A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘strategy management’

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Where was Minters’ chairman during the Kimmitt crisis?

In Articles, Commentary on 26 March 2021 at 7:28 pm

The full text of my opinion piece first published in the Australian Financial Review on 26 March 2021

“The Minter’s chairman went missing in action. One of the most important jobs of a chair is to resolve major disputes within the partnership without it spilling out to the rest of the firm, and even worse, into client land.”

This quote reflects a sentiment expressed by many law firm leaders I spoke to about the recent saga at MinterEllison.

While I’m not privy to the internal machinations at Minters to say whether this is a fair judgement or not about the firm’s chairman, David O’Brien, it does raise the question as to what should be expected of a chair?

 In my view, the answer lies in the confluence of governance, guidance, and glue.

Governance

The chair of partners usually has an active leadership role in firm governance. As such, his or her job is to ensure that management’s direction is broadly aligned with the interests of equity partners and other stakeholders.

Unlike company structures, partnership governance roles and responsibilities are not stipulated in any statute and are largely ambiguous. All partners are assumed take on all responsibilities concurrently. In this context, the chair and managing partner are expected to carve out a tailored governance framework that balances stewardship, operational efficiency, risk-taking, control, transparency, partner autonomy and accountability.

The chair of partners would usually be expected to facilitate the effective functioning of board and partner meetings, ensure accurate timely and relevant information flow, oversee risk and compliance, manage board composition, and lead the process of reviewing the managing partner’s performance and succession.

In some firms, the chair is actively involved in deciding profit allocation and progression. In other firms, their role is more of an independent arbiter in profit allocation appeals. 

Guidance

While most medium and large firms have adopted a more ‘corporate’ governance model, partners as owner-operators still often want a say when it comes to critical decisions around firm purpose, values, capital allocation and broad strategic direction.

The chair plays a critical role in helping the firm’s executives navigate this decision-making minefield.

Their guidance is critical in deciding which fights to pick, what options are on or off the table, what’s the best approach and forum to raise issues, and where power really lies in and around the partnership.

Chairs often act as cultural barometers – forecasting the mood, energy, and tone of the partnership. Their predictions of an imminent storm, or conversely, a period of calm and confidence can be hugely beneficial.

At a more micro level, firm chairs often act as a sounding board or mentor for the managing partner. In this role, they help talk through tricky issues, provide honest feedback, and offer comfort when exasperation overwhelms.

This mentoring role is particularly important for the induction of new managing partners or an external appointment. In the latter case, the chair needs to lend some of their social capital until the new leader’s position is firmly established. 

Glue

The third role of the chair is to foster partnership cohesion and stability. This doesn’t mean leading the firm cheer squad, but rather putting out spot fires and addressing corrosive politicking.

Spot fires may include a major fallout between two senior partners or where an individual partner has displayed behaviour incongruent with the firm’s values or there is a case of systemic underperformance.

It is quite common for the chair to join the managing partner in having a fireside chat with these problem partners. The chair helps create a sense of deep collective concern. This threat is hoped to be the catalyst necessary to change aberrant behaviour.

Pie-splitting is often a source of ‘corrosive politicking’. For example, in meritocracies choosing a side when there’s a commercial or legal conflict could result in a major differential in individual earnings. In these instances, the chair may get involved in dialling-down the emotions and ensuring that trust in the model is maintained.

Coming back to the MinterEllison situation, I don’t have any first-hand information as to assess whether the firm’s chair did an effective job in governing, guiding, and gluing? As with so many tricky issues in law firm partnerships, that’s ultimately for Mr O’Brien’s partners to decide.

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Will new partners need to keep grinding away?

In Articles, Commentary on 13 July 2020 at 6:18 pm

Full text of my opinion piece first published in the Australian Financial Review on 9 July 2020.

Most practice teams in the larger law firms have been set up with partners as the “finders” and “minders” and associates as “grinders”.

A decade’s worth of time records analysed by Thomson Reuters Peer Monitor shows that associates have around 10 more billable hours per month on average than partners in the same firm.

However, in April and May 2020 – the first full months of the COVID-19 lockdown and remote working – this long-term trend reversed and partners recorded more billable hours than associates.

There are two questions worth asking. Why are partners producing more now? Can all the new partners in the Financial Review Law Partnership Survey expect a permanent change in their role? In other words, will they have to be finders, minders and grinders?

AFR July

Why now?

Many law firm clients went into crisis mode with the onset of the coronavirus. Deals needed to be completed quickly. Funding needed to be secured urgently. Disputes on unfulfilled contracts needed rapid resolution. Almost daily changes to government regulation needed interpretation and action.

To deal with these pressing and complex issues many clients indicated a strong preference to get more direct access to partners. This meant fewer opportunities for delegation to associates.

Cost-conscious clients also had less tolerance for juniors being allowed to learn on these matters. As one general counsel put it to me: “I was happy to see one maybe two people [from the law firm] on [Microsoft] Teams, but not a football team.”

Another factor that has led to the increase in partner hours at some firms is partners holding on to more work due to fear of a broader market slowdown so they can hit their personal billing targets.

During the GFC, many large firms cut partner numbers through a combination of de-equitisation, early retirements, dismissals and reduced promotions.

While many firms now prefer measuring the contribution of a team rather than an individual, having a healthy personal practice can strengthen a partner’s case for retention if things get tough. In recent weeks, it appears that some partners and associates have been getting a little tired of working from home.

After the rush of adrenalin in dealing with the crisis and keeping connected during March and April, there’s now slightly less enthusiasm for the weekly video drinks – and growing frustration with the clunkiness of a distributed workforce.

Supervision, training and delegation is hard enough when everyone is co-located and physically present in a purpose-designed city office. It’s that much harder when associates are working from a kitchen table in a shared rental apartment with variable NBN speeds.

As time moves on, some partners might resort to the easier – though strategically flawed – option of doing most of the work themselves.

Will there be a permanent change?

No, and yes.

Leverage of non-partner fee-earners is at the heart of the law firm business model. The economics of having lots of associates doing lots of production will not change in the years ahead. Effective and efficient delivery of larger transactions, projects and disputes will still require teams of lawyers, paralegals and legal technologists at different levels.

Over time, firms that don’t tailor their approach for each project will lose out to those that do.

When demand returns, the issues around less delegation should ease. Intransigent hoarders will get caught out and move on – or be moved on.

As technology and workflows improve over time, the clunkiness of the remote workforce should diminish and become less of a handbrake.

One change that will hopefully stick is that of the law firm partner as the client’s primary strategic risk advisor. The coronavirus crisis has revealed the relevance of experienced lawyers in assisting clients on things that matter. This period should hopefully build their confidence as strategic advisors from a legal perspective and not just narrow technical legal specialists.

The discussion above suggests that perhaps the finder minder grinder characterisation is a little out of date.

A better description of the role of partner is that of a strategic advisor and leader – a thought leader, a team leader, a client account leader, a project leader and a sales leader.

The winners will be those firms that recruit and develop outstanding legal leaders and not just see their associates as high-billable grinders.

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Does your law firm really need a barista?

In Articles, Commentary on 11 June 2020 at 2:14 pm

Full text of my opinion piece first published in the Australian Financial Review on 4 June 2020.

For the past three months, many law firms have been in crisis management mode.

The focus has been on ensuring staff safety, staying close to clients, sustaining productivity and shoring up financial reserves. The mindset has been mainly about conservation and survival.

It’s time now time to look up and to look ahead – to work out what’s needed to succeed in the next normal.

Here are four things to think about in creating your future.

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#1 Organise for a hybrid workforce

Most law firms will seek to capitalise on the success of remote working and will adopt a model in which people work two or three days a week in the office and the balance at home. While this offers benefits in terms of staff flexibility, reduced commute times and lower occupancy costs, the rhythms of office life will be very different from life before coronavirus.

Firms will need to help their staff create boundaries and new work habits. This includes setting clear ‘office hours’; finding new ways to socialise that replace the serendipitous corridor bump; ensuring consistent supervision of graduates and clerks; and providing regular and balanced performance feedback.

#2 Speed up decision-making and execution

During the ten days from March 16-26, most law firms discovered that if push comes to shove, they can execute big decisions very quickly.

My advice: keep going!

The short-term public health crisis helped concentrate decision-making power. And it appears that in the main those vested with that power acted promptly and professionally.

Firms should build on this experience and streamline decision-making processes for times when things are back to normal. It could mean less consultation on trivial matters, fewer meetings, better communication and greater respect and appreciation for leadership roles.

Most law firms are designed as network organisations with self-managed practice teams as nodes and a small central bureaucracy. In theory, this should make them agile and responsive, but the reality is often quite different. Firms should harness their structural strength to move earlier and faster.

#3 Plan and budget with less inertia

The coronavirus crisis has given firms the opportunity to assess the merits of every revenue and expense item.  Recent McKinsey analysis shows most organisations only reallocate 2 to 3 per cent of their budgets year to year. But those that do more—in the order of 8 to 10 per cent—create more value.

While starting each year’s budget with a blank sheet might be overkill, reviewing each item on a two- or three-year rotating cycle should ensure smarter allocation of resources.

Revenue targets might set with an honest assessment of market potential and how your team stacks up against key competitors. Expense items can be set with a clear-headed view on value creation.

#4 Personalise the client experience with scale

The client experience pre-coronavirus included numerous face-to-face meetings; document preparation shared via email; and multi-touch file handling.

The evidence from the past few months is that productive client meetings can still be held without a barista on call; documents can be prepared collaboratively in real-time and remotely; and that most aspects of file management can be automated.

In designing the firm of the future, think about creating a client experience that is personalised, streamlined and scalable.

This is the time to start imagining your firm as it should be. If you stay in conserve mode too long, you will land up being two or three steps behind those that are determined to create their own future.

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Love the tech you’re with, at least for now

In Articles, Commentary, Legal Technology on 11 May 2020 at 11:16 am

Full text of opinion piece first published in the Australian Financial Review on 7 May 2020.

One of the key decisions law firms need to make during the COVID-19 crisis concerns investment in new legal technology and innovation.

While some firms are keeping their R&D spend intact, anecdotal evidence suggests the majority are going into some form of hibernation.

AFR op-ed May 2020 copy

Regardless of whether your firm decided to stop, reduce or continue, there is a strong business case for getting more out of what you already have. It’s not quite as exciting as playing with shiny new tech toys, but sometimes – as in the words of that great Stephen Stills’ song – it’s better to “love the one you’re with”.

To make more of your existing technology it’s important to ask three questions.

Can our partners and lawyers use it well? 

Taking Microsoft Word as an example, my guess is that your firm currently uses it semi-well.

Most partners and lawyers use basic features like track changes, automated numbering, cross-referencing, indexing and sections. However, I suspect only a handful would be good at using styles, templates, programmed auto-corrects, tailored designs and macros.

There is much to gain in terms of lawyers’ and clients’, time and money from investing in targeted Word training. Not having everyone at a base level proficiency in the basic tool of the trade is going to bite hard especially if you are looking to reduce secretarial support ratios or to have a more flexible work-from-home operating model.

Can we make it work better for us?

The COVID-19 crisis is also a good time to experiment with add-ins, plug-ins and tools that add power and functionality to your existing applications.

It is much easier to extend an existing technology with a familiar user interface than adopt something completely new. What’s more, existing apps are usually fully deployed, paid for and supported.

Taking Word again as an example, there is a growing number of complementary tools on the market that are worth investigating. David Bushby, a lawtech expert from InCounsel, has kindly curated this list:

Are we becoming too dependent on it or its vendor? 

During COVID-19 crisis, there has been a rapid uptake of Microsoft’s video-conferencing tool, Teams. It appears that the latter has become the favoured video application of many large law firms and the Federal Court.

Given the vast installed base of the Office Suite and now Teams, it’s not hard to imagine that Microsoft will attempt to monetize its strong competitive position further.

One scenario involves them adding code into documents and emails to capture data around document preparation time, quality, cost, originality, storage and authorship. Combining this valuable data with its established software suite and ‘voila!’ – they will control or strongly influence the entire legal supply chain.

In this scenario, it would be tough for individual firms to counteract Microsoft’s power. However, new collaborative application platforms owned by law firms, like Reynen Court in the USA, may point to a future with more options.

In this future, there may be opportunities to follow the advice of Wet Wet Wet rather than Stephen Stills – and make sure your “love is all around”.

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A post-corona legal world: more kindness, less paper

In Articles, Commentary on 4 April 2020 at 4:45 pm

Full text of opinion piece first published in the Australian Financial Review on 2 April 2020.

At some point later this year or early next we will move into a post-Corona world. What might that world look like from a law firm perspective? On my reckoning, it will involve deeper relationships, less paper and more flexibility.

Deeper relationships

There is much research that shows that people that go through acute stress together come out at the other end with stronger relationships. War is one of the greatest stresses anyone could ever encounter yet it also often leads to deep human friendships and incredible acts of heroism and sacrifice.

As Stanford’s Emma Seppala states, “Understanding our shared vulnerability — that life makes no promises — may be frightening, but it can inspire kindness, connection, and desire to stand together and support each other.”

To illustrate this point, I heard a story this week of a law firm partner checking in every day with every person in her team via Zoom. These check-ins covered some work matters but mostly were about sharing the fears, loss, grief and the black humour of the pandemic and the remote working experience. She said she encouraged her team members not to avoid interruptions from partners, kids and pets during the video calls.

The partner indicated her surprise as to how deeply personal the conversations had become, and how much closer she felt with her team members. Seeing her team members at home interacting with loved ones added a whole new level of understanding and appreciation of them as individuals.

She imagines a post-corona world with much deeper social connections – with staff and clients. Going through a crisis together can help engender trust and understanding, the foundations of all solid business-to-business relationships.

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Source: AFR

Less paper

Over the past decade, many law firms have invested in sophisticated and expensive document management systems to reduce paper, streamline processes and improve control. It is a common experience that firms don’t realise the full benefits of these systems because a small group of lawyers, often senior partners, refuse to change their habits and prefer to edit in hardcopy only and/or keep paper copies of everything.

The coronavirus has forced some law firm partners to change their rusted-on work habits in about one week. When the hardcopy file is inaccessible and no assistant is at their side, only then will the penny really drop that a change is required and the painful process of stepping outside comfort zones will commence.

In a post-corona world, there will be less paper and greater compliance with enterprise-wide systems that promise so much but often deliver less. Allied to this there is likely to more defined workflows, greater support for cloud-based applications and better use of deal platforms.

As legal project management expert Ron Friedman notes, “Litigation and investigations have long employed [and co-located] armies of contract lawyers to review documents for responsiveness and privilege… The technology exists for secure, remote document review. Though supervision and collaboration may be harder working remotely, it does tap a much broader labour pool [and meet social distancing rules].”

More flexibility

Pre-corona, flexible working arrangements were mostly the exception rather than the rule in law land. The past two weeks have reversed this statistic.

The generally positive experience of meeting via videoconference, accessing files remotely, collaborating online on shared documents and engaging staff and clients virtually has brought a new realisation: actually, we don’t need everyone at the office all the time. If people want the option to work flexibly it can be done without destroying productivity or team dynamics.

While I don’t foresee a shift post-corona to complete remote working or agile office set-ups (that is, an office with no allocated desks), I would expect firms to be far more comfortable with people seeking flexible work arrangements that include some regular time working from home or other locations outside of the office.

Remote working must be balanced with having a team congregate in one space to collaborate to solve complex client problems, to share knowledge and to socialise. There is still no technological substitute for face-to-face interactions and the serendipitous opportunities that come from overhearing conversations – and unexpected bumping into colleagues in corridors and kitchens.

In conclusion

In conclusion, the post-corona legal world will be different. While there’s a lot to fret about, there are also some important positives to reflect and focus on.

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Firms must plan for a profit hit from the commission’s ruling

In Articles, Commentary on 6 March 2020 at 5:54 pm

Full text of my opinion piece first published in the Australian Financial Review on 6 March 2020.

A law firm’s budget and its five-year projections are based on key assumptions around staffing costs and productivity. The recent Fair Work ruling could potentially blow these assumptions out the water.

The key lesson is to be prepared for different scenarios and have contingency plans in place for some award mayhem.

AFR 6 March Fair Work

The Fair Work Commission has ordered law firms – from March 1 – to record all hours worked by graduate lawyers and paralegals to ensure they are not paid below minimum rates or are losing out on penalties if they work long hours.

It is unclear how many junior workers will actually take advantage of these new provisions as the enforcement of an industrial award runs counter to the professional culture in most law firms.

Moreover, the bargaining position of juniors is weak because of the oversupply of graduates. Council of Australian Law Deans data revealed that Australia’s 39 law schools graduated 7,583 students in 2015. Less than 40 per cent of those students will get legal traineeship positions in law firms.

Despite these constraints, it is not hard to imagine some overworked grad preparing a spreadsheet to prove they’ve been paid well below the minimum wage per hour and claim a bonus – say 20 per cent – for overtime. News of this payment would spread quickly and Fair Work claims would soon become commonplace.

Three scenarios

Only time will tell whether that happens, but it is worth doing some scenario planning to assess the potential impact.

There are three Fair Work-related scenarios worth considering.

  • One is a business as usual situation, with the take up being minimal.
  • Two is that it will be the new norm, with most graduate lawyers and paralegals claiming their full entitlements.
  • The third involves bracket creep, with claims for overtime and penalties extending all the way up the pyramid to associates and senior associates.

If you want to have a sleepless night or three, ask your chief financial officer to model the financial impact of the bracket creep scenario at your firm. With staff comprising about 60 per cent of all costs, the profit hit could be huge.

However, one could argue that hard cash overtime penalties will force more firms to adopt more sustainable work practices, which might improve the mental health of a notoriously fragile profession.

Contingency plans

Planning for the bracket creep scenario will likely involve better resource management, supervision and cross-practice collaboration.

For example, most firms do little to even-out workloads where some teams are operating way above capacity and others well below. If a firm suddenly has to pay overtime for a team operating at 150 per cent capacity, you can bet a lot more effort will be made for practice leaders to collaborate and share resources.

While specialist lawyers are clearly not interchangeable, smart and well-trained lawyers are quick learners who can work flexibly across the firm.

Bracket creep could exacerbate bad work habits amongst some partners, but force a change in others.

The hoarders will try to save costs by delegating even less and doing more work themselves. On the other hand, some partners might finally get the message that the key to practice profitability is to optimise leverage, to redesign workflows to make them more effective and efficient, and to lead teams with a style that’s communicative and empowering.

A big increase in staff costs may push some lead some firms to look more closely at legal technology, especially where it could be used as a substitute for labour. The economics of automating contract preparation and review would suddenly become far more attractive. There would also be more incentives to use non-award staff to do legal process work.

My prediction

On balance I think the first scenario – business as usual – is the most likely. But all firms should be considering this question: what would do if awards governed your rewards?

 

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Five ways to improve your firm’s balance sheet

In Articles, Commentary, Legal Technology on 8 February 2020 at 4:19 pm

Full text of my opinion piece first published in the Australian Financial Review on 7 February 2020.

Law firm partners focus a lot their profit and loss statements but tend to glance over the asset section of their balance sheets.

This is a missed opportunity.

There are three main reasons assets are largely ignored. Firstly, in ‘zero-in zero-out’ partnerships with 100% dividend payout ratios tracking long-term asset value is relatively less important. Secondly, in some firms, the accountants lump all intangibles into a vague and unhelpful construct called ‘goodwill’. And thirdly, balance sheets tend to list boring things like plant and equipment.

AFR 7 Feb 20 Balance Sheet

Original AFR article

From a strategic management perspective, there is a significant benefit in framing goals around making the firm more valuable. This means identifying all the assets, both tangible and intangible, that the firm uses to create and sustain value.

A more detailed balance sheet can also be useful when it comes to partner performance management. Growth in asset value should be the heart of what’s expected of partners, especially in regard to their non-financial contribution.

Tangible assets are easy to quantify. The intangibles less so.

Here are five important intangible assets in your firm that are worth measuring, protecting and leveraging.

#1 Relationship capital

Relationship or social capital refers to the strength and stickiness of existing client relationships and, where relevant, referrer and community connections.

While there are no simple measures of relationship capital, good proxies include total client lifetime value, client commitment indices, net promoter scores, client loyalty rates, average service mix per client, share of wallet of platinum and gold clients, social network strength and percentage of sole-sourced work.

#2 Human capital

Human capital refers to the quality, performance and commitment of all partners and staff. Management reports often include data on salaries, recruitment, training and turnover, but these don’t get to the heart of tracking human capital growth or depletion. Additional measures might include:

  • Toe-to-toe analysis comparing the quality of key practitioners in the firm versus direct competitors
  • Loyalty and career intention indicators
  • Succession and talent development pipelines by practice area
  • Diversity and inclusion metrics
  • Glassdoor, Seek and social media ratings
  • Employee net promoter scores
  • Leadership capacity and capability
  • Culture maps, highlighting hot spots or blind spots
  • Real-time measures around staff morale, firm climate, employee experience and discretionary effort.

#3 Brand capital

This refers to the strength of the firm’s brand and reputation in key target markets. Traditional measures include brand awareness, consideration, preference, use, board room impact, recommendation and social media following. An ability to attract star recruits is also an indicator of its brand capital.

One benefit of a strong brand is the ability to command a price premium. By way of example, in 2019, Apple’s brand premium enabled it to capture 66% of smartphone industry profits, 32% of overall market revenue while only selling 13% of total handset units.

Proxy measures around the firm’s pricing clout impact might include the percentage of bids won where the firm was priced higher than competitors, depth of discounting and percentage of matters with supernormal margins.

#4 Data capital

Most firms are sitting on mounds of valuable data with most of it stored on disconnected databases collecting digital dust. The main data islands include:

  • client data such as matters delivered, interactions, service feedback, event participation, agreed pricing and billing,
  • staff data such demographics, salaries, tenure, engagement, training, feedback and performance records,
  • operational data such as time records, matters processed, productivity and utilisation, and
  • financial data such as revenue, margins and expenses.

Joining these data sets and applying some smart predictive analytics will allow firms to make much better decisions. For example, the analysis could point to using a specific team with a particular process to do a specific type of matter for a certain client category using a defined pricing model. Each of these choices might mean a 2% improvement, but accumulatively you’re looking at +10% gain without working any harder.

#5 Intellectual capital

The last category is for important bits of firm know-how that don’t neatly fall into one of the other four areas. This might include the proprietary legal products, algorithms, websites, domain names, precedents, templates, applications, patents and trademarks.

Growth in intellectual capital could be assessed by things such as the firm’s investment in research and development and its innovation portfolio. Quantifying the revenue from new products and services can indicate success or otherwise in this asset class.

A call to action…

Take a quick glance over your firm’s strategy papers and board reports over the past 12 months. Is there a way to elevate your firm’s strategic thinking by delving into the intangibles that will sustain your long-term success? I bet there is.

If you enjoy my articles, please consider donating to my team participating in the 100km 2020 Oxfam Trailwalker. Learn more here

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Is bigger better?

In Articles, Commentary on 13 December 2019 at 7:20 pm

Full text of my opinion piece first published in the Australian Financial Review on 12 December 2020.

Ranking law firms by size implies in some way that second position is better than 22nd. But is it?

As with many things in the legal business world, the answer is not straightforward.

Gilbert + Tobin is a wonderful case study of a relatively small firm – only 16th in The Australian Financial Review Law Partnership Survey – competing very successfully in every market it chooses to focus on.

The firm is widely recognised as a powerhouse in corporate, banking and dispute resolution and is one of the most profitable commercial firms in the country.

In the US, Wachtell Lipton Rosen & Katz has only 260 attorneys but is No. 2 on the Vault table of best places to work for graduates, first for mergers and acquisitions work and generates in excess of $US6.5 million ($9.5 million) per equity partner per annum.

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AFR print edition

Russell McVeagh is regularly ranked as one of the top firms in New Zealand. Their website lists only 36 partners which makes it the smallest firm among its peer group by a significant margin.

Despite these compelling examples, there are four areas where it appears bigger is better.

Lower-cost operators

Australia’s largest partnership, HWL Ebsworth, offers partner rates at 30 per cent – 40 per cent discount to comparable firms. It is able to sustain these rates by having a low-overhead operating platform, maximising the utilisation of it, and consistently increasing the number of partners sharing its cost. Size does yield economies of scale to HWL Ebsworth and others that have adopted this model.

The general insurance market in Australia has converged significantly over the past decade with four major companies now enjoying market dominance. The flow-on from this trend has meant that law firms specialising in insurance have had to get bigger to match the buying power of their key clients. Size helps these firms meet the unrelenting client demands for lower cost legal services and still make a buck, just.

Large matters

Clients do seriously consider the size, or “bench strength”, of the legal teams that compete for large-scale transactions, major projects, investigations or litigation work. Clients want the assurance that there are ample resources in place to manage large workloads without a hitch. They also seek to limit the risk of being reliant on just one or two key individuals; they want the B-team to be just as good as the A-team.

A large practice team also helps firms cope with the volatility of demand. A larger team can smooth out the peaks and troughs over a wider base of work. A smaller team runs a bigger risk of boom-bust actually meaning bust.

Innovation

Many of the new legal technology products that are emerging are based on cutting-edge cognitive technologies. The rough rule of thumb is that 70 per cent – 90 per cent of new products fail. Firms need to be of sufficient size with sufficiently deep pockets to be innovators and wear the cost of failure.

One of the key success factors in legal product innovation is effective distribution. Large firms with a wide reach will clearly have a market access advantage relative to say a smaller firm or a start-up offering a similar application.

Firm size also helps in taking a few more risks when it comes to lateral hire or practice acquisition. Recruiting a cultural terrorist in a small firm can be an existential problem. Larger firms tend to have more options and a bit more resilience to bad hire decisions.

Client panels

Many large corporate and government buyers of legal services have reduced the number of business law firms on their legal service panels.

A byproduct of this trend is that firms of scale, range and reach are often preferred to specialist boutiques. To target this market segment, law firms need to grow to ensure their full-service value proposition remains credible.

In conclusion

So, is bigger better?

Larger firms will generally point to their strengths in critical mass and coverage. Smaller firms will make the most of their focus and agility.

It appears they are both right.

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Legal technology products: A new trick for old dogs

In Articles, Commentary, Legal Technology on 29 November 2019 at 1:46 pm

Full text of my op-ed first published in the Australian Financial Review on 28 November 2019

According to The Economist, advice on strategy accounts for only 10 per cent of revenues for McKinsey and its peers, Bain & Co and Boston Consulting Group. The balance comes from sources including designing and developing technology products for their clients.

So if meat-and-potato strategy advice has become a side dish for the major consulting firms, will legal advice become a niche product for premium law firms?

I don’t think so, but some are seriously asking the question.

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AFR article print edition

Tier 1 law firm Allens currently has nine legal products in its a+ solutions portfolio. One of these, SmartCompile, pulls together publicly available company information for due diligence reports. The firm is also working on new risk assessment apps, a FIRB notification app and a contract workflow solution.

A quick review of other premium law firm offerings suggests the ripple of new legal products will turn into a wave in the years ahead.

With that in mind, I posit that law firms have to learn five new tricks to make their legal product strategy a success.

New measures

Current law firm KPIs (key performance indicators) such as utilisation, leverage and realised rates are irrelevant in a world of legal products. New indicators should cover factors such as product life-cycle cost, annual recurring revenue, channel profitability and subscription retention rates.

The time frame around KPI targets also needs a rethink. The rules of thumb around time to break even and profit cycles are vastly different for technology-based products. It took Amazon 10 years before it started to generate any cash profit, never mind recover its investment costs.

The challenge ahead is for firms to redesign their KPI dashboard to include service and product measures, but also balance short-term and long-term strategic objectives.

New channels

Most traditional commercial legal practices rely on two primary channels to market: direct selling to clients and referrals from intermediaries.

There are far more options when it comes to getting products to market: app platforms, a dedicated sales force, accredited resellers or agents, other technology vendors or via competitors.

Other channel-related choices include compensation payments, sales incentives, spotter fees, territory allocation and channel exclusivity.

New roles

Hall & Wilcox’s client solutions director Peter Campbell is tasked with providing technical support to the firm’s partners and clients as they develop and implement new products.

Other new roles like product manager, channel strategist and deployment specialist will start to emerge in law firms.

Existing positions will also be reshaped. Partners and senior associates will need to be trained to identify product opportunities and drive sales efforts. Marketing will need to hone their online retailing skills. IT will have to embrace working with both internal and external clients.

Interestingly, Allens has set up cross-functional “squads” to help develop new legal product concepts, test them and bring them to market – quickly.

New pricing

Technology-enabled products are usually priced via a licensing or subscription model. It can fluctuate based on the number of users or volume of transactions.

Setting the right price level will be tricky as there is often no clear frame of reference or way to compare prices for these products. In some cases, firms will be making the market or creating the category. Go too high, and there will be limited trial and take-up. Go too low, and the product will never be valued highly (or be profitable).

New norms

Many traditional law firms will need to adopt new norms in selling products.

Practitioners need to resist the buzz that comes from creating something new from scratch each time. The big egos need to get used to the idea of clients buying branded products, not them. Partners need to get comfortable with product-push campaigns rather than waiting for clients to call with a specific need.

In some ways, the most significant barrier for new legal product success is the firm itself.

If it does not adjust its business model, there will be little opportunity for these products to mature and flourish. Long-term, this will mean these old dogs won’t learn any of these five new tricks.

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