The business environment has become complex and challenging, following wave after wave of macro-economic events such as Brexit and Covid, says head of KPMG Law, Nick Roome.
This is coupled with increased regulation and the heightened consequences of getting it wrong, intense social media scrutiny and environmental, social and government agendas which have never been more important for business and society.
“We’re also in a technology revolution that’s driving globalisation”, says Roome. “It’s changing business models and many businesses are having to look at their cost base,” he adds. Businesses are considering how they manage costs and how they achieve more for less.
“We’re in a new reality that’s forcing law firms to do things differently.”
Head of KPMG Law, Nick Roome
And this new reality is set to have huge implications for how legal professionals operate in the business sector. Roome predicts that there will be three big shifts in the legal services market going forward.
“The first thing we are going to see is a much greater focus on business outcomes, really focusing on client solutions to help businesses achieve what they need to achieve,” he explains.
“There will also be a big shift in the people talent agenda in legal services,” he says. “I think we’re going to see a much greater focus on business savvy lawyers with practical solutions. We will also see greater diversity and inclusion – it is an important part of how we [the legal service] can evolve and support business.
“The third area is going to be an element of consolidation in the market. We will see more market share going to those businesses that are bringing fresh thinking, an agile approach and are investing in things that are going to make a difference,” he adds.
Stuart Fuller, head of global legal services at KPMG International, predicts that by 2025 legal teams will be measured on strict KPIs, such as the revenue they generate for the business.
“Legal functions are transforming from defenders of the business to also become drivers of financial results,” he explains. “The value they create may be measured by key performance indicators (KPI’s) that assess not only how well the legal team helps the organisation reduce cost and risk — for example, by avoiding litigation — but also the revenue they help generate — for example, by accepting some litigation risk when the potential reward warrants it.”In the past, gathering this type of performance data could take up enormous amounts of employee time. But in the next four years, Fuller predicts that maturing technological platforms and tools can give access to this data within seconds. This will likely open opportunities to assess and manage how people and contracts are performing with ever greater precision and detail.
With increased regulation, scrutiny, and pressures on costs too, law firms and law departments must maintain a clear focus on providing value and a more efficient approach to legal service delivery.
The Law Society says legal professionals have the opportunity now to re-design client experiences, in line with shifting expectations. “As client expectations alter, lawyers should be especially aware of how these needs have changed. Being able to meet those needs are key to securing new clients and ensuring positive satisfaction”, it says.
This is the idea behind client-centred law firm design, according to legal technology expert Jack Newton. In his book ‘In The Client-Centred Law Firm’,’ Newton says lawyers should be designing their services based on the needs of their clients. This goes beyond any considerations regarding the actual outcome of a client matter and focuses entirely on the experience of working with the lawyer. He outlines how providing a client-focused experience will improve internal processes and ultimately raise the bottom line.
According to the Legal Trends Report 2020, which provides data on what potential clients think about the hireability of a lawyer, positive reviews and referrals are more important than ever to new business development. The report states that clients are looking for more flexibility and transparency in the overall pricing and cost of legal services, and the traditional method of meeting in a commercial office space is at the bottom of their list of priorities.
“In the current highly uncertain and rapidly evolving environment, no single course of action will be appropriate for all law firms”, says McKinsey’s Financial Services Practice in their report ‘Covid-19 Implications for law firms.’
“But given how much is at stake for them—client relationships, people and culture, near-term resilience, and the ability to accelerate out of a downturn—those that can maintain a long-term perspective while moving aggressively on near-term priorities will be best positioned to prosper in the next normal,” it adds.
Law firms are operating in an environment with increased regulation, scrutiny, and pressures on costs. Based on the lessons learned from previous downturns, current demand outlook, and its experience in a professional-service firm, McKinsey suggests six themes for law-firm professionals to consider when working on new business development.
1. Focus on clients, clients, clients
This is the time to be there, truly, for your clients. Their business context has shifted dramatically, presenting unprecedented challenges. Law-firm partners should proactively connect with and really listen to clients and their needs. Even a two-line personalised email can send the right message. As client agendas and priorities shift, be ready to pivot your client-service agenda to match them—for example, by introducing new partners or expertise in a pertinent area. Invest significantly in relevant knowledge, crisis advisory, and other services that deepen trust.
2. Operate at pace on relevance
Clients are looking for sound information, hard data, and impartial advice. They are flooded with information. What will be your law firm’s relevance agenda on the topics for which you have distinctive capabilities? What innovative channels, beyond the standard articles or emails, can you use to get your perspectives to clients? If it is taking longer than a week from idea to publication or a client discussion, that is too long in this fluid time.
3. Embrace your people
Your people are your law firm. Support employee flexibility, collaboration, and connectivity through technology and frequent communications from firm leaders. Look for opportunities to reallocate any excess capacity rapidly toward building new firm capabilities or pro bono activities—every firm member should see clearly how their work is meaningful through this period.
4. Be vigilant on pricing
It is easy in these times to let pricing discipline slip. Our research shows that in past downturns, law firms continued to increase their standard rates but then partially offset those actions through an uptick in client, matter, and one-time discounts; strategic investments; and work-in-progress and accounts-receivable write-offs.
If done in a strategic and controlled fashion, those actions can be effective ways to meet clients’ needs while reinforcing a law firm’s value proposition and positioning the firm well for when the economy recovers.
Rather than reflexively locking into long-term, highly discounted arrangements, explore ways to offer strategic investments, flexible payment terms, credits toward future services, and the broader panoply of alternative fee arrangements. Strategically show strength through extending the firm balance sheet for clients rather than gradually losing ground through a lack of pricing discipline.
5. Use your bifocals: Be near-sighted, with a view to resilience
Set up a nerve centre to coordinate law-firm activity across all the previously mentioned fronts and more. Try to move beyond the basics to the best practices of widespread and varied communication, weekly war-room reviews, impact tracking of initiatives, and rebalancing for short-term coordination and priorities as needed.
For law firms, near-term issues of cash management for liquidity and solvency are clearly paramount. They should build scenarios to understand their positions and near- and midterm imperatives. Prioritise initiatives based on time to release, typical size of financial impact, and risks to a firm’s long-term health and performance.
6. Use your bifocals: Be farsighted, with a through-cycle view
Resilience measures can fund priorities not just for the near term but also to help with acceleration out of the pandemic. Now is the time to develop or sharpen a granular view on the sectors, clients, practice areas, and geographies you are prioritising.
In-flight or established strategic initiatives, particularly those that link to immediate client needs, should be continued, perhaps even accelerated in some cases. Law firms can build capabilities in new areas likely to be busy in the midterm – such as restructuring and Mergers & Acquisitions (M&A) – and should consider accelerating partnerships, digital and technology innovation, and inorganic growth plans in light of the changing environment.
Over time, law firms can capture growth from three sources: underlying market expansion, gaining share from competitors and M&A, says McKinsey.
“Our research across industries demonstrates that sustained growth from gaining share from competitors is extremely difficult, particularly in mature, highly competitive sectors (such as high-end legal services). Conversely, participating in underlying market expansion can be a source of sustainable growth, which makes it imperative that firms have or build capabilities in service lines that are seeing rapid expansion,” it adds.
Decisions made now may well shape a firm’s direction and culture for the long term, says McKinsey. With that in mind, law firms should complement belt-tightening initiatives with plans to attract lateral talent with well-aligned practices and reforms to firm decision-making and people processes, such as placing greater emphasis on collaborative entrepreneurship in annual partner reviews.
RE-IMAGINING THE FUTURE OF LAW FIRM BUSINESS DEVELOPMENT
Impel Dynamic says when re-imagining the future of law firm business development, partners need to consider four key elements:
- EXISTING CLIENTS: What’s the strategy for cross referrals for other practice areas within the firm? What changes to your business, offerings or client services must you make? How will you communicate this?
- NEW CLIENTS: How do you win work from new clients? What new relationships do you need to cultivate? How will you accomplish this in a virtual or semi-virtual world? How will remote working impact the logistics of new business development?
- REFERRALS: How do you proactively acquire new referrals (as oppose to waiting for referrals to land on your lap)?
- ACCOUNTABILITY: How will you be accountable for the delivery of this strategy? When will you evaluate the impact of your plan and adjust, if necessary?
When working with law firm partners on business development, Impel Dynamic says: “We will equip you with a practical framework to ensure that relationships are nurtured quicker, leading to better results in a shorter space of time.
“We call it ‘the extra 10%.’ You grow a business in incremental steps – we will help you to improve each element of your business by 10% and this will have a knock-on effect in all other areas. If each area in turn is then improved by 10%, due to the efficiencies we’ve helped you achieve, this will have a huge impact on your bottom line.”