The traditional law firm model has come under significant strain as a result of the coronavirus pandemic. Progress towards a more fully realized digital transformation of the sector has accelerated, achieving in the space of a few weeks what would have normally taken several years. This rapid evolution is showing no signs of slowing up yet. Law firm resilience – both immediate and longer-term – now rests on the ability to be agile and flexible, while still providing a high-quality service.
Over the past few weeks we’ve spoken to hundreds of customers asking the question, “how do I add instant flexibility and improve risk management in our operations?” Spotting this as a business opportunity, a growing minority of IP professionals are looking at ways they can embrace the new paradigm. Rather than return to ‘business as before’, they want to build flexibility into their operations to allow them to take advantage.
This is not a knee-jerk reaction. Rather, it’s the rational response from firms looking to instantly enhance their risk management, and future profitability, in the face of sudden and unprecedented change.
cash flow is king
Law firms tend to not hold particularly large cash reserves. Operating generally as a partnership, profits are distributed throughout the year, and there are usually high fixed costs including real estate, business services staff and wider legal administrative teams. When the going is good, scale can be leveraged fruitfully and the cash balance is less of an issue. But when there is a broader downturn and a reduction in client demand then that leverage reverses, becoming an anchor which can potentially drag the firm down.
With Covid-19 sending the global economy into freefall, cash flow is now top of the agenda for many firms compounded by the issue of lock up, unpaid balances, the ‘hidden crisis’ for law firms is still a dominant discussion topic amongst managing partners – and may now be the difference between business survival or collapse. This is why we have seen a hard-line approach taken by many firms, to pause profit distributions to partners, cut pay and use governmental support to decrease overheads so far as is possible in the current climate.
Against this backdrop, the argument for keeping all skills and services in-house no longer seems so compelling. In fact, today the reverse is more likely to be true: firms need to reduce their fixed costs – and fast.
technology and outsourcing: tools for reSilience
At the same time, with firms now running far leaner operations and shifting up a gear to facilitate remote working, they are acutely aware of the need to work smarter than ever before to maintain productivity and profitability. Delivering the same level of client care – or better – from a smaller, more disparate workforce is one of the key challenges of this crisis.
Digitalizing and outsourcing routine processes are coming to the fore as tools of resilience, creating more streamlined systems and enabling firms to access specialist global resources for a fraction of the cost of retaining their own, freeing them up to focus on higher-value work while providing flexible access to scale as required. Meanwhile, the forced implementation of remote working has improved law firm digital literacy substantially while demonstrating the efficacy of cloud solutions both in terms of accessibility and security / resilience.
This brings with it a real opportunity for the ambitious. Law firms are already innovating to establish new products and services tailored to what is becoming known as the ‘new normal’, and the host of new demands from legal clients that will result. But more can be done.
There are three key questions law firms should now be asking themselves
- Are our people effectively deployed to create lasting value? People are the primary sources of value and the highest cost center for services businesses. Strategic, commercial deployment of that resource is fundamental. The current crisis has shown that many previously analogue, low level process can now be digitized, improving efficiency and resilience, and enabling lawyers to focus on building deeper client relationships and delivering high level work.
- How can fixed costs be cut while maintaining quality and scale? Many firms emerging from Covid-19 will be far leaner operations, but this does not mean sacrificing scale. It means removing the redundant and outsourcing or automating the inefficient. This will provide the flexibility to scale up swiftly and without high investment costs for training/recruitment in the good times, and scaling back effectively when there is a drop in demand.
- Will clients be satisfied with status-quo solutions? Legal clients are increasingly sophisticated, often requiring more for less given the current economic climate. They are cognisant of value and experience at every stage of engagement. The expectation cannot be that the cost of bloated and inefficient operations can be passed on to these clients. A leaner, more agile and more flexible legal industry, fully digitalized and deploying smart solutions will emerge post-Covid-19.
The coronavirus crisis will be the catalyst for change in the industry and though there will continue to be disruption and challenges in the coming months and even years, the opportunity to create a smarter, more effective legal industry paradigm should and must now be seized. The world which will emerge from the current crisis will demand it.