South Carolina Lawyer
Vol. 13, No. 6, Pg. 42.
Achieving the benefits of Practice Management The changing market for legal services places a new focus on practice management
42Achieving the benefits of Practice Management The changing market for legal services places a new focus on practice managementBy Susan R. Lambreth and Susan R. Sneider44Law firms are recognizing that the days of operating like a regulated industry are fading fast. Like the airline, telecom and rail businesses in prior years, forward-thinking law firms understand that they are operating in an increasingly competitive marketplace and that they must transform themselves in order to thrive. Practice management is one of the key components in this transformation for law firms to be successful in the long term.
Today's law firms face significant internal and external challenges as they strive to increase net income per partner and compete for both clients and lawyers in the legal marketplace. Traditional models for law firm success are outdated, and law firms are realizing the need to reinvent themselves in order to survive. Common pressures facing law firms and law firm management today include:
* Associate salaries that have escalated, while their willingness to work harder - within the current structure and motivational system common to most law firms - has not escalated on pace with their salaries. * Clients demanding from all of their suppliers increasing levels of service, at the same or lower price. * New providers delivering legal services and information that are becoming more common and are carving off pieces of the legal services' "value chain" from traditional law firms. * Clients who are experiencing their profit margins squeezed by the internet. * Partners who are working harder than associates (counting the total of billable and nonbillable time) and are increasingly frustrated and approaching burnout.
All of these market developments indicate that traditional law firmsmust rethink not only how they provide services, but also how they are managed, and if they intend to be successful and profitable. The increases in associate salaries in 2000 and the resulting need for increased associate productivity has precipitated the most profound changes in the attitudes toward real practice management of any trend in the last decade.
In addition, many firms grew dramatically over the last few years of the booming economy. In fact, the average size of the top 20 firms in the country grew from 715 lawyers five years ago to more than 1100 this year. Many firms more than doubled in size in this period. This was often accompanied by a significant increase in the number of offices within the firm.
Practice management -- a key to capitalizing upon size and resources
It is critical to recognize that the management of the law firm must evolve as it grows. What worked when the firm had 150 lawyers in two offices most likely won't work with 400 lawyers in five offices or 600 lawyers in 10 offices. While there are certainly elements of good management that are consistent across firms of any size, the degree of application of these management principles, and the time that is required to put them in place, will usually increase as firm size and scope increases. Practice management is critical to any firm that hopes to compete in the Profits Per Partner war or simply wants to capitalize on its growth.
Why have firms grown so much? The most common reasons are to enhance their services to clients, to increase critical mass in certain practice areas or offices, to continue to increase their profits per partner or to enhance their position as a key provider of legal services to theirclients and prospects. However, many firms have not truly capitalized upon the growth they have undertaken. In some instances, their competitive position has been weakened rather than strengthened by the investments they made in growth, and lawyers have correctly concluded that growth for growth's sake does not make a better firm. Management challenges grow geometrically as firms become larger and more complex.
It is critical, whether you are in a firm of 100 or 1000 lawyers, to really take advantage of the firm's platform. The larger and more diverse and dispersed a firm becomes, the more attention must be focused on effectively managing the firm. Growing a firm requires a significant investment, in both time and actual dollars (for recruiting, for ramp-up time, for marketing activities, etc.). The investment in effective management, especially practice management, will help ensure that the firm gets a significant return on the investment in growth. This return can be measured by increased profitability, but it can also be measured by factors such as the firm's market position, acquisition of new clients and retention of key lawyers.
What does it mean to have strong practice management?
In the broadest perspective, practice management means managing the legal work, managing clients and managing the professionals (lawyers and other fee earners). Currently, firms use many different models of practice management. In most firms, this function is typically handled in practice groups organized by substantive areas such as labor and employment, corporate, tax, securities, M&A, product liability and so on. In others, it is the responsibility of industry or client groups such as securities, financial institutions, media, telecommunications or health
45care. In some large firms, practice groups include a mix of substantive areas of law groupings and industry or client segment groupings.
Strong practice group management means that your firm has established firm-wide (not office by office) practice groups, each with a practice group leader. Practice groups are narrowly focused on and of manageable size, usually 15 to 50 professionals (though they can be significantly larger in megafirms). To be effective,...