Question:
Our firm is beginning to consider off-shore outsourcing. Our clients are asking about this as a service delivery option. Do you have suggestions?
Response:
Off-shore outsourcing is the new frontier. While there are opportunites and benefits that can result there are also pitfalls. Here are our thoughts:
Start slow with a small project and monitor results. Build up your initial experience.
John W. Olmstead, MBA, Ph.D, CMC
Question: I am a legal administrator with a 14 attorney law firm in the Chicago area. It seems that it is becoming more and more difficult to deal with insurance company clients.While we have always had to deal with low billing rates and unrealistic controls mandated by insurance companies, recent trends have reached levels that threaten the business relationship which has reached an all time low. We must now jump through even more hoops to be able to play in the insurance defense arena. What are your suggestions?
Response: The present state of the insurance defense practice presents numerous challenges to the law firm. These challenges simply cannot be ignored – they will have to be faced head-on. The solutions are complex and will require time to sort through. While solutions can come in different varieties, they will take the form of one of two general strategic approaches.
Reinvent The Practice – Stay In The Game
For many firms the appropriate strategy may be to stay in the game. These will be firms that have a well-established reputation in insurance defense, where insurance defense represents a major source of their revenue, and where adequate leverage and profitability and leverage exist. These firms will not be firms that dabble in insurance work. These firms will be committed to this practice area and will focus on it exclusively. They will be innovative client-market driven firms that blend contemporary approaches with the lessons learned from the founding fathers.
Exit Or Diversify The Practice
This strategy will be appropriate for firms that desire to get out of insurance defense work entirely or that desire to reduce their dependence on insurance defense work by diversifying the practice. In this way the mix of the practice can be altered. This strategy will not be easy. It will be a rough road and will take time.
Insurance defense attorneys typically do not have the expertise, experience, or the client contacts in other practice areas such as corporate business. Another factor is perceived image. The business community often views insurance defense firms as second rate firms. Often the law firm has in essence branded itself as an insurance defense firm. This can be a difficult obstacle to overcome. Client law firms with whom this author has worked have found that it can take five years or longer to accomplish such objectives.
Specific tactics will depend upon the firm’s size and the amount of insurance defense work in the practice mix. One of the first steps is for insurance defense firms to try to leverage their litigation experience in order to obtain the defense work from self-insured corporations and general corporate representation. In some instances it may be possible to pick up some of the general corporate representation of insurance companies. This will be a tough road.
Larger firms will require some new blood in the firm with expertise, experience, and a book of business in the desired practice areas. This will require insurance defense firms to consider merger or acquisition. Smaller firms may be able to accomplish these objectives completely internally or with lateral partner acquisitions. Both large and small firms should begin extensive programs of continuing education in desired practice areas. Firm and personal marketing plans should place strong emphasis on creating new business relationships as well.
Much work needs to be done by management of insurance defense firms. The process will take time, hard work, and dedication regardless of the strategic options chosen. Now is the time to get started. Click here for an article on the topic.
John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a solo attorney in private practice. I have been practicing for two years. The bulk of my practice is in the wills, trusts and estates area. I occasionally handle real estate transactions as well. I work from a home in office and meet clients in their homes at night. I have given thought about moving to an office outside the home, but even if I did I think I would still end up meeting clients in their homes at night. My clients seem to really appreciate this and as a result I have yet to walk away from a potential client's home without a signed retainer agreement. What are your thoughts on home offices?
Response:
Sounds like working from home has worked well for your practice and it has caused you to deliver personal attention to your clients which is so necessary in your practice area. I opened my consulting practice 25 years ago and had the overhead of an office and staff from day one. So much has changed since then. Now I have both – small office in St. Louis and home offices that the rest of us work from remotely – Less staff – and less space. We have downsized our office dramatically over the years and now primarily use it for client meetings/presentations when needed. Our infrastructure – phone systems, files, copiers, file servers, and people are primarily housed out of remote home offices. More and more of our work is being delivered remotely/virtually using GoToMeeting and other such tools.
Take a hard look at your purpose and cost for the office and then go from there. Also, consider that sometimes we have to spend money to make money. The increased visibility than the office may give you generate more revenue than its cost? Also, as you get busier and need to boost up infrastructure – staff, systems, etc., you may need a place to house the infrastructure. If you just need a place for client meetings occasionally you might be better off having a virtual office suite arrangement where you pay and use a space as needed with some of the companies that provide such as service. If you have a Regus in your area – you might look into that option. http://www.regus.com/
John W. Olmstead, MBA, Ph.D, CMC
Question: We are a five attorney personal injury plaintiff firm in the midwest. In the last few years we have gone through tort reform, increase competition from other law firms doing extensive advertising, and now trying to weather the recession. From a profitability standpoint – we are holding our own. However, we are concerned about the future. While we do not want to be a high volume PI advertising factory – we believe we need to be doing something different. Do you have any suggestions on how we should plan our future?
Response: The majority of our PI law firm clients are advising that they are having to work much harder at getting clients and investing more heavily in marketing – both time and money. PI firms were feeling the most of these challenges before the recession. However, the recession may accelerate the pace with which law firms reevaluate existing processes and consider new business models. PI firms may want to begin by:
John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a member of a three attorney firm. I think that we know where we are as a firm, where we want to be, but we don't know how to get to the next level. Do you have any ideas?
Response:
Rather than following the pack – attorneys need to find ways in which their firms can "dare to be different."
Many attorneys are providing the same service – solving the same sort of legal problems for their clients using similar tools strategies/approaches. To many clients – attorneys all look the same. What can you do to stand out?
Marketing is about more than just promoting the firm to get clients. It is also about deciding on:
Effective marketing requires a mix of the above elements in your plan and then effectively communicated.
Many attorneys suffer from random (unplanned) acts of marketing or business development. To be effective you need to be well focused, have a plan to focus the firm's efforts, and be disciplined and make excellent use of your professional time. Often the largest marketing investment is not advertising or the cost of other marketing vehicles – it is the cost of you non-billable (or investment) time.
A business/marketing plan (10 pages or less) for the firm can do wonders.
Sit down with the other attorneys in the firm, do some brainstorming away from the office, and put a plan together. Then work the plan.
John W. Olmstead, MBA, Ph.D, CMC
Question: During a recent firm meeting one of our partners asked what the firm could do to be different than every other law firm. What are your thoughts?
Response:
Creating a competitive advantage that is sustainable over time is difficult at best. It is so easy for your competitors to copycat your recent innovations. Clients of law firms advise us that they hire the lawyer – not the firm. However, this only partly true. The firm – its image – its brand – provides a backdrop for the individual attorneys marketing efforts as well – makes marketing easier – and provides backup and bench strength that many clients require before retaining a lawyer.
In general the law firm is faced with the dual challenge of developing a reputation (brand) at both the firm and the individual lawyer level. In general – client delivery practices and behaviors that are part of the firm's core values and have been burned into the firm's cultural fabric are the hardest to copycat.
Areas in which you can consider differentiation strategies:
John W. Olmstead, MBA, Ph.D, CMC
Question: What are some ideas that our eight attorney should be doing to improve profitability?
Response:
Use the RULES formula to focus your effort.
R = Realization rate or effective rate per hour.
U = Utilization – billable hours or case production hours.
L = Leverage – ratio of partners to other timekeepers.
E = Expenses – overhead.
S = Speed – collection cycle – converting work to bills and bills to cash.
Profitable law firms have an appropriate mix of each of these profitability levers. Compare against internal and external benchmarks and determine which of the levers require attention. Usually expenses is not the primary problem – in fact many firms should be spending more in the form of investment. Usually the primary focus should be on improving:
Many firms need to increase case/matter volume through better client development and marketing to be able to obtain higher leverage ratios.
John W. Olmstead, MBA, Ph.D, CMC
Question:
I have recently read several law firm management articles that have referred to "Pipeline Management". What exactly does this mean and what is the implication for law firm management?
Response:
Pipeline management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relatiionship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.
I often also refer to Pipeline managment in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm's Pipeline (from prospects to cash):
By comparing these dashboad statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.
John W. Olmstead, MBA, Ph.D, CMC
Question:
We have had recent discussions in our partner meetings as to whether in these challenging economic times we should play it safe or to step out and innovate.
Response:
As far as the economy – several legal industry sources are advising that the economy may be turning the corner for law firms. According to a PricewaterhouseCoopers Survey – the Worst of the Recession is Over for Law Firms. http://bit.ly/VUEbM. Hildebrandt also recently announced an improvement in the Peer Monitor Index. http://www.hildebrandt.com/Pages/default.aspx.
While all of us need to be cautious concerning playing games of chance and gambling with our professional practices – this is an excellent time to re-examine business models and approaches of the past. Many large and small firms alike are doing just that. Clients are looking for more value for their fee dollars and better client service. Firms that are daring to be different are experimenting and exploring:
This recession may have been more that just another recession – it may have been a management lesson for us all – resulting in permanant structural changes to how legal services are produced, delivered, and consumed.
John W. Olmstead, MBA, Ph.D, CMC
Question: Our firm, a seven attorney personal injury firm in the southwest, seems like we can never get to the next level financially. Do you find that excessive overhead (expense) is the major problem for law firms?
Response:
Not really. In fact, in many cases I find that law firms should be making larger investments in their future and spending more money. Often investments in marketing, talent, and technology are insufficent in many firms. The problem in most firms is insufficient leveraged fee revenue. In other words – many small firms practitioners – only think in terms of whether they have adequate work to keep themselves busy – they do not think in terms of being a net exporter of work so they can keep themselves busy plus two or three other attorneys and or paralegals. A well leveraged practice is what takes you financially to the next level. In reality – more marketing is needed – to create a sufficient volume of work to support this leverage. Once this is accomplished – attorneys must learn how to manage and supervise others – and the compensation system must shift emphasis from personal working collections to responsible (billing attorney) collections.
John W. Olmstead, MBA, Ph.D, CMC