A Positive Exercise for Post-Crisis Performance

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Law firms of all sizes are taking steps to protect themselves and their businesses in the current time of crisis. There really is no magic in what the response should be — it is to protect your most valuable assets over the short term in order to ensure long-term sustainability even when the tactics required (pay cuts, layoffs, terminations, etc.) can be painful. My purpose here is not to outline a list of “to dos” for the necessary triage that is going on. There are a set of business needs and necessities that almost all law firms have already begun to deal with, most in an appropriate manner.

My fear is that law firms will view the end of the crisis as a time to sit back and take a breath before they turn their eyes toward longer-term goals or, worse, to enter a period of crippling stasis. However, highly competent leaders will resist those pitfalls and begin to refocus even now on what opportunities will emerge in the newly changed marketplace.

As Peter Drucker said, “The only thing we know about the future is that it will be different.” Now it may be even more different than many have supposed. The internal and external dynamics that affect law firm health and sustainability are likely to change from what we knew before the crisis. 

Sustainability is based upon a business’s ability to align internal operations with external forces and opportunities, especially at times of accelerated change. Few truly-new dynamics will likely emerge from the crisis. But many market forces may be greatly accelerated, such as large numbers of people working from home (and associated ramping up of technology assets) or a reassessment of real estate space necessary to a business.

Clients demand for increased efficiency in the delivery of services is not new, but it will undoubtably increase in pace as a result of the crisis. Equally so pricing pressures will only become more intense requiring law firms to budget more closely as they seek to protect profit margins.

Demand for legal services will likely decline, as demonstrated by decreasing billable hours since the last recession. Clients will still need legal services but undoubtably will increasingly turn to alternatives, such as alternative legal service providers, further eroding billable hours for law firms. It's not a question of if this will happen, but only a question of degree.

The problem of chronically underproductive lawyers is an epidemic in the profession at large that has not been dealt with as it should be. This crisis will likely require shedding underproductive assets. Otherwise those lawyers who are highly productive are likely to become (increasingly) disgruntled and look for better situations, something that no group or firm can sustain without potentially significant harm.

So, in the midst of all the turmoil, angst and fear, what should law firm leaders be doing beyond tactical triage? The first thing is to assess your strategies against potential changes in the external environment and within the firm given some of the emerging, but still somewhat blurred, new realities. In most cases, this should be done at the practice group or industry team level as opposed to a global look at the firm. Changing market forces will affect each practice differently without a doubt.

The firm should ask practice leaders for this preliminary assessment as soon as possible. Ask group leaders to look at their current strategic plans and consider how the crisis is impacting their group. Might what the group is doing during the crisis be continued as a longer-term strategy? Which of their presumed assets (like chronic underperformers) are really liabilities? Is the group experiencing a short-term blip or a mega-shift in circumstances?

The timeframe to do this is now so that once the crisis abates decisions can be put into play rapidly — and potentially ahead of competitors.

Here are some questions you might pose to practice and industry team leaders. They revolve around the four parts of the law firm business model and how each might change in reaction to the crisis.

1. Client Value Proposition

  • Are our target market(s) clearly defined or have we simply been chasing revenue wherever we can find it?
  • Are we offering the right set of services based upon perceived market changes?
  • Are any service areas becoming irrelevant to our markets or are we missing related services that clients will need?
  • Are we really differentiated in ways that will make us competitive as demand contracts in a recessionary market?

2. Profit Model

  • Will increasing volume still be our mantra or can the group decrease its cost of services sold in order to drive up profit margins?
  • Can we decrease overall costs in the long-term rather than assuming we'll go back to pre-crisis levels eventually?
  • Are we measuring real profitability by incorporating cost of services sold calculations and applying those profitability models to clients and practice areas? Although it is important to manage realization, it is not a proxy for profitability.
  • Are we aggressively trying to improve areas with subpar profit performance?

3. Key Processes

  • Are we truly committed to improving the efficiency of service delivery? What is our progress on legal project management, matter budgeting expertise, or deployment of new technologies?  In the rare firm where this is done really well, it may be the most important differentiator of all.
  • Will our client acquisition, retention and growth practices be adequate in a post-crisis market?  Are we really listening to client needs and priorities, rather than simply touting our accolades? 
  • What will our people needs be post-crisis? Should we engage in bidding wars for talent in the lateral market?  Can we retain our own top talent? 
  • Are we proactively providing development, training and mentoring for each group member to optimize team performance?

4. Key Resources

  • Do we have the right people with the right skill sets and work ethics in the right roles to make us a great group?
  • Are we scrupulously honest in our assessment of the group and even more so vigorous in dealing with issues arising from those assessments whatever they might be?
  • What is our technology proficiency quotient? What proof do we have that we are behind, equal to or ahead of competitors in this area? More importantly what do our clients need and what would benefit them most?

I submit that challenging yourselves as leaders, both at the firm and practice levels, to begin these discussions now will be a positive exercise to discover paths forward.  It will not only enhance your firm's sustainability, but also decrease frustration and fear and give your partners a constructive focus for their talent and energy.



Thomas S. Clay is a principal with Altman Weil, Inc. He heads complex consulting assignments in strategic planning, law firm management and organization and law firm mergers and acquisitions. 

Contact him at tsclay@altmanweil.com

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