Facts for the future
7 August 1997
This year's The Lawyer/Coopers & Lybrand survey reveals an improvement in fortunes. Alistair Rose and Denise Catterall are partners at Coopers & Lybrand and are members of the firm's Partnerships Group.
In recent years the The Lawyer/Coopers & Lybrand surveys have highlighted the speed of change facing UK law firms, focusing in particular on financial management.
We have consistently argued that firms which address key financial management issues will have the resources to invest in an increasingly competitive marketplace. We believe this still to be the case, even though as a whole the 1997 financial year has been a good one for many law firms.
While many practices have increased billings per partner and overall profitability, this is does not appear to have been as strong as current economic conditions might indicate.
Large and medium-sized firms continue to pull away from the smaller practices in terms of financial performance. Furthermore, regional variations also seem to be strengthening with stronger financial performance in London and the South East.
There is still pressure on increasing the amount of profit made by each partner. To some extent this is being hindered by firms relative lack of haste in changing and re-engineering their working practices. In particular, there is relatively slow progress in improving and monitoring the control of working capital. In addition, partner/ staff ratios have only improved marginally.
Firms focusing on these and related areas are gaining a competitive advantage. Managing partners should focus on these fundamental aspects of their practice. They need to introduce appropriate action plans in the current buoyant economic climate, because it will be too late when conditions are less favourable.
Firms are increasingly recruiting full-time professionals to finance, marketing and personnel departments. However, the link between a marketing resource and improved profitability was not clear. This raises questions about the quality of the marketing professional employed by firms and the uses to which they are put.
Partners and staff are undoubtedly being put under greater pressure, something which is reflected in higher workloads and reduced training. Not only does this raise questions about the amount of stress partners have to endure as more productivity is demanded of them, but also raises the question as to whether the re-engineering referred to earlier should encourage a culture of "working smarter not harder".
A potential aid is the use of IT and the survey reveals that substantial investment is being made in this area. However it was worrying to discover that almost two thirds of firms do not believe that their current IT infrastructure will support them for the next five years. This indicates that further significant investment will be required in the short-to-medium term.
A substantial number of firms seem unsure whether the year 2000 issue will have any impact on them. This level of uncertainty is clearly of concern. In view of the constraints on time and resources, firms which have not already dealt with this problem should focus on it now.
Overall it is clear that practices must prioritise and continue to plan their IT strategies and budgets with extreme care if they are to avoid serious business disruption because they have chosen the wrong hardware or software or have implemented the technology incorrectly.
During the year many firms reviewed their partner remuneration systems and approximately 25 per cent made changes. However, in general there was not a significant move away from lockstep, which is still used by the majority of firms.
Previous surveys have suggested a clear link between the introduction of performance-related remuneration and increases in profitability. However, the link is not so apparent this year, suggesting that new remuneration systems have not yet succeeded in improving motivation and encouraging high fliers.
The 1997 survey was conducted against a backdrop of an ever-changing professional marketplace. The search for appropriate merger partners continues, with more than a third of law firms considering joining forces with other practices.
Interest is particularly strong in the South East, East Anglia, the East Midlands and Scotland. In general, firms are seeking merger candidates which are smaller than themselves; few seem to be interested in merging with a similar-sized or a larger firm.
Change is also evident in many other areas. Traditional working practices have virtually died out. Flexibility, mobility, competition and focus are now the order of the day. The successful firms will be those that not only know what their most profitable business area is, but are also the ones that have a clear strategy and reward partners financially and professionally.
The The Lawyer/Coopers & Lybrand surveys have established benchmarks for practices in a number of key areas. They help firms to understand the issues as well as giving them guidance on how to produce a strategy to deal with a constantly changing and highly competitive environment.
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