LAW FIRMS: DEVELOPING BUSINESS STRATEGYIs your law firm positioning itself for the future?

UK law firms are operating in an increasingly competitive market for legal services and legal talent. As a result of their increased power, clients are demanding better service and value. The relationship between the firm and its partners and staff is also changing as a result of changing worker preferences and social pressure.

Firms need to re-evaluate the strategic choices that they have previously made to ensure they are appropriate for the new environment and position the firm for the future. A clear strategy helps the firm to position itself clearly in the mind of potential clients and makes business development more effective. It supports alignment of different activities within the firm. A clear, coherent and shared business strategy allows the firm to build the resources and capabilities it will need in the future while avoiding unnecessary investment. A shared sense of what the firm will look like increases commitment to effective execution.

INTRODUCTIONThere is no one way to be a successful law firm: each firm must find its own way to compete.

Firms that design their services and organisation to meet specific needs of selected clients improve their chances of competing successfully. For example, a building society may require a variety of external legal services. It may advice on the impact of new regulations affecting the sector. This requires that the expertise of a small number of experts be delivered in the specific format requested by the client. The same building society may wish to appoint an external legal provider to pursue mortgages arrears in an efficient manner. The skills and organisational structure appropriate for these two services would appear to be quite different, and it is not obvious that there are benefits of combining them in the same law firm.

This presentation proposes an approach to framing and making actionable strategic choices on the key parameters that constitute a business strategy. It is adapted from the approach for business schools which I developed with Professor Michael Hay of London Business School, published in the book ‘Disrupt or Be Disrupted: A blueprint for change in management education’ in 2013.

Firms need to look at strategy through three lenses. The first is target strategic positioning: which clients will the firm serve, with what services and how? The second lens is the journey from the current to the desired future positioning: when and how will the firm build the relationships, resources and capabilities it needs to achieve that positioning? The final lens is the strategy development process: how will the choices be made and which stakeholders will be involved?

LENS 1: STRATEGIC POSITIONING

A law firm needs to frame and make strategic choices on key questions:

• Which clients will it design its services and organisation to serve?• Which services will it provide to its chosen clients – and why should they choose this firm?• How will it provide those services to its chosen clients?• How will the organisation be structured and managed?• What is the role of the partners, how will performance be measured and how they will be

rewarded?• How big should each part of the firm be?

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Choices on future positioning can be enhanced by considering each of these key questions on more detailed parameters. For example, in deciding on target clients the firm can usefully consider the scale of the client’s activity, its location, the industries in which it operates, and its level of legal expertise. The choices made will have significant implications for other parts of the strategy. For example, a firm designed to meet the needs of the world class legal function at global corporates will look very different to one designed to meet the needs of entrepreneurs running SMEs.

In making a choice for each parameter, the answer may be:

• An alternative: one item from a list that is mutually exclusive; for example the firm’s approach to partner compensation can be only one of ‘lock-step’ or ‘eat what you kill’

• A menu: one or more items from a list that is not mutually exclusive; for example, the firm can serve clients from more than one industry, but needs to decide which industries those will be

• A range on a spectrum: for example, what size of clients will the firm target, which ones will it decline as being too small and which will it not pursue as being too large for the firm to handle

• A position: a single point on a spectrum: where will the firm set its culture and style on a spectrum from formal to informal

The answers to these questions need to be specific and aligned, identifying the firm’s positioning on relevant parameters for each question. The answers must be grounded in the reality of the firm’s existing relationships and resources, the future needs of its clients and the rivals against whom it competes. The individual choices must be tested against each other and in aggregate to make sure they are consistent, aligned and feasible.

A list of suggested parameters is included in Appendix 1.

LENS 2: THE JOURNEY FROM CURRENT TO TARGET STRATEGIC POSITIONING

The firm will need to agree when and how it will move to the target position by building resources and capabilities. This may require

• Reshaping structures, processes and systems• Creating new working arrangements that balance the needs of the firm and its clients with the

preferences of its professional and other staff• Recruiting, developing and retaining lawyers and support staff at appropriate levels• Developing the technical knowledge, leadership skills and business management ability required

to successfully execute the new strategy• Cultivating the behaviour that will accelerate successful implementation of the strategy• Securing, deepening and broadening existing client relationships• Winning new clients in target areas

LENS 3: THE STRATEGY DEVELOPMENT PROCESS

Firms need to design a process that supports effective implementation. Processes that engage relevant stakeholders may take more time, but the costs are outweighed by the benefits of surfacing relevant information and getting commitment throughout the firm.

It is essential to start with a clear and shared understanding of the firm’s current and projected position and performance in strategic, financial and resources terms. This can highlight the need for change, and the implications of not changing.

Firms can make the strategy process more rigorous and more effective by using three key tools to support constructive debate and effective decision making. These three tools can allow those leading the strategy

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process to help key stakeholders understand the choices they are making and their implications by holding up a mirror to the organisation.

The first and most obvious tool is a sound resources and financial model that allows stakeholders to test the implications of varying key assumptions. This model should span a reasonable horizon period of about five years. It should capture the key inputs and levers that can be adjusted to change the performance of the firm, including: billable hours by practice and level; fee rates, utilisation rates and recovery rates; non-billable hours by practice and level for firm management and business development; available hours by level; and support staff ratios. It must show not only the key financial outcomes such as revenue, profitability and cash flow, but also the evolving size and structure of the firm as indicated by headcount (by practice, level and function) and the infrastructure implications. The model needs to generate clear outputs that are easy to use in group discussions such as management committee to explore the options available to the firm. It may be possible to achieve this using the firm’s existing budgeting system, or it may be appropriate to develop a simplified, stand-alone model.

Strategy maps can support discussion of the firm’s positioning in the market by clarifying the services required by clients and the firm’s ability to meet them. For example, a technology client may need external legal services in the following areas: competition / anti-trust issues; intellectual property and employment. It may require these services at different levels within its organisation, ranging from the C-suite down to the operating level. The simple chart below maps the actual needs by area and level by the position of the cells. The cells are colour-coded to show which of those needs the firm currently meets, could meet and could not meet. This may suggest options in relation to the choice of clients and services to offer.

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It may also be instructive to prepare value curves that allow the firm to understand its positioning relative to key competitors. The diagram below shows how new entrant Riverview Law might present its services to mid-market clients by stressing lower costs, greater certainty over costs and more responsive service. In contrast, a traditional law firm may wish to emphasis the benefits of working with a partner who knows the client and its issues personally, and who is happy to work with other specialist providers as appropriate.

Cost Certainty of cost

Speed of response to

queries

Geographic coverage

Level of expertise

Breadth of expertise

Option to work with

other lawyers

Continuity of relationship with partner

How New Entrants Compete with Traditional Law Firmsin Mid-Market

Riverview Law (LawVest) Traditional Mid-Market

High

CONCLUSION

In summary, firms that develop a clear and agreed strategy are more likely to be successful in the new more competitive market. Firms that adopt a strategy development process that helps them to frame and make rigorous choices while securing the commitment of those ultimately responsible for implementation are more likely to create such a strategy and to be better positioned for the future.

© Tom Ryan, 2016

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APPENDIX 1 – ILLUSTRATIVE PARAMETERS

VALUED CLIENTS

Parameter Type of Dimension Potential Dimensions of ChoiceScale of client activity Range Individuals

Corporates Global Businesses

Geographic location Range Local National Global

Industry expertise (e.g.) Menu Banking and Capital Markets Natural Resources Information Technology/Communications Media

Seniority of client contact Range Operating management C-suite

Legal expertise of client Range No legal experience World class legal function

SERVICES THE FIRM PROVIDES TO ITS CHOSEN CLIENTS – AND WHY THOSE CLIENTS SHOULD CHOOSE THIS FIRM

Parameter Type of Dimension Potential Dimensions of ChoiceArea of law / business issue (e.g.)

Menu Mergers & Acquisitions Competition and anti-trust Intellectual Property Employment

Outcome for client Menu Advisory: Information, recommendations, solutions

Products (e.g. structures) Execution

Degree of integration of outcome

Menu Partial / specialist on one aspect One-stop shopping: providing all necessary

advice, products or execution, but without alignment

Complete, integrated solutionLevel of expertise Alternative Best practice

Leading edgeSpeed of response Position Rapid

Scheduled

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HOW THE FIRM PROVIDES THOSE SERVICES TO ITS CHOSEN CLIENTS

Parameter Type of Dimension Potential Dimensions of ChoiceThe nature of relationship with clients

Position Transactional Trusted advisor – one of several Preferred advisor – the most valued of several

Style / culture Position Friendly / informal Professional / formal

Where the firm delivers the service

Menu Lawyer’s home office Firm’s local office Client’s office E-world

Number and location of offices

Position Single Regional International

Relationships with other firms

Position ‘Best friend’ Formal network

Billing approach Menu Billable hours Contracted price Contingency

Price positioning Position Premium Discounted

ORGANISATIONAL DESIGN OF THE FIRM

Parameter Type of Dimension Potential Dimensions of ChoiceDegree of integration Position Lone wolf

Pack – within practice One-firm

Allocation of work between partners and staff at each level

Range Partners Associates Trainees Paralegals Others – including legal process outsourcing

providersShape of organisational pyramid

Position Ratios between levels Years at each level Retention rates Lateral hire rates

Use of technology Position Administrative efficiency Knowledge management Doing the work of lawyers (e.g. on-line solutions

for consumers)

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PARTNER MATTERS

Parameter Type of Dimension Potential Dimensions of ChoiceRole of partners Menu Technical expert

Coach Project manager Rain-maker

Partner performance measurement

Menu Billable hours Revenue Contribution / profit Cross-selling Internal activities

Partner compensation Alternative Lock-step Eat what you kill

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