Taking the Lead: Doing More With Less

In Taking the Lead, Law Practice Editorial Board member Karen MacKay together with guest authors, tackle the ins and outs of running a law firm, providing expert guidance that every managing partner can use.

IN RECENT CONVERSATIONS with law firm leaders, the ever-present theme is "doing more with less" The future requires investment in technologies and tools, investments in people and their development, and process improvements throughout your firm. To fund those investments, today's costs must be examined.

In its most recent Law Firms in Transition Survey, Altman Weil Inc. cited law firm leaders' agreement "that greater price competition, practice efficiency, commoditization of legal work, [and] competition from non-traditional service providers Ö are all permanent changes in the legal landscape".

In May 2010, Kevin P., Shawn T. and Edward J. Coyne, Sr. published an article titled "When You've Got to Cut CostsóNow" in the Harvard Business Review. In brief, they observed that, to get to 10 percent savings, you could make incremental changes. To achieve 20 percent savings, you have to explore the redesign of processes and eliminate a few well-liked but unnecessary items. While perhaps annoying, this doesn't really affect how people in the firm work. However, according to them, to reach 30 percent savings or more, the changes are going to be disruptive.

Karen MacKay

by Karen MacKay, MBA, CHIC
President

I’m always intrigued by ideas generated within the corporate setting and whether they apply equally well to professional services, and in particular to law firms. Law firms are typically “flatter” organizations, so the business concepts that explore layers of supervisors and managers may feel less obvious and more challenging. Here I offer several of the ideas presented in the Coynes’ Harvard Business Review article and explore how they might apply in the legal environment.

Finding Savings

By now most law firms have rationalized incidental expenses like supplies and catering. Yet these things cycle back up and get out of control from time to time and always need to be managed. Similarly, technology can be a huge expense for firms large and small, and it can also be a black hole. To rein in costs you need to obtain a second opinion from an entity or person not vested in the outcome.

By collaborating with competitor law firms, some firms have successfully increased their purchasing power and thereby structured more attractive deals with suppliers. Other firms have experienced success by working with their suppliers as business partners to find mutually attractive service contracts.

I have also seen firms move very quickly on personnel decisions, both making decisions more quickly when employees underperform or are deemed incompatible and in forcefully executing those decisions so these people do not linger at the firm for protracted periods. Firms have also “red circled” staff salaries in ways that treat long-term employees respectfully but hold down the cost base. Rather than increasing the base pay for long-term employees, many firms have succeeded by contributing an amount equivalent to the percentage increase to the employee’s retirement fund. Rules and limitations vary by tax laws and jurisdiction, but this is worth exploring.

"If you havenít assessed your firmís administrative structure in a while, perhaps you need to conduct a review..."

Reconsider Administrative Structure

If you haven’t assessed your firm’s administrative structure in a while, perhaps you need to conduct a review, both of what you are spending and whether your structure contributes to inefficiencies. Learn what processes and services are critical and differentiate them from what is nice but has run its course. If simply done to cut costs, this can be a scary process. However, if you review operations with a view to laying the groundwork for future firm growth, it can be exciting and energizing. You truly are onto something when you can focus through the lens of operational excellence in order to provide client service excellence.

To get to 30 percent or more, the Coynes’ article suggests coordinating parallel activities. In a law firm, combining the Human Resources systems for lawyers and for staff under one umbrella can streamline activities and costs that have historically run parallel. Large firms have shifted functions to low-cost locations or outsourced where service providers can be more effective. If not outsourced, sharing resources across all offices is challenging but can be more cost-effective than parallel administrative structures in each office.

Off-The-Shelf Packages

Law firms often do not like programs and off-the-shelf packages. Rather, many firms I have been privileged to serve like to create resources and processes in ways that are unique to their firm. I understand this. Here’s an example: Two law firms, both of about 100 lawyers, embark on creating a set of competencies to support lawyer development. One firm works with a consultant who starts with a blank sheet for the firm, interviews many lawyers, takes the time to understand the firm’s unique practices and what it takes to be successful there. He then develops a process quite unique to fit the language and culture of the firm. This costs $90,000 in consulting fees and countless undocumented hours of lost lawyer time spent in interviews and focus groups.

The second firm buys a set of best practice competencies for about $10,000 and modifies it to fit the firm’s practice areas and language. Considering the cash spent for adjusting the recommendations, the engagement of practice group leaders and managed firm-wide input, that firm spends about 50 percent less. Sometimes off-the-shelf can be a great place to start—and can get you to the same result more quickly and for less.

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Whether you want to keep costs in check without ruffling feathers or have an appetite for significant change, be brave. Take the lead and lay the groundwork for future success and profitability by being creative and disciplined now.

 

This article originally appeared in the September/October edition of Law Practice magazine, a publication of the American Bar Association. Copyright © Phoenix Legal