Tim Perry, managing director, Spring Law
Consultancy model is the clever way to cut costs for firms
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The past few years and the downward pressure on legal costs sparked by this recession have resulted in law firms re-examining ways of providing competitive legal services that match client expectations.
Firms have reacted differently, but generally in one or all of four ways: partners have been ’rationalised’; assistants culled; rates cut; and legal services outsourced.
The rationale behind the cost-cutting is to maintain average profit. Since removing partners generates bad press, the focus has been on removing cost from the lower-level lawyers in the pyramid. Outsourcing legal services abroad helps with the resourcing problem and can be marketed as a benefit to clients. An alternative is to cut assistant rates for commoditised products and keep these lawyers employed.
The best alternative to reducing costs from the base of the pyramid is to avoid assuming a high cost base at the top. If a firm can enter into relationships with partner-level lawyers who are part of, yet sit outside of, the firm, a number of benefits arise. Costs are reduced while skill and client bases are maintained and developed, and more flexible and competitive partner rates can be offered. Consultancy offers a way to remove the single greatest upward pressure on costs by outsourcing the expertise of senior lawyers.
Of course, consultancy as a concept is not new. For decades, firms have engaged consultants, more often as a way of tailing them off into retirement, and occasionally as a means of acquiring a skill or sector foothold. Firms that are relatively new to the market and have not built up a heavy partner base have more opportunity to look at life differently, and can cultivate a model based on outsourced senior lawyers supported by a central hub of employees.
This is how it works. The central hub is the traditional model, a supervised environment with high-quality lawyers and the full range of experience available. Around the hub are consultants who bring clients to the business and have confidence they can generate a client base.
For the right people, consultancy offers an exciting opportunity. It can be lucrative because they can retain most of the revenue they bill from the clients they introduce and get a percentage of the work they refer in; flexible, because they can chose to work in the office or from home; and comforting, because they have the support of the hub to staff up on matters, discuss legal issues and assist when they are away.
For the firm, the opportunity is equally appealing. The high-cost lawyers sit off its cost base, thereby maintaining the ability to charge competitively. The firm is introduced to new clients and sectors, while adding further skill sets to the business. The firm receives revenue from the consultant’s activities and can also call on them to provide services as required.
It is often said that lawyers are risk adverse, so why would a partner wish to engage in this model? Well, risk is a relative concept. If you can be ‘rationalised out’ at will as a partner, then where is the security anyway?
A lawyer’s real value is their client base. If lawyers have confidence in their following, then they are perfect consultants. The realisation that a lawyer’s value lies in their ability to generate and service clients leads to the next logical step of consulting in an environment determined by that lawyer and far removed from capricious interference and ultimate risk of rationalisation.
It is not all about rationalisation; the consultancy model is also perfect for senior women who may have left practices to start a family yet now wish to re-engage with their profession on terms that afford flexibility without compromising status.
It’s a win-win situation.