Fittest, not fastest

15 June 2006

The famous Chinese curse, "may you live in interesting times", is the position that UK law firms find themselves in today. This traditionally slow-moving division of ‘UK plc’ is going through seismic change. Globalisation, corporatisation and fixed billing arrangements are just a few factors straining the sector’s current model of success
This size-fixated model has effectively sorted the sector into a league system. Here, big London-based players luxuriate in the limelight of huge clients, deals and fees, with regional firms pushed out, often under the mistaken impression they are simply overgrown high street practices.

Yet this popular impression masks a surprising truth. Some of the fastest-growing, most innovative firms in the UK are found not within the confines of the City but out in the regions. Here, unencumbered by the tradition, expectation and expense of running a London operation, they have succeeded in building up legal businesses whose capacity for growth may soon see them encroaching on their capital equivalents’ territories.

If these firms, with their differing aims and aspirations, have anything in common, it is change. As businesses which have come a long way in a comparatively short time, they are used to embracing it as a constant, rather than something to be resisted. Furthermore, being smaller can give them advantages, in that they are much less likely to suffer from the ‘oil tanker’ scenario, where sheer size acts as an impediment to progress.

For those regional firms that derive much of their fee income from high-volume, low-value work, such as personal injury (PI) or convey-ancing, this capacity for change may also be the key to their survival.

The changes to the sector spearheaded by Sir David Clementi’s reforms are fast approaching, with the promise of companies such as super-markets or banks and building societies entering the legal services market. The Tescos of this word, hugely successful in highly competitive markets, have long known that efficiency means profitability — and this is best delivered under a corporate model.

Tim Hastings, chief executive of Midlands practice Nelsons, is a case in point. He is part of a growing phenomenon, in which executive control is given to a strategic managerial board. The result is a fast-growing regional player, with turnover up by 9% to £15.2m in 2005.

Hastings explains: "We found many years ago that the pace of change in today’s business world is too rapid to suit the partner-manager model. It simply took too long to make a decision.

"A corporate-style model, however, allows us to emulate successful non-legal businesses. Most big companies have been built up by delivering consistent, high-quality products to their customers. This can be applied to legal services too, which is why we need a decision-making process that can drive the cultural changes needed to compete in the modern world."

Hastings emphasises that operating under this corporate model is a way of securing the firm’s future, while high street names prepare to offer legal services. He continues: "Commoditisation in legal services is an ever-more important issue. Here, price and quality of service are the fundamentals and law firms need to deliver on both. Price in a people-based business such as law most often depends on the efficiency of your processes. This is where ‘going corporate’ — doing something as a firm for the good of the firm — pays dividends. And IT forms the central plank of making such efficiencies."

Digital dictation is one such area where many firms have invested heavily, allowing them to manage time-consuming transcription work centrally rather than depend on the expensive ‘one fee earner to one secretary’ model.

Hastings says: "Digital dictation allowed us to eliminate typing backlogs and work at optimum efficiency. Our next step, however, was to see how we could keep this up while reducing our fixed costs."

It is here, using mechanisms such as digital dictation as springboards for further efficiencies that will keep firms competitively priced in the future, that integration comes to the fore. Nelsons, for example, has increased the rate of its workflow by outsourcing document transcription through its digital dictation system. Here, IT system integration is linked directly to efficiencies, showing how firms use it to lever value-added benefits.

Joy Kingsley, managing partner of Pannone & Partners, agrees with a model for success that puts IT and people management at the centre, but adds a third factor: marketing. The Manchester-based firm saw its business grow by 143% between 2001 and 2005, with a 50:50 split in commercial and private client work. Recently converted to limited liability status, it has retained the ‘managing partner’ role, but also has a corporate-style management board on which its IT, finance and marketing directors sit at equity partner level.

Kingsley comments: "We have grown on the back of our investment in people, IT and marketing our services effectively. Efficient systems and a happy, stable workforce mean satisfied clients who are much more receptive to cross-selling. This has led to a virtuous circle of profitability. The bigger we get, the more we have been able to invest in improving the business."

This much is evident in Pannones’ IT investments, which played a crucial role in keeping its bulk PI and re-mortgaging operations competitively priced. Kingsley adds: "The chief benefits of IT for us are accountability, efficiency and uniformity. It allows us to ensure we provide a uniformly good service, standardising the way we open files, for example. We have also invested heavily in call-tracking and case management systems — anything focused on keeping the client happy."

And with a strategy focused on a culture of good communication, integration is just as important to Pannones as innovation.

Kingsley continues: "Our central reason for staying a single-office firm is so everyone can talk to one another, so it is crucial that our IT systems are just as communicative."

These examples suggest that a regional firm geared for growth must, fundamentally, have the infrastructure to deliver a seamless service to clients — whether that is bulk or more specialised tasks. Having ‘enabling’ systems that can ensure this work flows automatically through a firm is also crucially important. This allows law firms to maximise productivity without making their lawyers feel as though they are working in the ‘sausage factory’ system widely disliked in the profession.

Here, their efficient systems and service-oriented cultures will mean such firms can make a handsome profit selling high volumes of fixed-price legal services. This would offer regional practices the opportunity to develop a parallel model for building a big firm to that seen historically: corporate, commoditised, IT-friendly and with relatively few partners.

The beginnings of such a scenario are already starting to merge. For example, while Pannones has no plans to move out of the northwest, it is already winning business from London firms simply by offering a good service at a more competitive price. Meanwhile, Halliwells, another firm with Manchester roots, has staked a direct claim on the market in the capital by opening a London office at the same time as a round of northwest acquisitions.

For an example of where taking a commoditised approach can pay dividends, you need go no further than Liverpool, where four-partner firm Silverbeck Rymer has built a £16.4m business on the back of high volume insurance work.

Clearly, no-one has a crystal ball, but it is plain to see regional firms are a fertile breeding ground for new ideas, better processes and rapid growth. Their willingness to use IT, outsource to specialists and invest in management expertise means they recognise the law is part of the wider business world and are seeking to succeed on those terms.

Richard Bate is general manager of Voicepath.
Author: Richard Bate
Source: Legal Week, June 2006