The average business’ approach to legal work has undergone an evolution in the past two years, but it’s not only corporate legal departments that are feeling the pressure. Law firms also need to modernise their working practices if they are to provide their clients with the services they need, and ensure their own future in what has now become a highly competitive marketplace.

For Rupert Egerton-Smith, head of strategy and business transformation at Linklaters LLP, the challenge lies in helping to support a vast and highly successful global law firm through current changes, while also ensuring the firm does not lose sight of its long-term business goals.

Here, the skills and processes that he and his team have transferred to the firm from outside professions look set to have a key role to play.

Egerton-Smith’s own background is in management consulting. He worked at PA Consulting before joining Linklaters in 2000. It was a time, he explains, that the law firm felt the need to set up a strategy team to oversee its plans for global expansion. He took the helm of that team in 2004 after a two-year absence, during which he completed an MBA at London Business School; and became responsible for business transformation in late 2008 when Linklaters decided to merge the strategy and business transformation units – a reflection both of the changing marketplace and Linklaters’ own goals for future growth.

‘It was the right time to bring together the strategy team with the delivery capabilities of the projects and transformation team,’ adds Egerton-Smith. ‘It has allowed us to focus on longer-term planning, while also helping the firm adapt at real time to the realities of today’s legal market.’ The latter has proved crucial in recent years, not least because of the impact of the financial crisis on law firms and their clients.

But, even though Linklaters had its fair share of challenges during the financial downturn, Egerton-Smith says that the firm performed particularly well because of work such as advising PricewaterhouseCoopers, administrators to Lehman Brothers International (Europe), who were at the heart of the crisis.

Nonetheless, Egerton-Smith concedes that the crisis has also brought about a shift in how clients view and purchase legal services, which is putting pressure on the ways in which law firms deliver those services. ‘Being successful in today’s market lies partly in how law firms address changes to the ways in which legal advice can be delivered to clients.’

A market leader

The pressure on cost in this new environment is without doubt, but Egerton-Smith emphasises that it is not simply a matter of law firms needing to provide legal services at lower cost, nor just of driving efficiencies into their practices. In an increasingly competitive market, he believes that firms need to differentiate themselves from their competitors by providing services and attributes that other law firms and legal service providers cannot. And he expects this also to change the law firm model in the immediate future.

‘For the two decades up to the recent financial crisis, the demand for sophisticated legal services consistently exceeded supply and prices rose as a consequence of that,’ he explains. ‘Today, the opposite is true. But, on top of that, in-house legal departments have become far more sophisticated and discerning in how they balance cost and value in the external legal services that they buy.’

Egerton-Smith believes that the market was probably always heading in that direction, but says that the financial crisis has given it an added impetus.

‘Part of that shift has also been driven by legal process outsourcing [also known as legal services outsourcing or LSO],’ he adds. ‘As LSO has gained ground, it has given in-house counsel greater visibility into the cost of legal services. It has also given legal departments the ability to disaggregate legal services to minimise cost and maximise value at a time when corporate financial heads are putting them under pressure to manage their budgets accordingly. This has required law firms to focus much more on how they deliver services and where they really add value for their clients.’

Egerton-Smith says that, as firms look for ways to drive down costs, it’s only natural that they too begin to disaggregate parts of their services. ‘Law firms need to adopt new approaches to sourcing work internally,’ he explains, ‘for example, by building specialist shared services teams to lower costs and drive efficiencies. But they also need to look at collaborating with other firms, or passing the work on to third parties, such as LSO providers or smaller, perhaps more specialist, law firms.’

The emphasis here, believes Egerton-Smith, is about building a more intelligent and sustainable model for delivery, and he stresses the need for law firms to use all the tools at their disposal.

‘Technology is becoming an important feature of the legal industry, enabling firms to deliver legal transactions more effectively,’ he adds. ‘Work flow and automation tools may sound anathema to today’s lawyers, but the drive for efficiency will see technology play a lead role in shaping the law firm model in the coming years.’

Managing many of these changes requires specialist skills, placing Egerton-Smith and his strategy and business transformation team into a pivotal role. ‘We therefore have built up a small team of people skilled in strategic thinking, project management and process change.’

Time for change

However, Egerton-Smith emphasises that this team can be effective only by working in collaboration with the law firm’s partners and practice heads. ‘By asking senior lawyers and specialists from other backgrounds to work together to think about how we can adapt the way that we deliver our services, you can get fascinating perspectives,’ he says. ‘The greatest aim is to help lawyers respond to clients’ increasing focus on efficiency, and this is an area in which the strategy and transformation team’s skills can be of use.’

When it comes to the need for transformation, however, Egerton-Smith believes that the case for change is irrefutable: ‘I don’t think clients are ever going to go back to not being interested in cost or alternative models of delivery,’ he says. ‘It’s now a feature of the marketplace. In-house legal departments are becoming more selective when it comes to the firms that they hire. Many are already beginning to shift work away from those firms that aren’t able to respond to their new requirements for more commercial and strategic support. These days, just doing the legal work well is not necessarily enough.’

Of course, changing the way that a law firm delivers legal services is easier said than done, as it requires firms to rethink not just how they train and recompense lawyers, but also about how they will derive their profits in future.

‘The fact that other sourcing options are now available for more routine work will challenge the ways that law firms derive their profits,’ agrees Egerton-Smith, adding that the ‘traditional pyramid structure’ – in which profitability is driven by leverage – will be put under pressure. ‘That requires some serious rethinking about future business models,’ he says.

However, Egerton-Smith is careful not to let today’s market challenges impair the firm’s focus on longer-term strategic goals. The skill, he says, comes in balancing current and future priorities: ‘We’re realistic about the strategy for change that we’re setting,’ he explains. ‘We know that it’s going to need constant readjustment as the market evolves. Our priority for the next two years is to focus on clients’ needs so that we can adjust the ways in which we service them and build enduring relationships. But we also must keep our eye on longer-term trends.

‘We are an ambitious firm, so we need to find new areas of business and develop capabilities in the right markets. And that can be done only by talking directly to our clients and understanding their perspectives and long-term needs.’

Egerton-Smith believes that emerging markets will be an important driver of growth for at least the next five years. He says that Linklaters, with its strong reputation and track record in the BRIC countries [Brazil, Russia, India and China] and other markets, including Africa, is well placed to help clients navigate complex challenges ‘to, from and between’ emerging economies.

But Egerton-Smith also argues that, as the nature of a lawyer’s role continues to change, the ability for a law firm to be commercial in its relationships with its clients will increasingly be a differentiator between firms.

‘These days, more and more general counsel are sitting on the board and looking to their external legal advisers for strategic opinions, as well as technical legal advice,’ he explains. ‘Law firms need to be seen as trusted advisers not just legal experts.’

A new type of service

But is it really possible for law firms to advise on all areas of their clients’ corporate strategies – isn’t that casting the net too wide? ‘Perhaps,’ admits Egerton-Smith, ‘but one area of value that law firms such as Linklaters bring is the ability to understand our clients’ businesses and the sectors that they are operating in, helping them pre-empt strategic issues.

‘We want to help our clients solve their problems dynamically – by looking at issues from a commercial and strategic perspective, in addition to the technical legal issues.’

Approaches such as this, says Egerton-Smith, will create major changes in law firm services and structures in the coming years. As a result, he expects some law firms to become more niche, focusing on certain specialist areas. But, he adds: ‘It all comes back to the central issue, which is that general counsel and legal heads will be looking for more flexible ways to get the advice that they need.

‘The law firm market is set to become much more competitive,’ he emphasises. ‘Everyone is going to have to work harder for market share as a result.’

Here, Egerton-Smith reiterates that one major factor will be the ability for a law firm to differentiate itself from its competitors by delivering services in a more flexible way. ‘The legal profession isn’t a sector that will become radically different overnight, but evolution is accelerating fast,’ he says. ‘Some firms will fall away; others with new business models will launch. In an environment of competitive volatility, it’s crucial for firms to be distinctive and to move fast.’

Of course, clients aren’t homogenous, and not all companies are demanding the changes to service delivery that Egerton-Smith believes are taking hold. However, he says that there is growing expectation among clients on heavy-duty legal work, such as due diligence or e-discovery, that different sourcing models should be considered. ‘Increasingly, it is being included in requests for proposals for new work,’ he adds.

This in itself, says Egerton-Smith, is adding to a general sense of urgency in the law firm market for innovation. ‘Many law firms expend a lot of energy pursuing multiple internally focused initiatives; our aim is to focus tightly on a number of key areas for change,’ he says. ‘One vital area being the ability to offer clients a range of service delivery options.

‘Our clients have differing needs and expectations and so our range of delivery options has to reflect that.

‘Lawyers and their law firms have a lot to offer when it comes to corporate strategic issues,’ he says. ‘Look at Linklaters as an example. For the past 10 years, we’ve been delivering a complex global legal service, tailored in accordance with strong national and cultural differences. Operating globally is something that we are good at – and that knowledge and experience is valuable to our clients too. We have a lot to bring to the table.’


LINKLATERS IN BRIEF
Essential facts about the firm

Established: 1838, as Dods & Linklater

Reach: 26 offices in 19 countries

Number of practising partners: 480

Number of qualified lawyers, including partners: 2,200

Total staff: 5,000

Revenue (year ending 30 april 2010): £1.183bn

Pre-tax profit (same period): £514m

Key practice areas: Linklaters’ corporate division is recognised as a world leader in mergers, acquisitions, flotations, joint ventures and private equity. Its finance practice advises banks, companies, funds and governments in their funding, hedging and investment activities. Its commercial division specialises in litigation and dispute resolution, real estate, tax, technology, media and IP.


This article first appeared in Legal Strategy Review, issue 7