LUCID in the Law Society Gazette

LAW SOCIETY GAZETTE JULY 2010

The nature of the business – as opposed to the practice – of law is changing. Gordon Smith talks to practitioners and business consultants to check out their perspectives on this brave new world

Few business sectors have escaped the effects of the economic crisis, and legal firms are no exception. Companies have responded to the recession in various ways, from the reactive (for example, freezing pay, cutting unprofitable departments or making redundancies) to the proactive – focusing on customer satisfaction, investing in staff training, or beefing up the sales and marketing function.
There were 402 insolvencies in Ireland during the first quarter of this year alone, according to the website insolvencyjournal.ie, with services firms featuring prominently on the list. In the face of such unfavourable conditions, legal firms of all sizes must think differently to survive. That’s the view of strong>Declan TyrrellSome legal practices have turned to business groups like the Small Firms Association for advice. Assistant director Avine McNally says it is vital for all companies to analyse their business and to take action where needed. “Some areas that need consistent focus are just areas of good business practice, including credit management, cost control, revisiting business strategy, focusing on opportunities in the marketplace and aligning performance and rewards for staff,” she says.
McNally also advises firms to improve how efficiently they work. “Many firms are now using this time to fix the systems and procedures that may have been let slip during the period of growth,” she adds.

Historical business model
That gets to the nub of the problem, in Tyrrell’s view: “The historical business model of a legal firm – charging by the hour – means that any inefficiency in the process is automatically passed on to the client,” he says. The upside to this is that, by eliminating inefficiency in the business, firms can price their services competitively while still retaining sufficient profit margins. Tyrrell acknowledges that raising the issue of cost control may cause resistance, but stresses that this is very different to cost cutting. John Hogan, a partner with Leman Solicitors in Dublin, echoes Tyrrell’s observations about treating legal practices as commercial ventures and says that more should be done to educate the profession about running a Company. “Legal training puts very little focus on the business operations side, and that maybe deserves a little more attention. You’ve got to look at the bottom line and the top line,” he says. Lacking that expertise, some legal firms are looking to external consultants who can analyse the practice with a dispassionate eye and make recommendations about how it can be operated more effectively. A market research process with clients can be a useful way of getting valuable feedback that a firm can use to improve or change the service. “Sales-oriented organisations tend to instinctively find out what their customers want, and meet their needs. Legal firms don’t always have that mindset,” says Nicholas Martin, managing director of the business consultancy and mentoring firm Anchora Solutions. Two years ago, Rochford Gallagher & Co, a firm with three offices in Sligo, used Anchora to review its business processes. The firm’s partner, Eamonn Gallagher, says this was a useful process to undertake. “There isn’t a specific model that’s going to work for every single solicitor’s firm, but it is very good for a business to have someone from outside compare your business against a general model,” he says.

Marketing is critical ...
Legal firms differ from many businesses in one crucial aspect: they cannot simply create business out of nothing, but must wait for clients to need them. That is why marketing takes on a critical role, and one that many firms may not yet be fully exploiting. Howard Kent, marketing specialist with Anchora, says that some form of engaging with customers is essential. “One option could be to host seminars for new and prospective customers, imparting knowledge in an area of interest, so they will associate your brand with that.” Even where there is no business to be won, marketing can help to keep a firm in people’s thoughts, leading to more work in the future. “By maintaining contact with clients, you are reinforcing your company and reminding them that you exist. This contact could be in the form of a newsletter, e-zine or an update on a regular basis about legal issues,” Avine McNally suggests. Nicholas Martin has provided business improvement consultancy to more than 100 clients,
including many in the professional services sector. “Our experience has been exactly the same across
the board – there is a need for better organisational management.” He has found that many firms have not invested in technology to be able to exploit this capability. “You need systems and processes in place to do that, and you need a database developed in such a way to handle that. If the database is only set up for invoicing purposes, that’s no good at all,” he says.

And so is technology
Having access to the right data is essential in identifying where the profits are, but the manual work involved in compiling information from monthly reports means the information can take weeks to compile, and it could be out of date by then. “Firms are becoming leaner and meaner out of necessity. Efficiency is one of the main ways to ensure you make a profit. You need to be able to analyse matter profitability and client profitability,” says Declan Tyrrell. His time in the legal sector led him to set up his new company, Lucid Solutions, which provides a reporting tool that links in to a practice’s case management software and aims to provide some of that missing information.
Technology can also help to reduce costs in other ways, according to Robert Carty, business
development manager with the technology services provider Itomic. “A lot of law firms are looking to move to hosted email services,” he reports. Unlike traditional email, which requires a server computer located at the firm’s premises, a hosted version means that the email is provided over the internet. Carty says that this approach has several advantages: it reduces the cost and hassle of
maintaining IT systems in-house, and it allows legal firms to work in a more flexible way. “It gives the
facility to have email on the go. Whenever a solicitor opens their laptop, they have full functionality once they have an internet connection.” Hosted email services also typically include IT security features as standard, providing an additional cost saving. An extra feature is the ability to archive emails, which Carty says is especially attractive to the legal sector because of obligations around storing client data for seven years, which can add to a firm’s costs significantly. Online document management is one option to get around the problem of multiple versions of files. Programs such as Microsoft SharePoint can host a single version of each document, making it easier to audit at year-end, adds Carty. “A document that is sent in by post can be scanned and then stored and indexed in a shared folder,” he says. G

“The historical business model of a legal firm – charging by the hour – means that any inefficiency in the process is automatically passed on to the client”

When business started to slow down noticeably last year, Dermot McNamara & Co experimented by increasing investment in advertising and looking for new customers beyond its immediate surroundings of Rush, north county Dublin. “It wasn’t a disaster, but it didn’t justify the investment,” says McNamara. “We heavily advertised outside our locality, on the internet and in newsletters, and the returns weren’t great. We got responses, but the quality wasn’t there. People were pricing the market, but were going with whatever suited them. Some queries would come to nothing. What it made us realise is that it’s our own clients that we need to concentrate on – if we give them a good service, they will refer us to others.”

Like many firms, McNamara was forced to make redundancies in his property practice last year, and the company also reduced its overheads in several areas. “We try to insist that clients correspond with us by email, so we are trying to reduce the amount of paper we use,” he says.
In McNamara’s view, a practice such as his works by word of mouth, keeping a local focus and being highly
service driven – it has the ISO9000 Quality Mark. “It’s not that we’ve just discovered this, it’s something we’ve always done,” he adds.

CASE STUDY: embracing technology
Could Dublin-based Leman Solicitors be a pointer to what the future of the legal sector will look like? The firm has invested heavily in technology to make its business processes run efficiently, and it has a strong focus on marketing. In some respects, Leman had no choice but to be so
commercially focused, since the firm was founded just three years ago. “We had no alternative but to go out and look for work,” says partner John Hogan. “Every fee earner has a responsibility for marketing. It features in our annual plan and is reviewed at our monthly business meetings.”
Marketing in the legal sector is, by Hogan’s own admission, an “inexact science”, but he insists it is
vital. “If you’re not doing it, nothing is going to happen. You have to take the long-term view.” The firm regularly sends e-zines, writes articles for publication, meets regularly with clients and keeps up to date with their business sector.
The advantage of being a new firm means that it has been able to adopt technology without replacing a lot of legacy work or staff. “What we do as lawyers is charge for our time, and we have to make sure that it is valuable time for our clients. Any technology investment that increases that value is worthwhile; otherwise, by keeping both paper records and electronic information, all you’re doing is doubling the time unnecessarily,” says Hogan. “It means the quality of legal time that is spent is better. Rather than trying to file paperwork, everything is on-screen. We’ve been able to embrace technology without having baggage to get rid of. We were able to reduce certain expense overheads and passed that saving on to our clients.” While many firms may use case-management software, Hogan believes many are only using half of its capabilities and are not taking advantage of reporting features that can give real insight into a firm’s performance. “If you’re not up to date with your management information and your figures, you’re working blind and you can be a busy fool,” he says. “The technology should allow you to focus your marketing and development on the areas where you’re making money.”

Gordon Smith is a freelance journalist. July 2010 Law Society Gazette