Can firms keep up with the demand of supply?

Our practice is not one for the detailed business plan.

It has been going for just over two years and was lucky to start during arguably the most prosperous couple of years since the Second World War.

So far the firm has had no experience of the bad times. If there is a lesson from recent economic history in the UK it is that when people start to say “boom and bust are a thing of the past”, you are probably going the wrong way on the curve.

Also, when recessions start, there is that agonising three-month period when people wonder why their models are not working any more and tear up their business plans as work falls off the proverbial cliff.

In addition to the increasing pace of all the demand side changes (computerisation, globalisation, specialisation, disintermediation, differentiation – all leading to more competition) we are all experiencing the supply side structural changes now happening in the legal profession. They represent a quickening step-change.

Give a moment’s pause to the effect of combining this structural change with cyclical change to less clement economic weather.

The recent salary rises in the City led by Clifford Chance are the biggest of these supply side structural changes.

The salaries of both legal and support staff account for around two-thirds of the average law firm’s expenses.

Bumping up the wages bill by a fifth means you either have to raise prices, make your people work harder, put up with lower margins or take cost out of the business elsewhere.

We are in a competitive market so if you want to stay in the market for the best people, the best work and the best clients, you do not really have a choice.

Raising prices is fine when demand exceeds supply but is a hostage to fortune for the bad times.

Making your people work harder when they have already worked 30 days on the trot – enough said.

Squeezed margins means your best people are more likely to walk to an accounting practice or US law firm waving its cheque book to get talent through the door.

IT is where you can start to reengineer the business and take cost out. The server cabinets should be the beating hearts of a practice.

If the servers go down, planned or unplanned, it is like an eclipse of the sun, people moon about, puzzled and uncertain.

But with IT at the centre of what you do, you can work with fewer but higher quality support staff, you need less space, less admin, and you can genuinely reduce costs.

So it comes full circle – IT as a key driver for demand-side change fuels law firm supply-side change. And when will we do our next business plan?

Ask me after the next recession.

Richard Kemp is senior partner at Kemp & Co