In the quarter century leading up to 2006, law firms didn’t really need to worry much about strategy. It was a sellers’ market and commercial success was generally achieved without any formal strategic planning. But the business world is now spinning on a different axis. Clients are radically reducing their legal expenses and insisting that law firms charge much less. It is a buyers’ market now and there are new competitors in the wings by dint of the Legal Services Act. Now is the time, more urgently than ever before, for firms to think systematically about their strategies, about which markets they wish to be in, and how they intend to compete in their chosen markets.
What are law firms’ top strategic challenges for 2012?
One clear priority for firms is to formulate “alternative sourcing strategies”. It won’t be enough for firms simply to price differently. Law firms must go further and analyse their work, identify those parts that are routine, and identify and implement new ways of sourcing this work – for example, by outsourcing to India, near-shoring to Northern Ireland, sub-contracting or systematising. A second short-term priority is to focus systematically on winning more work. This may seem self-evident but I find it remarkable, for instance, how haphazard and rushed many firms are in preparing proposals, and how infrequently lawyers visit their clients between jobs. A third priority for 2012 is to develop strategic plans, not just from the top down but also from the bottom up, driven by the needs and hopes of particular practice areas and offices. Large law firms are made up of collections of businesses, each often at quite different stages in their evolution and with quite different priorities. Law firm strategy must extend beyond broad direction for the entire practice, and accommodate and support the plans of the business units that make up the whole.
Are firms still expected to deliver more for less, or have clients become more outcomes or quality driven?
If law firms reduce their fees but don’t change the way they work, then I fear that quality of service could suffer. However, if they pursue imaginative alternative sourcing strategies, then they can charge less and still maintain exceptional standards. The cost reductions come from sourcing routine work in new ways and not from reducing the involvement of leading specialists when they are genuinely needed. The major accounting firms have shown this to be possible, as have leading hospitals. And if major law firms don’t embrace new ways of working, innovative second-tier firms will be more than happy to step into their shoes on bet-the-ranch deals and disputes. In 2006, many senior general counsel wouldn’t have contemplated moving away from a handful of top firms; today, under cost pressures, they are more open-minded.
Some firms are not sure how to charge for work that involves outsourcing and process automation. Can you offer some guidance?
I advocate what I call “task-based pricing”. The idea is to divide deals and disputes into component tasks, and price each part separately. This will mean that, on the same engagement, complex tasks might be charged for at high hourly rates while more routine jobs (that may have been outsourced or systematised) are undertaken at competitive fixed fees. It is too crude to price large pieces of legal work on the basis of one billing model alone. One size fits none in this context.
In the quarter century leading up to 2006, law firms didn’t really need to worry much about strategy. It was a sellers’ market and commercial success was generally achieved without any formal strategic planning. But the business world is now spinning on a different axis. Clients are radically reducing their legal expenses and insisting that law firms charge much less. It is a buyers’ market now and there are new competitors in the wings by dint of the Legal Services Act. Now is the time, more urgently than ever before, for firms to think systematically about their strategies, about which markets they wish to be in, and how they intend to compete in their chosen markets.
