Clients changing the business of law

How are firms dealing with it and what it all means in practice?

I was recently invited to moderate a panel of law firm CFO’s for the Southeastern Chapter of the Legal Marketing Association, titled “The Evolution of Law Firm Finance and Its Impact on Business Development.” The panel considered the following circumstances and how they have impacted the business of law. As a result of the recent recession law firms are undergoing overwhelming change. Many of them are retooling their financial strategies by adopting alternative pricing methods, shifting operational financing, improving vendor management, and most importantly, how they go about attracting, serving, and retaining top clients. In other words, firms are modifying their way of doing business to better align with the demands of corporate America. So what does that mean for the industry in practice?

Below please find some of the key takeaways from the conversation along with my personal observations. A side note: in my experience this trend is not limited to law firms and is evident across the professional services industries. Many of the points brought up during the conversation are applicable to professionals offering consulting, accounting, and other business services.

The fact that clients today are expecting the same high quality services for lower cost worries some professionals, but hasn’t persuaded them to change their pricing model. Some cling to the notion that this is only a fad and “the good old days” of buyers’ flexible budgets will return. If neither are willing to change their thinking, both groups will soon become industry laggards.

This shift from a revenue- to a cost- based law firm business, where “profit” is the name of the game is clear. It presents many opportunities for firms ready to improve performance and leverage efficiency. However, the transition is not easy, which makes the hesitation of the above-mentioned laggards understandable. It necessitates a “one size fits none” mentality, where firms must take a segmented positioning attitude for various practices and partners, and learn both the consultative and commodity approaches of selling legal services. It requires applying new staffing and project management models, such as “the pyramid” staffing model for consulting and other deep expertise services, and / or “the diamond” model for highly leveraged, packaged services. It also calls for new skill sets: project management, financial understanding, change management, collaborative skills; and new tools: financial dashboards, collaborative index, etc.

Marketers and Billable Professionals: CFOs are your new best friends. In order to succeed in this environment, marketers and billable professionals will need to understand the business of the firm and the various individual practices. In addition to joining forces on addressing RFP’s, they will need to work with CFO’s to package services: define how to sell and deliver them in order to keep healthy profit margins, and create business models to stay competitive and win business. They will need to communicate often to identify where the systems and processes can be improved to serve clients better. They will need to track Marketing/BD spending and measure ROI, to better evaluate business growth initiatives and create more accurate budgets. Ultimately, they need to align their agendas to champion change to create and employ the supporting systems, skills and processes.

The CFO’s sitting next to me for this session might be some of the most progressive ones I’ve encountered. I was delighted to hear them speak about changing behavior, collaboration, and building a different type of organizational culture. They understood what it would take to make the transition: to meet their clients’ expectations and remain relevant.

The bottom line: change is upon us and instead of wasting time and energy fighting it, embrace it. Accept that with the new business model new compensation structures are afoot and necessary to change behavior and overall firm culture. Adopt new KPI’s (key performing indicators) such as team profitability, cross selling, and collaboration. Understand that "not all clients are created equal;” approach them and structure delivery accordingly.

It is indeed a transformative period for the legal and other business services industries. Progressive firms that will act upon this shift quickly, and put the wheels of change in motion, will stand out. Will you join them? At iStile, we work with firms to help them take advantage of such opportunities by structuring and implementing the necessary systems and equipping the management team and professionals with the necessary skills.

By Mira Ilieva-Leonard Mira.ilieva-leonard@istile.com

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