Law firms will benefit from a focus on long-term profitable delivery of services, rather than short-term cost reduction
Post by Stu Gooderham |
Competition in the UK midtier legal sector is by far the fiercest and so maintaining profitability is proving challenging for law firms. Unlike the larger law firms, the mid-tier category represents squeezed margins and falling profit per partner (PEP). So, firms in this sector have typically used methods such as downsizing, merger and acquisition and cutting administrative costs to maintain profits.
However from here on in, the impact of cost control alone on organisational profitability will be minimal. This is mainly due to the fixed nature of law firms’ cost base – premises, depreciation of assets, IT infrastructure, and perhaps most importantly people. You can only reduce administrative costs by so much!
Law firms need to think beyond short-term cost reduction measures, considering innovative sourcing and procurement techniques, strategic human resource management, business intelligence and cost/profitability analysis and an overall modern attitude towards technology and business practices. Rather than undertaking knee jerk reactions such as headcount reductions and hastily conceived business alliances, these measures will allow firms to build flexibility and agility into the business.
Better utilisation of human resources is imperative, but the big challenge that law firms face in better utilising their human resources is a lack of actionable information. Having acquired multiple business applications over the years across functions, firms are finding it hard to get these systems to talk to each other, share and assimilate data. Similarly from a management perspective, lack of information is a major constraint when it comes to strategic decision making. Often key business performance metrics are slow to be delivered after month and year end, and even then don’t always contain the relevant information.
Additionally, the consequences of inconsistent and inaccurate data proliferate through the firm. A simple task such as raising an invoice I’m told can take between two to three days because data is not only difficult to acquire, but is handled so many times in multiple locations that inaccuracies creep in.
Procurement is another area that law firms must nail. Due to disjointed systems, leakage is a major issue for law firms. How many times does it happen that costs of third party services are not included in a client invoice? Subsequently trying to recover the cost after the matter has closed is seldom successful and causes much angst to clients and the firm.
To a large extent, most of the above mentioned challenges can be overcome by the adoption of widely prevalent approaches to business practices and technology. A single working platform that ties in all the facets of business delivers immediate efficiencies, which in turn enhances profitability, and most importantly facilitates a client-centric approach to business.
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