There is no doubt that a high proportion of firms, particularly those with 30-plus partners, are embracing the challenges of operating in a competitive and increasingly disparate marketplace. In particular, this is evidenced by firms taking steps to become much more “corporate” in their management style and structure in order to maintain or increase profitability. This shift in approach to the management of law firms is reflected in a clear appreciation that firms are more than just professional partnerships, and must be run as businesses. Evidence of this changing outlook includes:

• Partnership structures are being redefined: fewer firms reported an increase in the number of equity partners in 2000. Instead, a greater number of firms introduced fixed share partners. More firms are also moving towards partial or full performance-related remuneration structures.

• Improved management of working capital: many firms are successfully reducing their level of investment in clients and improving their credit control to reduce debtor days.

• New forms of finance are being introduced: more firms are using leasing finance to fund investment in IT.

• Continuing investment in professional practice managers: the level of recruitment of professional practice managers in key functions such as finance, marketing, human resources and IT remains consistent with earlier years, with improving ratios between practice managers and fee-earners, particularly in finance and IT.

• Formalised risk management procedures are beginning to be introduced: there has been a marked improvement in the number of firms addressing specific areas of risk management, such as operating formal client acceptance procedures. However, the survey results show that a number of areas of weakness remain, leaving firms vulnerable in some important areas.

The expansion in electronic commerce has also had a significant impact in driving firms towards operating in a more corporate manner:

• IT investment remains a significant proportion of expenditure for most firms, with systems to automate key processes (eg matter tracking etc) and to manage client/contact information (eg sales, targeting) being typical investments.

• Many firms are grappling with the issue of how to deal with the 'equity for fees' proposition favoured by e-business start-ups. This includes the introduction of investment committees and other new business-assessment structures.

• The majority of firms are taking advantage of the marketing opportunities offered by websites.

However, there is still a long way to go in a number of commercial areas. In particular:

• An element of short termism still prevails, particularly in relation to business development and selling. For example, there was a noticeable reduction this year in the amount being spent on training partners and fee-earners in selling skills. This demonstrates a tendency in the profession to downplay the importance of selling, cross-selling and business development when times are buoyant.

• Despite the high levels of investment in IT, firms appear to be relying on existing services to support their growth rather than developing new services. While legal services cannot be compared with, for example, fast-moving consumer goods, there is no doubt that firms should be taking a more innovative approach to new product development, particularly given the growing commoditisation of some legal services and the scope that technological developments offer for online services.

• Unlike many corporate entities, very few law firms undertake cost-benefit analyses before undertaking investment in IT projects. A worrying number are also unable to determine what savings they can expect from their IT investment.

• There is evidence across the board that the legal profession lags far behind the corporate sector in terms of non-cash benefits for partners and staff. Lifestyle-related benefits are not generally on offer, and indeed the composition of most firms' reward packages hardly varies. Given the competitive pressures to recruit and retain staff, and the increasing mobility of partners and teams, flexible benefits are an unexploited area.