According to a recent survey by PA Consulting Group, many law firms are still labouring under unsophisticated management, employing working practices that are long out of date. The time to reform is now.
Some time ago, I met an old friend of mine, an experienced general manager who was in the first 100 days of his new role as COO at a City law firm. And to be blunt, he was surprised and not a little shocked by what he described as the unsophisticated management and working practices that he found. His view, although at the critical end of the scale, is reflected in the views of management commentators and indeed many of the professional managers (IT, marketing, HR, finance) in law firms themselves.
"So what?" you may say. Despite downturns in most major markets in the past three years, law firms continue to prosper. Current performance remains acceptable, and so, therefore, do partner drawings.
However, this storm is changing the landscape permanently. The pressures on all businesses are creating the conditions that will lead to a change in the relationship between the lawyer and the client. The firms that transform their management methods to adapt to different market conditions will be the ones that thrive; others risk being left behind. More importantly, firms need to anticipate the arrival of these conditions in full - and prepare now.
Management methods must change to meet client demands
Our survey reflects many of the trends in the market. Profitability, under increasing pressure from clients, is the major management theme for the future. Strong management processes - focused commercially but covering all the activities of the firm - will be needed if firms are to manage this pressure. For example, while fixed fee work is now just 18% of all work, 85% of firms expect this proportion to increase. Multi-office work is set to grow by 30% in the next three years. As firms expand, they will need to ensure greater internal rigour - as they will to manage the alliances with other professionals that 22% of managing partners believe that they'll need to form.
Currently, just 40% of firms check the value delivered to the client and only 68% know the profitability of their matters. Just a third of them manage the success of each matter. As a result, it is not surprising that 90% of firms want to improve global practices to deliver client service.
The trends reflected here are part of a general evolution taking place in the professional services market. We can understand the fundamental aspect of this evolution by thinking about the dynamics of the relationship between the adviser and the client. In the legal world, it is the intellectual property of the lawyer, expressed as legal advice, that leads. Similarly, the impact and creativity of the agencies have driven the advertising business. The best consulting firms, however, are driven by added value to the client and as a result they are the most tightly managed of professional firms. As accountancy has had to become more of a client-value-led business, accounting firms have started to build more rigour and structure into their firm-wide management processes.
Advertising is having to make this transition very rapidly. The advertising market is currently under severe pressure, as many clients are no longer satisfied to accept that only half their advertising spend is effective. Unfortunately, they do not know which half. They want to be sure that spend is adding value to their business and, as a result, advertising firms are having to improve their commercial, people and client management processes to satisfy much more challenging clients.
And as more legal clients are adopting the shareholder-value-based management techniques that have been shown to make businesses perform more effectively, so those clients will demand value-driven legal services. When they do, we need to be ready for them.
Deciding when to drive this change hard could be the most difficult step
As our survey showed, many firms know that they need to change and, indeed, want to change. But the same desires were observed last year and the survey also shows little progress in the necessary areas. It appears that lawyers like to leave decisions until the last possible minute. Indeed, their training encourages this - collect more and more evidence until the case for a particular decision is overwhelming. As the advertising industry and some areas of the IT consulting industry have shown recently, such a delay can be critical. For this major decision, senior lawyers and business managers need to anticipate the changing world and implement their solution thoroughly before it becomes critical.
And firms should react positively to this challenge - the survey, and our work with a wide range of professional firms, shows that much of the foundation of the response to this challenge is present in many firms. Many of the right ideas are there … but, perhaps because leaders are delaying their decisions, they are not being implemented just yet.
It is clear what needs to change
Our most recent survey compared the views of managing partners and IT directors on a range of issues related to the effective management of the firm and the efficient underpinning of that management with top quality information support. However, its conclusions are relevant to more than just IT.
They show that while IT budgets are under pressure, major technology steps are being taken to support some of the needs of this change: increasing numbers of laptops; more flexible working practices such as internet enabled meetings, home working and hot-desking; PDAs; digital dictation; virtual deal rooms; and extranets.
Nevertheless, IT directors are striving to be allowed the opportunity to add even more value to the firm - by ensuring that the whole firm reaps the full potential from IT to support great management practices, including the existing investment that the firm has made. The fact that only 13% of firms believe they do deliver on that potential highlights the major management issues that remain. For example:
- The link between managing partners and the rest of the firm: 100% of managing partners believe that their firm has a clear business vision, but only 46% of IT directors believe it has been clearly communicated to staff (down from last year); 89% of managing partners believe support is effectively managed as a well integrated whole with clear direction - but only 25% of their support directors agree; only one third of IT directors believe that business issues are clearly communicated down the firm.
- The ability of the whole firm to deliver on its strategy: less than half of firms believe that their staff have personal objectives and reward linked to the success of the firm and to profitability; less than 60% of firms act on staff appraisals. The management of intellectual property - the firm's greatest asset: where knowledge management initiatives have been implemented, only 32% of respondents believe there to be good return on investment; only 40% of firms say their information is delivered to staff in a timely manner; only 67% of managing partners believe that the management group knows how knowledge management will create value (and only 40% of IT directors do so).
Firms need a tightly defined operating model if they are to meet the challenges of the market
So, as a senior manager of your firm, what should you do? The ideal firm has identified the principles necessary for commercial success for each part of their business, then agreed the best operating model to bring those principles to life, and finally has driven the implementation of effective automation and delivery of the operating model using the best available technology and change management techniques. Our survey shows that the core of the principles may be there (but only in the minds of a few partners), the technology is in place, but the links between the first and third stage are weak.
The long standing management issues above should be addressed by: a one page strategy to provide the link between managing partners and the rest of the firm; shareholder value information to drive profitability and to set congruent goals; and a value-driven approach to knowledge management.
The firm's top management must take ownership and provide active input to lead the firm through collective agreement in each of the three stages. Such an approach ensures that everyone is committed to a management and personal support environment that allows the firm to work as a single entity without sacrificing individuality and allows your people to carry out management and administrative tasks consistently in the right way. You, your clients, your firm and your people will all benefit from greater expertise, delivered by highly committed and well-rewarded people who add real value to their clients' business and can charge a premium for doing so.
A fact of life in professional services is that staying the same is no longer an option. Change is the only certainty. And it is time for your firm to make that change - before it is too late. Firms need to make a difference that clients will notice.
