Law Practice Management Asked and Answered Blog

Category: Strategy

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Dec 17, 2013

Law Firm Management – Managing in a Time of Shrinking Demand and Excess Capacity

Question:

Our Chicago law firm of 17 attorneys – 12 partners – 5 associates – is entering its second decade. While we were extremely successful during our early years, the last few years have been a challenge. Since 2008 we have been holding our own and doing okay. We have not laid off any attorneys but the partners are making less money than they made three or four years ago. Billable hours and production seems to be down? Do we have a work ethic or motivation problem? What can we do to get the attorneys producing more billable hours? I would appreciate your thoughts and any suggestions that you may have.

Response:

This is an issue that many firms are experiencing. Here is what I am seeing in firm after firm:

  1. Lower billable hours – in some firms hours are 100 to 200 hours less per attorney than they were a few years ago.
  2. Lower or stagnant collected fee revenues.
  3. Increased expenses
  4. Lower or stagnant profits and profit margins resulting in depressed partner earnings.
  5. Lower associate turnover (due to economy and employment situation for lawyers – many associates are staying put – getting raises – resulting in higher production cost structure)
  6. Declining realization rates. (Firms that had realization rates in the 90% range have seen their realization rates decline into the mid 80% range.)

Several of our clients recently found that they were barking up the wrong tree. They assumed that the lower billable hours and productivity was a result of associates and partners not working hard enough and were searching for compensation approaches to motivate the attorneys to work harder. Further analysis however revealed that the real problem was reduced client demand and excess lawyer capacity. As a result approaches were taken to:

  1. Find ways to use the excess capacity rather than lay off lawyers completely. (This was considered a last resort)
  2. Rather than working less – non-billable hours were specifically targeted in individual attorney personal business plans with specific goals in marketing and other firm related activities to develop firm infrastructure, systems, and marketing intended to increase demand for the firm's services. 
  3. Fiefdoms were broken down and attorneys and staff were cross-trained in other practice areas so that more key personnel could achieve full utilization of 1650-1750 billable hours.
  4. Work hours were reduced for newer attorneys and staff that could not achieve full utilization.
  5. The firm expanded into additional geography areas with cost effective remote intake offices and new service offerings. 

Examine your financials and talk with you people so that you can discover the real problem – work ethic, motivation, compensation, or client demand and lawyer capacity. Once you discover the real cause of the problem you will be able to think you way to the solution.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Dec 03, 2013

Starting a Law Firm – Going Out On My Own – The Most Important First Step

Question:

I am a non-equity partner in a small law firm in Washington D.C. I have been with the firm for 15 years and there is no opportunity to become an equity partner. I am thinking about going out on my own. If there were one first step that I should take what would it be?

Response:

Create a business plan – even if only a few pages – for the firm. Your plan will serve as a roadmap for your practice. Your mission should address what services you are selling, where you are selling them, and to whom. Your plan should address your competitive strategy – how you will be different than your competitors. It should also identify your core values. A vision for 5 years out into the future as to where you would like to see the firm and specific goals and objectives should be formulated.

Your plan will give you a good indication as to whether you should start a practice or not.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Nov 19, 2013

Law Firm Geographic Expansion – Additional Offices

Question:

Our firm is an estate planning firm in the northwest suburbs of Chicago. We are a three attorney firm. We are a very "marketing orientated" practice and invest a lot of money and time into marketing and advertising. Still we are not getting the volume of work we need to reach our financial goals and targets. Most of our work is coming from our local city and a surrounding city or two. We are beginning to think that – for the most part – we now have all the work we can get from these communities and we need to expand and establish a presence (offices) in other target cities. Your thoughts would be appreciated.

Response:

For your type of practice this could very well be true. Spending more marketing time and money targeted in the same area won't help if there is no more work to be had. Here are a few thoughts:

  1. Do a little "do-it-yourself" market research on other surrounding communities. Go to the U.S. Census website or to local websites for the communities of interest. Review the demographics and growth trends and projections for the communities. Then review websites of law firms that serve these communities. Try to get a feel if there is room for you in these markets.
  2. Select a target centralized community where you want to establish a presence.
  3. See what is available for office space for new client intakes. Consider an Executive Suite arrangement (i.e. Regus). Another option might be an office sharing arrangement with a law firm that has excess space. Look for an arrangement that does not tie you into a long term lease.
  4. Resist the temptation to setup a "real office" – a production office if you will. Use your home office as the production and client communications center.
  5. Use the remote office for client intakes only and do not staff with support staff in the initial phase.
  6. If you have a VOIP phone system – have the calls from clients go to the main office and transfer any calls that may come in for an attorney working at the remote office.
  7. Use GoToMeeting and other electronic tools to communicate with clients after the relationship has been established.
  8. Use face to face meetings only when they are really necessary.

The cheaper you can launch and maintain remote (branch) offices the more markets you can expand in to.

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John W. Olmstead, MBA, Ph.D, CMC

 

Oct 29, 2013

Insurance Defense Law Firms – Risks and Strategies

Question:

I am the managing partner of a 22 attorney firm in Des Moines, Iowa. Our practice is 100% insurance defense representing insurance companies and their insured's. We are aware of some firms such as ours that have had to close their doors during the last few years. What should we be thinking about? You ideas would be appreciated.

Response:

Insurance defense law firms that have been approved as panel counsel for multiple insurance companies can inadvertently find that their revenue base is increasingly dependent on a shrinking number of insurance companies over time.

RISKS

  1. Small number of companies representing the lion's share of the firm's revenues
  2. Changing Rules for Insurance Panels – General Industry Consolidation
  3. Regionalization
  4. Insurance Companies putting work "out for bid"
  5. Trapped by a "Paradigm of Pass Success" and failure to institutionalize business development processes and practices
  6. Promoting an "entitlement generation" of partners with no business development skill
  7. Failure to stay abreast of changes within the client's organization. (Needs, players, policy changes, etc.)
  8. Aging/retirement of founding partners
  9. In house assignments
  10. Departing partners
  11. Lack of time and focus to allocate to new business development

STRATEGIES

  1. Use a structured client feedback process to obtain hard data from your clients on firm performance, client satisfaction, projected case assignments in the future, your firm's share of the client wallet, changing management (people) and policies, unmet needs, and future opportunities.
  2. If you don't have one develop a strategic plan and a marketing plan (including a specific budget) for the firm.
  3. Diversify the client base. Target new clients. Aggressively pursue new panel applications, track submissions, and monitor. Once approved – look for opportunities to build relationships. Consider educational forums and venues.
  4. Determine if regionalization is an appropriate strategy for your firm. (Ask your clients)
  5. Look for ways to obtain additional business from existing clients. (Ask your clients)
  6. Write and publish more articles – externally and internally (website).
  7. Beef up the blog on the website.
  8. Get more attorneys in the firm involved in business development.
  9. Develop a succession plan for the founders.

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John W. Olmstead, MBA, Ph.D, CMC

Sep 03, 2013

Successful Law Firms – What Are They Doing Right?

Question:

Our firm is a 12 attorney firm in Dallas. Our practice areas are business transaction and litigation. We also have an active energy practice. The past two years have been difficult for us financially. What are some of the successful firms doing right?

Response:

In spite of the recent economic woes many small firms have still done well. Many of these firms were those that:

I believe that law firms that fail to focus their practices, set goals, measure accomplishments, and foster accountability will fall short and not meet their financial objectives. Law firms that fail to plan are planning to fail.

Law firms as well as solo practices need to begin focusing their firms and practices, setting firm and individual production goals, measure accomplishment and implementing systems to instill accountability from all members of the team – attorneys and staff alike.

What gets measured is what gets done.

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John W. Olmstead, MBA, Ph.D, CMC

Aug 10, 2013

Law Firm Strategic Planning – Implementation – Responsibility – Accountability

Question:

I am the managing partner of a 17 attorney law firm in downtown Chicago. We are a litigation boutique firm with a majority of our work in insurance defense. We have been in practice for 7 years. While we grew quickly during the early years – we have reached a plateau and growth has stalled. We are planning our first strategic planning retreat and hope to develop a long range strategic plan. Do you have any suggestions?

Response:

Where more planning efforts fall short is in the implementation of the plan. The plan lays on the shelf and collects dust. I suggest that the plan be implemented through the firm's existing management structure, i.e., the managing partner, executive committee, the strategic planning committee, and practice area chairs.

Individual partners should be assigned responsibility and held accountable for the satisfactory implementation of each phase of the plan in accordance with an agreed-upon timetable. This should be done during the planning retreat session.

Status reports should be provided to the other partners in each phase of the plan in order to keep them apprised of the planning activities.

Suggest an online project management system (portal) be used to track progress.

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John W. Olmstead, MBA, Ph.D, CMC

May 07, 2013

Law Firm Growth and Reduction in Profits

Question:

Our firm is a personal injury plaintiff firm in Topeka, KS. Until two years ago we had two attorneys (both partners) and two support staff members. In early 2012 we added an associate attorney, increased our marketing investment, moved our offices and took on additional space, added five additional support staff members, and implemented a case management system. We currently have 500 open cases – up from 200 cases 2+ years ago. Revenues are up – but the two partners are each taking home $40,000 less than they were before the expansion. Our home grown office manager manages and runs the office. What should we be doing differently?

Response:

My first thought is that your revenues have not caught up with the overhead and the growth investments that you have made. (You should review your reports and verify this) Personal injury cases have a much longer revenue lag than does work that gets "time-billed" monthly. Some cases may be in progress for two years or so. So be patient but don't be complacent.

You do need to be proactive in managing your case pipeline and your team. Someone needs to mind and manage the store. You are a larger firm now and you can't assume that your team is working to maximum effectiveness and efficiency. Insure that you actually need all of these people and that people are working smart. Roles for each member of the team should be created and performance standards and expectations established. Goals (cases) should be created for each team member, metrics and measurements established, standard reports created – generated – and used, and team members held accountable for results. Use the reports that the new case management system provides to measure goal accomplishment and performance.

Evaluate whether your office manager has the leadership skills that the firm now requires.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Feb 06, 2013

Law Firm Expansion – Expanding Your Geographical Reach

Question:

Our firm is a 14 attorney firm in central Iowa. We have one office in Des Moines and have been considering opening an office in another city. We represent business organizations and very few individual clients. I would appreciate your thoughts and suggestions.

Response:

I hope this is part of an overall strategic planning process and not a random act. If it is then the first consideration should be the needs of your most important existing clients. The first questions you should address are:

  1. Where are your present clients located and how do they communicate with the firm?
  2. To what extent have the needs and demands of these clients changed due to advances in technology?
  3. Are your client relationships based upon direct contact and communication? To what extent are interpersonal relationships crucial to the maintenance of these clients?
  4. Are any of these key existing clients expanding into new geographical areas?

After giving some thought to the above questions determine whether the firm can meet the needs of key clients from existing geographical locations, or whether it must consider new venues. Then consider the following:

  1. It is necessary for the firm to be physically present where the client is located or is the firm better served utilizing existing resources to expand practically, while not physically?
  2. Is a physical presence required to practice in the new location?
  3. Would the firm be better served by utilizing technological resources instead of physical location expansion?
  4. Are there marketing disadvantages by not having a physical presence even if the firm can service the legal needs of the client with a local presence? Could the firm lose out of opportunities by being out of site out of mind?

A geographical strategy must carefully consider and weigh the importance of personal contact.

Think through the process strategically and as a part of your planning process – run the numbers on a few scenarios – and weight the pros and cons of moving into other areas.

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John W. Olmstead, MBA, Ph.D, CMC

Jan 08, 2013

Focusing the Law Firm To Improve Profitability

Question:

Our firm is a 9 attorney firm in Joplin, Missouri. We have our first partner meeting this weekend and we are looking for ideas that we can implement this year to improve our practice and profitability. We would appreciate any ideas that you may have?

Response:

Based upon our experience from client engagements I have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented.

I suggest the following:

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John W. Olmstead, MBA, Ph.D, CMC

 

Dec 11, 2012

Law Firm Management – Planning Ideas for 2013

Question:

Our 16 attorney firm is having our first planning retreat next week to plan for 2013. I have been charged with putting together the agenda and program. Do you have any suggestions that we as a firm might consider or think about adopting? 

Response:

  1. Take a serious look at the firm's present position in the marketplace. Review financials, compare against financial ratios, compare with both firm past history and against law firm benchmarks. Examine how well the firm is competing. Is the firm too dependent on a narrow base of clients? Is the practice at risk? Conduct a client survey and obtain client feedback both on firm performance as well as possible unmet needs and opportunities. Consider a comprehensive management review.
  2. Formulate business goals and develop a strategic business plan as a roadmap for the future. Design and simplify business reports designed to measure the goals identified in the strategic business plan. Strive for a one page summary as the primary report.
  3. Require all timekeepers in the firm to submit personal one page business plans which in addition to outlining goals for the year provided fee revenue goals with an element of stretch. The goals should have a stretch component but yet be realistic and attainable. These plans should be approved by the Executive Committee, Managing Partner or the Partnership.
  4. Find ways to focus the firm and foster accountability from all.
  5. Undertake a few projects at a time that can be realistically accomplished. Delegate tasks across the firm.
  6. Law firms must adopt management structures that enables the firm to act decisively and quickly. Structures that do not support such a culture must be replaced.

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John W. Olmstead, MBA, Ph.D, CMC

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