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Profiting on law firm productivity

REUTERS/Kacper Pempel (Photo)

Law firms have never had it more tough. Competition is intense, whilst client cost pressures are curtailing profitability. Even though 90 percent of top 100 UK law firms achieved fee income growth in 2019, no top 10 firm saw revenue grow more than 10 percent. Further, 13 percent of firms in the top 50 actually saw their fee income slide, according to PwC’s annual law firm survey.

Consequently, firms are inflating their profit-per-equity partner (PEP) by reducing headcounts. This strategy has had an impact on top 11-25 firms where partner headcount is down 11.4 percent since 2017—yet PEP is up by 34.2 percent. Meantime, legal markets are only expanding at around one-to-two percent a year, limiting the scope for new business. COVID-19 and Brexit are likely to add challenges in the coming months.

That leaves firms with a limited set of options: increase fees, grow market share, or improve productivity. Raising rates or grabbing a bigger slice of the pie is challenging in the current climate; clients are already demanding that firms abandon hourly billing models and offer fixed fees instead, while the reduction in headcounts, and pandemic-related redundancies and furloughs mean there are fewer lawyers to take on additional work.

Firms, then, need to focus on boosting the productivity of their existing fee earners if they want to be more profitable.

“There’s undoubtedly been a shift in buyer power since the financial crisis to clients in terms of what they expect, and there’s also undoubtedly been an increase in competition in the sector, so you need to be sure you’re maximising your assets, your key competences, and the productivity of your people”, says Ben McGuire, Innovation and Business Change Director at Simmons & Simmons.

Greater productivity is not only a way to improve profitability, it can also enhance the client experience by giving fee earners more time to nurture those relationships and really understand what their clients need.

“Our focus on this is not so much about whether or not activities can be billed, but about maximising the time our lawyers have available to interact with clients,” says Karen Jacks, Chief Technology Officer at Bird & Bird.

Many firms are seeking to improve productivity by changing how their lawyers work and introducing more technology and automation.

“One of the barriers to achieving maximum productivity has been the large number of manual processes which take up a lot of time”, says Jacks. “Since we started using digital tools to improve our processes, the manual workload has decreased significantly. This has given our lawyers the time to focus on providing more strategic and valuable advice for our clients.”

While digital transformation efforts are often focused on improving efficiency and profitability, some firms say it is also vital for maintaining employee engagement.

“By providing our lawyers with the latest technology and the latest tools that help them focus on the more interesting parts of their role, our lawyers are happier doing what they’re doing, so that improves the workforce and hopefully people stick around for longer,” says David Jackson, a Partner Shoosmiths.

There is a danger, however, that firms expect digital transformation alone to be a cure for poor productivity.

“Technology can help strategically by making good processes more efficient, but technology is not going to make bad processes better, so you need to start with a good process, then you use technology in order to make that process more efficient”, says Eric McCashey, Director of Product Marketing at Thomson Reuters. “Technology and processes working together can make good people even better, so greater efficiency leads to increased productivity and higher profitability.”

Yet technology and process is only part of the solution—firms also need to ensure they are structurally set up for success.

“The key to improving productivity is to make sure you have the right organisational structure in your firm and that’s not necessarily just having the right legal teams and the people with the right skills, but also having the right people to support them and to make sure they’re correctly aligned with those practice teams or those individuals”, says Alistair Johnson, who joined commercial law firm RPC in late 2019 as Chief Operating Officer.

RPC now has a multi-disciplinary client services group which helps lighten the load for fee earners so they can focus on more complex legal work.

“Historically, ourselves and other law firms have offered that service from our legal teams, so our lawyers have ended up providing support and guidance and advice to clients that may not be pure legal advice, and that’s not hugely efficient”, Johnson says.

Against the backdrop of increased competition and the squeeze on fees, firms that champion digital transformation and cultural change are the ones that are more likely to have the right structures in place to be more productive, and therefore become more profitable.

“You can get an advantage if your mindset is that you embrace change rather than react to it”, says Jonathan Brayne, a Partner at Allen & Overy and Chairman of Fuse, the firm’s tech innovation space. “Those firms that are open to change are much more likely to be successful.”

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