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Estrategia

31 de Octubre de 2008 Andrew Hedley, founder of Hedley Consulting www.hedleyconsulting.com. Email: andrew.hedley@hedleyconsulting.com

“When you are a generalist, the only way in which you can separate yourself from the other generalist firms is by competing on price”

  • Work is not won in vacuum but by convincing the client that you have the best value offer amongst the firms that are being considered. 
  • By building a college of experts, the firm creates a formidable shield to the vagaries of the economic cycle.
  • Partners should be clear that external investors will not be writing large cheques and wishing them a happy retirement...
  • Firms of all sizes should focus on efficient operations by using technology to the full.

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Legal Today


Recently the Australian law firm Salter & Gordon, in an unprecedented measure, decided to quote its own shares on the Stock Exchange.  How can this measure contribute as a new method of financing?  What kind of problems or conflicts of interest can emerge from this decision?

External investment into law firms has the potential to affect the structure of the profession in a number of ways. 

At the commodity end of the market, there will be opportunities for law firms or new entrants (such as insurers, banks or large retailers) to create powerful brands which will impact dramatically on the viability of many "high-street" firms. 

In the mid-market, a firm may well chose to use access to external capital to build a war-chest with which to acquire other firms and drive market consolidation. 

However, partners should be clear that external investors will not be writing large cheques and wishing them a happy retirement.  There will need to be transferrable goodwill, secure client relationships and management systems that will secure an ongoing cash flow.

There are also significant cultural challenges which will need to be dealt with in running a law firm that responds to the financial expectations of external investors rather than the much broader set of success criteria that apply in partnership structures.

 

A new practice in important law firms is decentralizing their juridical services.  Anglophone law firms are now recruiting more Indian lawyers than before while Spanish law firms are recurring to Latin American lawyers.  What would be your advice for a small firm that cannot afford this new practice, in order to succeed.

There are fundamental differences between the market position, target clients and economic drivers affecting large international firms when contrasted to smaller practices.  In simple terms, the sort of client that is buying from the smaller firm is not generally the same as that which is using the larger practice. 

However, firms of all sizes should focus on efficient operations by using technology to the full, ensuring that work is done at the right level within the firm and that partners devote time to developing client relationships, managing their teams and dealing with only the level of legal problem that demands their particular skills and experience.

 

In one of your articles, you argued that are office should differentiate ("the philosophy of ‘noting too big or too small' or ‘we can do it all' is not credible").  Is this philosophy applicable in times of economical crisis?  Sometimes there is almost nothing to choose from.  Don't you think?

As a fundamental position, I don't agree with firms spreading themselves too thin.  The evidence is overwhelming that sophisticated purchasers look for specialists rather than generalists.

When you are a generalist, the only way in which you can separate yourself from the other generalist firms is by competing on price i.e. offering to do the work more cheaply.  This will create a vicious spiral in which profit is rapidly eroded.  A position based on specialisation reduces these price pressures and allows the firm to focus on adding more value and serving clients better.

For any firm, clarity is needed about the sort of clients that it wishes to focus on and the services that it will offer.  In turn these decisions shape the prices that it is able to charge to be both economically viable and competitive.  In all of these situations, looking at the world through a competitor lens is vital.  At the end of the day, work is not won in vacuum but by convincing the client that you have the best value offer amongst the firms that are being considered. 

Looking more broadly, as well as current competitors, one should also consider new firms entering the market and substitute services (which may replace the role of the lawyer in some cases).  Further competitive pressures come from the increasing demands of clients and increased costs. 

 

It is understood that economic crisis won't affect law firms and that modifying the organization priorities would assure their well being.  For example, if the demand for legal advice requested by real estate companies decrease it could be caused by high mortgage prices.  It is that simple?  In your opinion, what kind of measures should be taken in a law firm in order to overcome financial crisis?

Certainly any law firm's work flow (both in terms of volumes and type) will be affected by the overall health of the economy.  Firms which have become over-reliant on one particular type of work (for example property or banking) which is bull-market dependant, rather than maintaining a balanced portfolio, are finding the current climate extremely challenging.  The management of these risks and exposures is a very significant issue for many firms.

Some readers may think that this statement is at odds with my views on specialisation.  This is not the case - I am not suggesting that firms should specialise in only one practice area or market segment but rather than they build up specialist expertise in a rounded and complementary set of practice areas and markets.  By building a college of experts, the firm creates a formidable shield to the vagaries of the economic cycle.  This is quite different to the firm that is full of generaIists which will always underperform the focused business and find itself engaged in cost-cutting and price wars.

 

One of the more common strategies used in a crisis is turning the eyes inside, in other words, increasing the CRM efficiency and implementing strategies like the cross-selling.  Is this strategy enough to overcome the recent crisis?

There is no doubt that the easiest work to win is that which comes from existing clients.  This comment should, of course, carry the rider that the client has received a high level of service and is an advocate of the firm!  In the article on my website Driving Growth I explore these issues in much more depth and the actions that firms can (and should) take to improve their revenue growth.

It follows that two key strategies to pursue in troubled economic times are improvements in client relationship management techniques and the development of key client programmes.

 

What do you think about rankings? I'm asking you this because every important law firm is able to create his own report showing good stands.  Don't you think that these rankings interfere with your own analysis of the market and, therefore, with the main point of serving clients to take important decisions?

We live in an increasingly competitive world and it is understandable that any commercial organisation (including law firms) with try to project the most favourable impression possible to existing and potential clients.  This is particularly true for law firms since their services are both costly and intangible.  This means that the best marketing is that which seeks to build trust and reduce the feelings of risk that a client may have when employing a lawyer.  A good standing in ranking tables, being well positioned in directories and an ability to point to a strong client base are all excellent ways of achieving this.

 

Regarding the law firms, what should we expect in 2009 in terms of comparative strategy?  What tendencies and new directions do you perceive in the market?

The current economic crisis will extend well into 2009.  At the macro level, this will be a driver for market restructuring and consolidation.  We can expect to see fewer firms operating in twelve months than are in play today! 

Of course, a recession can mean high levels of activity for litigation, corporate recovery and other counter-cyclical businesses.  We should expect those firms that have maintained a broadly based business to deliver solid performances whilst others will run quickly to reshape their practice area mix.  Issues such as these and others affecting the longer term future of the profession are explored on my website in The Law Firm of the Future.

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