“You can’t save your way to growth” is a frequently heard refrain. In the current economic turmoil, however, when growing revenue is hard, the focus must be on cost control. A recent report, article, and conference session drive home this point.
Hildebrandt is a leading legal market consultancy. The Hildebrandt Special Client Advisory: Fall 2008 notes that
“the current downturn has not yet been significantly offset by increases in other traditionally “counter-cyclical” practices…. the current year will represent a significant downturn for the legal industry… we are unlikely to see any significant turnaround until late 2009, at the earliest… firms [will be] forced to lay off legal and non-legal staff, slow down the hiring of new attorneys, restructure operations, and weed out unprofitable practices.”
The Advisory suggests steps to deal with the downturn, including focus on collections, negotiate credit agreements, examine expenses closely, consider layoffs, deal with performance issues, and adjust practice areas. Longer term, Hildebrandt says we may see more fundamental changes such as new lawyer compensation systems, alternative billing, and more legal process outsourcing.
Driving home many of these points is the new article Partners at UK’s ten biggest law firms take home £1.1m in profits (TimesOnline, 19 Nov 2008). It reports on profits at top UK law firms, citing an annual law firm survey published by PriceWaterhouse Coopers:
“[T]he gap between the top ten and the rest of the market is set to widen as lawyers begin to feel the impact of the financial crisis… the biggest firms had tightened their hold on the market through an increased focus on efficient management. ‘Larger firms have been looking long and hard at their cost base and how much can be outsourced,’ Mr Rose said [head of the Professional Partnerships Advisory Group at PWC ]…. managing partners [are] switching focus from revenue growth to reducing staff costs.”
The topic of growing revenue versus controlling cost was central in an October panel discussion at the Law Firm Leaders Forum. In a session called “Running Your Firm as a Business - A Closer Look at the Middle Office”, my co-panelists Ed Poll of LawBiz and Ron Yano, CFO, Loeb & Loeb and I debated that question. Mr. Yano and I shared the view that cost control could increase profits by 1.5 to 2.0 profit points, which is significant in tough times.
Mr. Poll focused more on growing revenue but. In his follow-up blog post, Law firm overhead - Can we cut?, he writes “focusing your energy on producing revenue will produce greater benefits than focusing your energy on reducing overhead”. He points out, however, that that increases in the right costs can increase revenues.
Integreon can help law firms control costs by outsourcing (onshore or offshore) and process improvement. We can also help on spending wisely to increase revenue, for example, by providing cost-effective business and industry research can help win new business.
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