attend to this non-billable information to ensure that their lawyers are not just focusing on the short term and their own billable hours. As management guru David Maister would say, how you spend your non-billable time is where your real profit is in the long term—for instance, your business-development efforts.  Tracking lawyers’ non-billable time can also reveal whether project-management techniques are working effectively and efficiently.

Another recent innovation is smartphone time-capture technology that allows lawyers to log their time while they work it, rather than afterwards, when their memory is hazy. This is the key to maximizing time-capture percentage.

Strategic Planning

Firms that proactively carry out strategic planning are more profitable than firms that don’t. Today’s highly competitive legal market demands that firms maintain a continuous planning mindset if they want to succeed. In the successful firm, the managing partner takes charge of executing the strategic plan and focuses on getting partners to follow through on their assigned tasks in order to achieve the goals of that plan.  The most profitable firms reward partners who complete non-billable tasks and penalize those who don’t.

The firms that do the best in today’s market are the ones with a tight vision.  They keep their team closely focused on the firm’s strategic goals, as opposed to taking a silo approach in which everyone operates independently. The days are past when a law firm could make easy money while letting every partner do whatever he or she wanted.

Partner Compensation

Your firm will make better profits if it rewards partners for the value they provide to clients rather than if it rewards them only for hours billed. Partners also need to be rewarded for profitable practices, in addition to sheer volume of billings. Those who expend extra effort in the firm’s best interests should be rewarded the most, and those who lever work down to others and unselfishly lead their practice groups should get special rewards.

Generally speaking, firms with subjective compensation systems are more profitable than formula-based firms. This is because the formulas usually drive partners to focus on personal production, instead of helping grow the whole firm.  An “eat what you kill” approach can stunt the growth and profitability of a firm.

People

Firms with strongly defined core values for their people do better than firms without them. In order to succeed, a firm needs a strong culture, where everyone buys in. This helps it achieve its goals faster, and makes its staff work harder and feel more fulfilled.

As the push to acquire the best talent continues, small firms are capitalizing on opportunities to hire senior partners who are close to retirement and are being pushed out of large firms.  Some are leaving early, taking their clients with them, to join small firms and enjoy better work-life balance. This can be a great win-win for both the senior partner and the small firm, as these partners can bring big-firm institutional clients that are coveted by small firms and can significantly increase their profitability.