Business techniques are transforming law firms, helping them battle the slow economy. At last month’s inaugural The Lawyer Management conference and awards, one of the key themes was how the UK’s top firms are increasingly driving efficiencies in their businesses through better use of technology, a sharper focus on financial management and an all-round clearer perspective on the importance of the operational side of the delivery of legal services.
Those themes also reverberate throughout this year’s The Lawyer UK 200 Annual Report. Time and again across the 200 individual commentaries on each of the firms in this year’s table there are signs that the majority of firms are beginning to embrace change and apply models traditionally more familiar to industry than the law. To purchase access to the full report visit www.thelawyer.com/uk200 or contact Daniela Badcock on +44 (0) 207 970 4582
The winner of the first-ever Law Firm Management Team of the Year award, Clifford Chance, took the plaudit thanks to its adoption of ‘lean’ and ‘six sigma’ techniques, developed in the manufacturing industry, but now being used by the magic circle firm to analyse each step in a legal process and either simplify or improve it. The firm’s continuous improvement programme, led by global head of business transformation Oliver Campbell, was aimed at improving efficiencies on the 40 or so projects that have so far been trialled, with another 40 under way.
Other efficiency measures at Clifford Chance include trialling the use of resource managers in some of its London practices to take over the allocation of associates and ensure the firm is making the best use of its fee-earners. Then there is the fact that 18 per cent of Clifford Chance’s non-secretarial business services staff are now based in its offshoring base in India. Indeed, there is a strong chance that more legal support work could in future be referred to the firm’s New Delhi support function, which it hopes to grow from around 60 legally qualified staff to around 80.
Despite these changes to its model Clifford Chance posted drops in both revenue and average profits last year, with global revenue at the Canary Wharf-headquartered firm dipping by 2.5 per cent, from £1.303bn to £1.271bn, last year, although when the effect of exchange rate movements is taken into account turnover growth was effectively flat, enabling Clifford Chance to retain its position as the largest magic circle firm in terms of income.
Operational moves, such as those being made by Clifford Chance, can be seen throughout the market. While Irwin Mitchell, which, in August 2012, became the first UK firm to obtain multiple ABS licences, has restructured its model more than most of its rivals, the majority of firms have re-engineered their practices in recent years to achieve savings and help boost revenues and the bottom line.
DWF was this year’s highest percentage riser in terms of revenue, posting a merger-fuelled 84.5 per cent rise, from £102m to £188.2m, last year. The key to making the firm’s string of deals work in the longer term will be integration and implementing efficiencies. The signs are that DWF has more than a decent handle on that – it picked up the Best Major Project at last month’s awards for its efforts integrating 742 people and three leases after its acquisition of Cobbetts last year, a recognition that from a fac-ilities management point of view it has its house in order.
As we report in the financial management feature on page 28, since 2009 DWF has also reduced total lockup by 33 per cent, more than any other firm in the sample of 25 that The Lawyer tracked this year. Notably, the firm has radically improved its year-end work in progress (WIP), cutting it by 51 per cent since 2009, a clear indication that DWF knows as much about process as any firm in the table.
The number one firm in the revenue table this year with a total turnover of £1.5bn, a 7 per cent rise on the previous year’s £1.4bn, is DLA Piper, another to have embraced the use of technology and to be acknowledged at The Lawyer’s management awards. DLA Piper picked up the Best Technology Project for its Next Generation Desktop programme, which provides workspace for around 3,500 users across Emea and the Asia Pacific.
The firm is also one of the pioneers in terms of disaggregating legal services. Last year DLA Piper made a controversial investment in LawVest, the ABS and umbrella company of fixed-fee firm Riverview Law. It also put 251 staff in consultation at the end of 2012, announced the closure of its Glasgow office and consolidated its Scottish operation into Edinburgh. The plan was to remove inefficiencies through a programme known internally in the UK as One DLA.
Global co-CEO Sir Nigel Knowles said the rationalisation of the business was unavoidable in light of the lack of attrition after 2007, but added that streamlining support staff and encouraging a more collaborative approach in offices in the North West had increased profitability in the UK.
Holman Fenwick Willan (HFW) has also introduced initiatives to improve efficiency. In April 2012 it introduced Elite’s financial reporting system to allow partners to better monitor and improve key financial metrics such as WIP and collections figures (Olswang is another firm to have made a similar investment). In August 2012 HFW hired Linklaters’ chief operating officer Alastair Mitchell to help the firm concentrate on improving general financial hygiene.
Elsewhere, Shoosmiths has been disaggregating many of its legal processes to cut costs, particularly in its recovery services group, where partners focus on managing client relationships while an integrated system of paralegals and senior associates deliver services.
Ashurst is another firm to go down the rationalisation route, recently following the likes of Allen & Overy and Herbert Smith Freehills (this year’s highest riser on revenue in terms of actual monetary increase – up £271.2m from £480m to an estimated £671.2m), both of which have low-cost bases in Belfast, by launching one of these bases for support staff and legal analysts. Ashurst’s is in Glasgow and is part of an attempt to reverse its recent profitability slump. The firm expects the Scottish base to house some 150 employees in the next 12 months, with some of its present 350 back-office contingent in London put in redundancy consultation as a result. Indeed. Ashurst confirmed this month that it was likely to cut just over 120 support staff jobs from its City base following the consultation.
It is a similar, if less dramatic, story at Linklaters. Facing increasing competition in its global markets and subdued demand, Linklaters is focusing on alternative resourcing arrangements to make the business as efficient as possible. For example, it has increased utilisation of its Colchester office, which houses around 300 staff, for back-office support and paralegal-led services such as drafting pitching documents, due diligence, document review and e-discovery.
Addleshaw Goddard, which revealed during the year that it has process-mapped all of its services, introduced its Transactional Services Team in 2010 with around half a dozen paralegals. There are now 80 staff in the Manchester-based team, which turned over £3m last year. The firm hopes to be delivering at least 10 per cent of its work though this centralised team by 2015.
At Mills & Reeve, firmwide turnover grew by 2 per cent, from £69.4m to £70.9m, in 2011/12, but its six-partner London office saw a 14 per cent drop in revenue, from £5.8m to £5.1m, largely due to the increased utilisation of the firm’s Norwich-based paralegal support centre, set up in August 2012 and currently consisting of eight paralegals. The low-cost centre has undertaken more work, such as due diligence and e-discovery, for mandates brought in by London’s defence insurance practice in response to increasing pricing pressure from its public sector clients.
Over at Pinsent Masons, the past year saw the firm continue to improve operational efficiencies following its merger with McGrigors. Pinsents created the new board-level role of head of client operations, held by former McGrigors managing partner Richard Masters. The firm also started using legal process outsourcing giant Capita’s Krakow base for document review work in a large dispute. The measures helped Pinsents’ financial management remain healthy, with it recording just 21 days average WIP and 74 debtor days at the end of the financial year.
Office space mission
Another key trend in this year’s UK 200 is that of firms making attempts to be more cost-effective with their property.
Field Fisher Waterhouse, for example, is set to move its London contingent to a new single-site
riverside base in the summer of 2014, comprising 81,270sq ft in
total. The rent is roughly £50 per sq ft, making the premises significantly cheaper than the £4.7m the firm paid out in rent and rates in 2011/12.
In London, Trowers & Hamlins moved from its previous location near Tower Bridge to a new site on Bunhill Row, opposite Slaughter and May. The new premises has an area of nearly 80,000sq ft, with an annual cost of £4.6m, while to keep costs down at Speechly Bircham, where revenue has essentially flatlined since 2009/10 when it hit £58.4m, the firm has leased out part of one of its seven floors, diminishing its square footage in the City by some 10 per cent.
Osborne Clarke has taken an additional 4,000sq ft of office space in its City, while filling space in its three UK offices are 65 of its support staff, brought back in-house from outsourcing company Integreon in early 2013.
And among the items to be included in Mishcon de Reya’s next three-year plan will be a possible office move, as the firm’s lease on its Red Lion Square HQ has a break clause in 2017.
The importance of operational factors at Hill Dickinson last year can be seen in the financial results. Turnover rose by 2.5 per cent, from £110.1m to £112.8m,
but net profit shrank from £19m
to £16.9m, taking the margin back down to the 2009/10 level of 15 per cent. Managing partner Peter Jackson attributed the decrease
in profitability to a drop-off in commercial work and the convergence of a number of increased overheads, including the end of a five-year rent incentive on the firm’s Liverpool office and a new lease on its property in the City.
Hill Dickinson holds 269,000sq ft of office space in the UK at a total cost of £7.9m, of which 28,000sq ft is in London, costing £1.4m. Jackson said it had also been necessary to upgrade the firm’s IT system to keep up with demand in the insurance sector. The firm cut back on staff after a spate of mergers, axing 83 roles across the firm.
To purchase access to the full report visit www.thelawyer.com/uk200 or contact Daniela Badcock on +44 (0) 207 970 4582