Page 48 - Leaders in Legal Business - PDF - Final 2018
P. 48
For law firm leaders, there was little need to engage in an organized process of internal
advocacy, aligning the firm’s capital investments toward the practices, markets, and resources
that generated the best return, for all practices generated increasing revenue year after year.
Indeed, many firms have only recently begun to calculate profit margin at the practice or matter
level, so it was often impossible or highly impractical to measure performance in any way other
than top line revenue growth. Strategy plans, therefore, focused primarily on tactics to raise the
firm’s visibility in target markets, employing vague financial metrics to measure performance,
with minimal accountability for the partners expected to deliver results. After all, so long as
aggregate revenues exceeded aggregate costs by a comfortable and increasing margin each year,
the details of how firms reached their targets were less critical.
Tactics also ruled the day for many in-house law departments, as there was a prevailing
expectation that legal services are, and always will be, a cost center rather than a profit center. As
a service organization to its internal corporate clients, the law department’s reactive posture to
whatever new strategy the corporate executives dreamed up left its leaders in a perpetual state of
keeping up — hardly the best position from which to proactively organize and reexamine the
role of the legal function.
The global economic recession that began in 2008 demonstrated beyond a shadow of
doubt that legal services organizations are subject to the same economic realities of other
businesses, and with declining demand — or, in the face of emerging substitutes and alternatives
for the provision of legal services, at least declining demand for the old ways and old prices —
law firms and law department leaders have finally recognized that engaging in more formal
strategic planning is not just a good idea, it’s also most likely the difference between a thriving
organization and one that is facing an inevitable decline.
Law firm leaders must account for both internal and external factors: not only what
practices we want to offer, but what services are the market willing to buy, and at what price?
They should no longer be deluded by the notion that “all revenue is good revenue.” Profitable
revenue streams take precedence and deserve, and should consume, a greater portion of the
firm’s resources and investment. Law department leaders, in turn, have come to realize that
senior corporate leadership simply do not find credible that legal costs increase every year, in all
areas, at a rate greater than other corporate costs, and cannot be predicted with any confidence,
and furthermore that reducing legal spend will inevitably expose the business to greater risk. So,
with these realizations, what are they doing about it?
Asking for Help
Perhaps the most notable change in post-recession legal organizations is the increasing
influence of business practices and trained business managers to help guide strategy and
operations. To be sure, many law firms and law departments have long employed experienced
and sophisticated executives, some with long experience in law firms and others from industry.
But by and large, these voices were muted, as those tasked with practicing law have always been
afforded the benefit of the doubt when building an infrastructure to support their needs.
Second-guessing a partner’s demand for resources, or marketing tactics, or staffing
preferences, or use (or avoidance) of technology tools, or approach to pricing and discounting,
was deemed to interfere with and potentially impair the quality delivery of legal services and
expose the law firm to client dissatisfaction at the very least. In recent years, a U.S. state bar
34
advocacy, aligning the firm’s capital investments toward the practices, markets, and resources
that generated the best return, for all practices generated increasing revenue year after year.
Indeed, many firms have only recently begun to calculate profit margin at the practice or matter
level, so it was often impossible or highly impractical to measure performance in any way other
than top line revenue growth. Strategy plans, therefore, focused primarily on tactics to raise the
firm’s visibility in target markets, employing vague financial metrics to measure performance,
with minimal accountability for the partners expected to deliver results. After all, so long as
aggregate revenues exceeded aggregate costs by a comfortable and increasing margin each year,
the details of how firms reached their targets were less critical.
Tactics also ruled the day for many in-house law departments, as there was a prevailing
expectation that legal services are, and always will be, a cost center rather than a profit center. As
a service organization to its internal corporate clients, the law department’s reactive posture to
whatever new strategy the corporate executives dreamed up left its leaders in a perpetual state of
keeping up — hardly the best position from which to proactively organize and reexamine the
role of the legal function.
The global economic recession that began in 2008 demonstrated beyond a shadow of
doubt that legal services organizations are subject to the same economic realities of other
businesses, and with declining demand — or, in the face of emerging substitutes and alternatives
for the provision of legal services, at least declining demand for the old ways and old prices —
law firms and law department leaders have finally recognized that engaging in more formal
strategic planning is not just a good idea, it’s also most likely the difference between a thriving
organization and one that is facing an inevitable decline.
Law firm leaders must account for both internal and external factors: not only what
practices we want to offer, but what services are the market willing to buy, and at what price?
They should no longer be deluded by the notion that “all revenue is good revenue.” Profitable
revenue streams take precedence and deserve, and should consume, a greater portion of the
firm’s resources and investment. Law department leaders, in turn, have come to realize that
senior corporate leadership simply do not find credible that legal costs increase every year, in all
areas, at a rate greater than other corporate costs, and cannot be predicted with any confidence,
and furthermore that reducing legal spend will inevitably expose the business to greater risk. So,
with these realizations, what are they doing about it?
Asking for Help
Perhaps the most notable change in post-recession legal organizations is the increasing
influence of business practices and trained business managers to help guide strategy and
operations. To be sure, many law firms and law departments have long employed experienced
and sophisticated executives, some with long experience in law firms and others from industry.
But by and large, these voices were muted, as those tasked with practicing law have always been
afforded the benefit of the doubt when building an infrastructure to support their needs.
Second-guessing a partner’s demand for resources, or marketing tactics, or staffing
preferences, or use (or avoidance) of technology tools, or approach to pricing and discounting,
was deemed to interfere with and potentially impair the quality delivery of legal services and
expose the law firm to client dissatisfaction at the very least. In recent years, a U.S. state bar
34
