The right technology is key to delivering value for clients, say Stu Gooderham, Client Services Director, LexisNexis Enterprise Solutions.
It’s encouraging to see evidence of stability and confidence returning to the UK legal sector, as highlighted in PwC’s 2014 survey on the legal sector. Law firms report increases in fee-earner numbers, fee income and even profit margins. However, the overall sentiment is cautious –achieving pre-recession conditions appears to be an unlikely possibility for most firms. We know that the market landscape has irreversibly changed. For instance, 20 percent of the top 100 firms in the Legal Technology Insider’s top 200 list in 2007 don’t exist today by name (having been acquired or merged), and the top 10 UK law firms account for nearly 60 percent of revenue generated by the first 100 firms
Pricing is still a major challenge for firms. The report highlights that fee income per chargeable hour has fallen for firms across the top 100 surveyed. Primarily driven by reduced budgets, clients are demanding price transparency and certainty. Unlike previously when firms made money ‘in spite’ of what they did, today they need to make money ‘because’ of what they do. Based on collective insight drawn from talking to over 30 General Counsel (GC) in corporate organisations, clients are looking for ‘value’. This encompasses everything from listening and being responsive to the company’s needs, a dependable relationship with the law firm, in-depth knowledge of the organisation’s business requirements (current and future) on the part of the fee-earner, and outcomes-focussed quality of service and efficiency.
So with the typical yardstick used to measure law firms fundamentally changed, legal services providers need to evolve and adapt in order to deliver value to clients. Many decision-makers at law firms admit that they aren’t properly equipped (culturally and organisationally) to keep pace with the new requirements of their customers. The right technology can help on both fronts, which in turn will also aid reduction in IT costs – an area the PwC report highlights as presenting the greatest business support cost as a percentage of fee income.
Many CIO’s and IT directors at law firms I talk to mention ‘technology debt’. Historically, law firms have adopted multiple point solutions in their technology stack, making meaningful integration of different proprietary systems difficult. It’s frustrating for law firms that while they have substantially invested in technology; their IT isn’t not fit for purpose in the current market landscape. Traditional systems aren’t designed for collaborative and cross-functional working. Now firms require extensible technology systems that seamlessly connect the varied business functions to provide a single environment for operation; and support flexibility and agility in the organisation. Only then can firms adapt to meet the changing needs of clients.
Take HR management – up until now it’s been largely viewed as a standalone, secondary business function. Today though, law firms are keen to use IT to align their HR function with the strategic and financial objectives of their business – an acknowledgement that the right skillset is key to delivering value to clients. With firms re-evaluating the mix of workforce to reduce costs, partners require historical information on the most optimal resourcing model for specific matters. Similarly, with lockstep waning, the workforce being mobile and demand for broad commercial skills increasing, there is recognition that talent attraction and retention is important. The importance of this requirement is further amplified when a firm’s workforce is spread across geographies. So firms are scrutinising their IT systems to develop contemporary compensation models that accommodate the needs of partners/fee-earners, business professionals and support staff. Firms realise the need for analytics to identify top performers and to leverage the in-built career management and competency tracking guide to ensure professional development and staff satisfaction.
Improving profitability is another focus area. Unsurprisingly, the report highlights that firms are increasing net profit margins primarily through reduced fee-earner numbers and increased chargeable hours. In a people-led business, headcount reduction is only sustainable to an extent. Firms need to think beyond such short-term cost reduction measures considering innovative sourcing and procurement techniques, business and matter/process management, strategic human resource management and cost/profitability analysis.
From our own qualitative research recently - undertaken to better understand the requirements of GC and how the delivery of those needs challenge law firms - I was intrigued to find that almost 50 percent of corporates dropped law firms from their panel because the latter stopped delivering value. The attention of GC has transitioned from managing risk to managing costs.
For success, firms need to adopt a modern attitude towards business practices – underpinned by technology. Such an approach will seamlessly connect all the essential business functions to create a single, harmonised and flexible working environment across the firm’s operation. It’ll also provide the agility to course-correct in real-time so that the larger goals of the firm are not jeopardised.