There's no escaping it - today's economic conditions aren't going to change any time soon, and the tough climate is having a significant impact on the way legal practices operate. For many firms, survival has become the main objective, particularly on the high-street where practitioners are reeling from the reduction in legal aid funding. Over in the commercial sector, firms remain at the mercy of the wider economy. However, it's not all doom and gloom, as some practices continue to thrive despite the prevailing conditions, delivering strong revenues and growing market share. This success isn't confined to magic circle firms who seem impervious to economic fluctuations, but includes a number of small and medium-sized private practices who are successfully bucking the economic trend. Over the years, we have worked closely with many such firms, and this enables us to analyse the drivers of success. By sharing these insights, we hope to promote best practice throughout the sector.
1. Performance, performance, performance!
Whilst it's not always possible to grow turnover in an economic downturn, maintaining and exceeding existing client requirements remains of primary importance. The successful firms within our analysis never forget this principle. No matter how tough the trading conditions, they never once failed to service existing client needs with greater diligence than ever before. Many firms overlook this important principle and actively seek additional work to compensate for the loss of key client accounts that have fallen victim to economic contraction. In doing so, firms move away from good habit patterns and neglect their existing clients. They fail to recognise that one of the harsh realities of economic downturn is that client companies are increasingly likely to press for more favourable terms from their legal partners, and they'll be quick to act upon any excuse to do so. The most successful firms in our survey never forgot this valuable lesson - under normal market conditions, performance is necessary, but in a downturn it's absolutely critical.
2. Cost containment is the key
Whilst cost containment is important in any market, the ability to control operating costs is absolutely vital in an economic downturn. All the firms in our analysis identified this as one of the main reasons for their continued success. Whilst a slowdown brings many challenges, it also creates pockets of opportunity. Many firms in our analysis were able to negotiate favourable lease arrangements on their commercial offices, to gain better rates from other professional services providers, and to make redundancies across underperforming departments. The most successful firms never carry excess weight, they never over-capitalise or stretch themselves financially, and they never carry staff who fail to meet targets.
3. Concentrate on key strengths
It is clear in our analysis that most financially successful firms take care not to spread themselves too thinly. Many firms adopt a multi-disciplinary approach to law, and inevitably fail to deliver - and while some departments may do well, this is likely to be off-set by losses in other areas. In a buoyant economy it's easy to diversify into other, more profitable areas of law, but this should be done only when the practice is well-established in just a small number of key legal disciplines. All of our sample firms were largely focussed on a small number of specialisms, and were experts within their chosen fields. Not only did they find that increasing market share from this position was easier to achieve, it also made their firm more attractive to staff and clients who wanted to work with a recognised leader in their sector. By contrast, those firms that adopt a more generalist approach never achieve the same penetration as specialists. Successful firms constantly evaluate and explore opportunities in new niches, yet choose to exploit only those areas where there is clear rationale for doing so. Each of the firms in our survey continually asked themselves what they could be the best at. Was it employment, commercial property, healthcare? Could this be done nationally, or regionally? Then they built their business around their core set of beliefs, never deviating until they had achieved their objectives. Too many firms spread themselves too thinly and try to become too big too quickly. Recruiting senior people in specialist areas they want to enter can cause more problems in the long-term, exposing firms to key-man risks. In contrast, concentrating on just a few areas means that specialist staff are cultivated within these departments, leaving the firm less vulnerable to loss of key individuals.
4. Recruit the best - be selective
A firm's people are its most important asset, yet it's something that many companies take for granted. In good economic times it's easy to add headcount and remain profitable. However, the difference between good firms and great firms isn't how many people they employ, but whom they employ. And whilst cost containment is paramount, our analysis demonstrates that many of the firms producing excellent results were happy to recruit additional staff capable of making a difference to their practice. The most successful firms never scrimped on employing the best people, regardless of cost. And whilst some firms managed the recruitment process internally, all of our surveyed clients used the services of a professional headhunting practice to identify and engage with the very best people in the market. Whilst this incurred additional cost, firms realised that the calibre of the staff they recruited using this approach was far superior and delivered a far greater return on investment. Staff recruited through a headhunting firm added greater value, stayed with the firm far longer, and generally produced higher returns than those candidates who were recruited via internal resources.
5. A recipe for success
Our analysis clearly illustrates that despite the challenging economic environment, growth opportunities do exist for legal firms that follow some basic principles. Firstly, firms must show outstanding commitment to their existing clients. They must maintain tight control over costs, and they should specialise in those areas where they can add greatest value and be the best in the business. Finally, they must recruit the kind of people who will help them provide an outstanding service and add greatest value both to the practice and their clients.
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