When change is inevitable...
24 June 2013 | By Matt Byrne
All-encompassing change is now a reality for the UK’s top 200 firms. How are they coping with the unprecedented upheaval? The Lawyer finds out
If there is one word that neatly sums up the current UK legal market it is change. But rarely has a single wordhad to work so hard to cover such upheaval.
From mergers, overseas office openings and alternative business structures to near-sourcings, redundancy programmes and law firm administrations, law firm partners in the UK have never before been faced with so much disruption to their firms’ long-established business models.
Cue a new breed of law firm business support professional emerging to help them meet these new challenges head-on.
Berwin Leighton Paisner director of marketing Ash Coleman-Smith says: “As the market has got tougher so the top 10 per cent of partners managing firms are beginning to understand you need a clear business plan, clear business objectives and the business support teams to be aligned with those objectives. Once that clicks, what you need is people who know how to drive that business strategy, not people who five to 10 years ago just did whatever they were told and took the orders”.
Coleman-Smith says there are three dynamics at play in today’s legal market. The current conditions mean that firms are being forced to re-evaluate their positions, while a younger generation of partners that are more business savvy are starting to run the business. “The third element,” adds Coleman-Smith, “is that the legal market just looks more interesting these days, so it is pulling in a whole new group of people.”
The new people entering the business are those increasingly tasked with managing the unprecedented levels of change in the UK market and the disruption it brings in its wake. That is the focus of the The Lawyer Management: A Guide to Change.
“Firms are responding to the challenges they are facing with evermore innovative ways of providing services, in many cases as a result of having brought in new talent from other industries and sectors,” says Tim Skipper, founder of consultancy Totum Partners, highlighting a trend that is changing the traditional dynamic of law firms.
Take Ashurst’s decision to set up a low-cost office in Glasgow, just one example that typifies the seismic changes that are currently taking place. As The Lawyer reported, the silver circle firm is planning to transfer a large proportion of its London support staff to Scotland, with about 150 employees set to move over the next 12 months and a number of its current 350 back-office contingent in London put into redundancy consultation as a result.
Ashurst joins the likes of Allen & Overy and Herbert Smith Freehills in setting up dedicated low-cost outposts designed to offer clients a more efficient delivery of services. And they are hardly likely to be the last firms implementing major changes in a bid to remain competitive.
The pace of change is unprecedented. In the same fortnight as Ashurst’s move, the merger between Norton Rose and US firm Fulbright & Jaworski went live; SJ Berwin edged closer to its potential merger with Asia-Pacific firm King & Wood Mallesons; new entrant the Co-operative Legal Services unveiled its first-ever advertising campaign; insurance business BGL Group acquired volume personal injury firm Minster Law and a report from Baker Tilly claimed that 25 per cent of traditional law firms were planning on changing their strategy as a direct result of the Legal Services Act. We face a once-in-a-generation change in the shape of the legal sector. The scale of change initiatives is growing and the speed of implementation is accelerating. To guarantee successful delivery requires a new level of change-management capability. If firms get it right, dramatic change can be turned into success.
While The Lawyer has reported on all of these changes over the years, it has never before focused so directly on the fact of change itself or the business support staff within firms and the increasingly critical roles these professionals are playing.
This month, however, that too changed. We surveyed the UK’s top 200 firms to find out more about the major changes firms have been implementing, how they have been managed internally and how successful these projects have been.
The questions focused on the operational aspects of running a firm but were aimed at the owners of the business – the partners.
What we hoped to unearth was each firm’s perception of and attitude to change, as well as individual partner’s satisfaction levels with the business support teams within their firms.
While many lawyers would like to think they have the savvy to handle pretty much anything that gets thrown at them, anecdotal evidence suggests the reality is different, with handling change in a formal, project-managed way falling squarely into that category.
“In law firms,” says Richard Susskind in his 2012 book Tomorrow’s Lawyers, “project management seems to involve little more than buying some new lever-arch files and cracking open a new pack of yellow stickers. It is our collective arrogance as lawyers that we feel we can take on a neighbouring discipline over a weekend. We cannot.”
That said, across the UK legal market a range of firms are seeking to make changes to their business models. These can range from major strategic initiatives such as an international merger to smaller-scale incremental tweaks to the underlying model, such as making changes to staffing and questioning whether all of a firm’s trainees or junior associates are really needed. And if they are, what they should be paid. These are not easy problems.
First, however, a more precise definition of what is meant by change management might be useful. Baker & McKenzie director of business development and marketing Julia Hayhoe says: “A change-management programme is a structured approach to transitioning the behaviours and working practices at an individual, team, and organisational level from a current state to a desired future state, where there are defined business outcomes with metrics that assess their sustainable effect.” Hayhoe adds: “All of the evidence from the business world is that 70 per cent of change efforts fail.”
Hayhoe is citing business guru and former Harvard Business School professor John Kotter, who in the 1990s outlined eight steps to effective change (See graphic and Bakers’ article on page 10).
In The Lawyer Management Guide to Change we decided to take Kotter’s eight steps as a guiding principle for our questions and, as far as possible, test the assumption that most change efforts fail. We wanted to see the extent to which UK law firms genuinely are embracing change and importing change-related methodologies into their practices in an attempt to meet the challenges brought about by such a rapidly changing market.
We kicked off the survey by putting the questions into context, asking partners what they believed were the top three challenges currently facing their firm.
Variants on the word ‘change’ featured heavily in the responses, which included such comments as “Changing regulatory environment”; “Changing practice landscape”.
The predominant themes, however, reflected the new pressures firms and partners are under: “Responding to the challenges facing our clients – the need for flexibility in the services provided and how they are provided”; “The prevailing economic climate”; “Global downturn resulting in less legal spend”; “Pressure on costs”; “Profitability in a demanding market”; Competition from ABSs”; “Pricing structures”; “Cash flow”; “Clients wanting more for less”.
The latter comment is pure Susskind and neatly sums up the key pressure facing most firms and the primary driver behind a firm such as Ashurst opening in Glasgow.
We asked partners whether their firm currently had any formal change-management programmes or projects running. More than 70 per cent of respondents said they had, with comments from those answering ‘Yes’ ranging from the specific (‘One’) through the vague (‘Several’) to the baffled (‘Don’t know’).
Hayhoe’s belief that very few firms are approaching change in this systematic manner was highlighted by question two, which was designed to highlight where the majority of change at law firms is currently being focused. We asked ‘Which of the following business management changes has your firm implemented in the past 12 months?’
Respondents were free to tick more than one answer. Interestingly, and encouragingly for the health of the market, the answer that received most ticks was ‘Significant number of new hires’ – which nearly 65 per cent of respondents ticked. In second place, possibly more predictably, was ‘Major IT system/software upgrade’, ticked by 55 per cent of respondents.
The fact that 60 per cent of respondents said no to question 3 – ‘Has the firm used any formal change-management programmes or strategies for any scheme/project in the past 12 months?’ suggests that as Hayhoe suspects, there is confusion in the market over precisely what chang-management programmes are. Also that their use is not widespread, despite question two’s 73 per cent positive response.
Question 4 asked firms to name the most challenging change-related projects over the past year. The top answer with nearly 50 per cent was ‘Major IT system/software upgrade’, underlining the significance IT is playing in the delivery of legal services in the UK market.
The key role being played by business support staff in most firms these days was emphasised by the next question, which asked the Kotter-influenced: ‘How was the project led?’ Overwhelmingly (86.7 per cent) the answer was a cross-functional team of directors and partners? The days of partners simply telling support teams what to do are over. In all business sectors, implementing major strategic change successfully relies on engaging senior people from across the business from day one. Those responsible for implementing change need to have equal input in the decision-making, design and planning phases too. The legal sector has taken this on board and most firms recognise that transformation is best.
For most partners the key question on our survey will have been: ‘How satisfied are you that the original objectives for the change project have been achieved?’
Encouragingly, 50 per cent said ‘very’ while 9.5 per cent said ‘extremely’ (another 33.8 per cent said they were neither satisfied nor dissatisfied).
The following question was also critical: ‘How effective do you believe these changes have been so far for improving service levels to clients?’
The results here were less impressive, with 45 per cent remaining neutral, an indication of a distinctly underwhelming return on investment. Still, 39.5 per cent said the changes had been ‘very effective’ at improving service levels while another 5.3 per cent said they had been ‘extremely effective’.
Making the changes stick is always another tricky issue but, according to The Lawyer’s research, top-200 firms are generally having some success.
Over 80 per cent of respondents said that the behavioural changes they had made had been ‘somewhat’, ‘very’ or ‘extremely’ effectively embedded into their firm’s culture.
“Taken over time the strategy to encourage positive behaviour before penalising poor behaviour has worked,” said one respondent.
For business support professionals reading this report the final question may be the key one. We asked partners to name the one area of business management in their firm they would like to improve.
No single area stood out as being a thorn in the side of the partners, with ‘people management’ and ‘process efficiency’ tying for first place with 17.5 per cent of responses.
There is a certain neatness with that result. Despite all the current changes in the market, law firms remain people businesses first and foremost. Culturally this is always going to be the hardest element for partners to deal with.
Yet the process-driven elements of the law are creeping through every tier of legal practice. If you do not believe this then check out the changes Addleshaw Goddard is making to the way it delivers its legal services – the firm has just finished process mapping 46 contentious and non-contentious areas of work in a bid to streamline its practice.
If anything highlights the level of change in the market – and the key role business support professionals are now playing – that does.
Let us leave it to one of the respondents to our survey to have the final word: “The real problem is the future speed and volume of change required in order to compete. Law firm partnerships are not efficient business models to adopt and adapt with any degree of efficiency or agility. Those that manage to find a way will thrive.”
- In addition to The Lawyer’s own research, seven large UK and US firms have contributed in-depth articles focused on a specific aspect of operational change within their business that chimes with one of The Lawyer Management’s seven core editorial streams: technology; HR; finance; facilities management; business developement and marketing; risk management; and knowledge management. Essential reading for today’s market.
Change: By us or to us? Our choice
Harken back to a time when pure academic abstraction and application of the law were all we needed to succeed. Added value was a grounding in Shakespeare not a Green Belt in 6 Sigma. Long may that purist philosophy remain. As a barrister, I proudly maintain a jealous guard over the pure art and science of our legal craft, particularly in a world where 140-character reductivism and commoditisation reign. When one’s trained reasoning starts with stare decisis, one’s resistance to change is instinctive.
Whereas some fear our craft is undergoing strangulation, the reality is a process of triangulation: providing quality legal coverage, compliance and client satisfaction remain at the pinnacle but entirely dependent on two other points: efficient utilisation of headcount and overall operational cost. Worse still, an economic recession has collided with otherwise-benign advances in global finance and technology to create a perfect storm called “more for less”. The resulting, bludgeoned efficiencies are not going to be surrendered in a future economic upturn; the return on invested capital genie is out of the financial bottle.
While history encourages us that economic crises prompt radical changes in leadership (New Deal, Fordism, Thatcherism, Steve Jobs’ Apple resurrection, even the Obama presidency) within the legal profession radical leadership is being shown by those at the sharpest points of that triangle of imperatives: the clients. Or their procurement teams. So the challenge for the profession as a whole, in-house or private practice, is whether modernisation will be crafted by us or done to us. It is that simple. As my own humble contribution to legal self-determination, the Smarter Legal Model has been applied around the world, it has confirmed that cost-cutting is only a didactic symptom of more sophisticated issues that both law firms and clients can address to mutual benefit and profit. Here are four examples:
- Each legal project has its own value pyramid – disaggregating the commodity from the cream. The typical lawyer’s work ranges in terms of relative volume and frequency versus relative legal and financial exposure. High volume and frequency with low exposure (such as standard form contract production) is increasingly recognised as commodity work, in contrast to the ‘bet-the-farm’, bespoke legal advice and strategy with the ‘high-end’ stakes. The same value pyramid applies to individual legal projects such as litigation, due diligence or M&A. Applying this allows more efficient ways of executing each element and informs strategic decisions on the use of bespoke legal advice, empowered legal advice, technology and outsourcing.
- More for less. Faster. The power of ‘big data’ and progressive review analytics. Leading technology combines intelligent systems, managed review techniques and advanced machine-learning science. These result in legal work product that is measurably superior to human reviews, significantly reduced project costs and the possibility of future re-use with accumulated efficiency. Progressive review analytics can provide insights into data that would otherwise go unnoticed such as emotive tone, communication patterns, social relationships and how corporate policies are being followed. Key applications include highly-profitable contract analytics, e-discovery, due diligence, monitoring social media, transaction forensics, fraud-spotting and investigations.
- Empowered legal advice – ‘The best lawyer does not know every answer but knows where to find every answer’. Virtual legal research resources, knowledge and case management can empower individual lawyers with ‘online omniscience’, maximising personal potential and productivity.
- Modernising law firm business development – does the law firm ‘sell’ match the modern general counsel’s needs? The general consensus is that the ‘big four’ professional services firms are between five-10 years ahead of ‘big law’ in their operational integration; one demonstrable example of this is in client business development. Law firms can augment their traditional formula of relationship plus reputation equals reassurance (R&R=R) with prescient, usable client programmes. ‘Big four’ best practice includes equal emphasis on deep industry insight and practitioner skills to produce service offerings that are highly tailored to a specific client’s needs: a scalpel instead of scattergun of seminars, social events and legal updates.
So in responding to the many modern challenges, The Lawyer Management promotes those who are empowering, developing and rewarding the legal purist, not restraining or devaluing them. Later this year The Lawyer Management Awards will place emphasis on key innovations, efficiency gains, firm and client benefits and overall business strategy.
The Lawyer Management Survey shows law firms beginning to take a lead, with:
- 64.6 per cent making significant hires versus 28.3 per cent making significant redundancies;
- 54.5 per cent undertaking a major IT system update;
- 43.4 per cent working on a pricing-related project.
Most encouragingly of all, their highest priorities for improvement are: people management; process efficiency; business development, and marketing.
in order to nurture these developments our zero sum game behaviour must also undergo honest reassessment and modernisation, for example that pernicious dysfunctionality by which one side has to lose for the other to win – we all know when we do it. Instances of this tacit mutual distrust are being replaced by ‘profitable partnership’ structures wherein the legal and financial interests of both law firm and client are aligned for tangible win-wins. It is not theory and it is preferable to procurement.
Instead of Shakespeare in my closing submission, James Baldwin [Nobody Knows My Name, 1961] might best describe the promise and terror of modernising our precious craft: “The future is like heaven – everyone exalts it, but no one wants to go there now”. Perhaps there’s a place in between for world-class legal management.
Trevor Faure, partner and global leader of legal services, Ernst & Young Global