What lessons can slower-growing law firms learn from dynamic competitors?
William Josten shares an insight into positive traits shared by top-performing firms
Many firms experienced lower demand due to the impact of covid-19. However, some were better positioned than others to withstand the shift in the economy. Are there common traits among these firms that enabled them to outperform their peers? How can other firms emulate these to improve their prospects?
Research undertaken by the Thomson Reuters Institute outlines some key characteristics of firms that consistently rank high across a range of key financial metrics, including overall profits, revenue per lawyer and average profit margins. While the study covers 160 US firms, there are points that UK firms should consider.
So-called ‘dynamic’ firms that rank among the top quartile across all of these metrics, have a number of common characteristics that set them apart from counterparts in the lowest quartile, described as ‘static’ firms.
By exploring what qualities contribute to the firms’ success, it may be possible to identify actions that could help underperforming firms grow. Given the impact covid-19 had on the legal sector, this is more important than ever.
What sets dynamic firms apart?
1. Investing in the brand
Strong investment on business development and marketing was a common trait among dynamic firms – they realised an annual growth rate of 5 per cent in their marketing investment between 2017 and 2019. The study showed dynamic firms consistently invested more in this area than their static counterparts, whose investment lagged inflation at 1.6 per cent.
Greater investment in marketing and business development can help firms cement their position in the market and build their brand equity, encouraging clients to send their high-value work to them. Even during the pandemic, this focus enabled these firms to temporarily rein in investment without much fear of lasting damage to their brands.
2. Build teams geared for profit
Having strong teams in place allows for a more profitable leverage model, with a significant proportion of work going to skilled associates.
Within dynamic firms, associates make up 41 per cent of lawyers, while equity partners comprise 30 per cent. Static firms had a more top-heavy structure – equity partners make up 37 per cent of lawyers, and associates comprise 36 per cent.
Directing work toward lower-cost fee earners enables firms to better control costs while maintaining healthy profit margins.
3. Strong support systems
Dynamic firm decision-makers credit the strong support they receive from their finance departments on billing, budgeting and profitability analysis.
Nearly a quarter of dynamic firm lawyers were complementary of the support offered on billing, compared to just 9 per cent at static firms. In fact, no static firm respondents credited their firms’ support on budgeting or profitability analysis as key to their success.
Not only is this support crucial to the financial outlook of a firm, but it also frees up fee-earners to focus on billable work.
Similar trends were observed in relation to IT support, with 26 per cent of dynamic firm decision-makers praising their IT teams’ responsiveness, compared to 14 per cent among static firms.
Worryingly, no static firm respondents praised their IT support for helping to keep the business running, exercising patience or providing training.
Ensuring finance and IT departments are offering necessary levels of support will allow for greater efficiency, improved workflows and healthier profit margins.
4. Think like business people
Dynamic firms were more likely to be praised by clients as having commercially-savvy lawyers who invest time in ensuring they are up to speed on their markets. This leads to greater demand for their services and supports higher rate growth.
So what can other firms do?
In addition to implementing the steps outlined above, firms should ensure their fee-earners become as knowledgable as possible about their clients’ businesses, understanding how they operate on a day-to-day basis.
One way to achieve this is through greater use of secondments. This not only develops lawyers’ skill sets, but cements client relationships with the ultimate aim of boosting revenue.
If covid-19 has proved anything, it’s that past performance doesn’t make firms impervious to a rapidly-changing market. However, strategies implemented to build success have helped many firms remain resilient.
Firms that entered the pandemic on sure financial footing and a strong strategic and operational foundation are likely to outperform in bad times and in good.
William Josten is Strategic Content Manager at Thomson Reuters