Professional services organisations, such as law firms, operate in one of the most conservative industries - and, until recently, business tended to be conducted via the traditional method. Sales were made based on long term relationships between senior people across organisations with work billed on an hourly basis.
Individuals that were good at making and maintaining contacts got more work, climbed the corporate ladder and often made partner. During the high times, clients often didn't question invoices, especially from lawyers, as it was seen as a necessary cost of doing business (and sometimes there was little in the way of alternatives).
However, the legal industry has gone through more disruptive change in the past few years than in the previously hundred combined. The reasons for this change are pretty straightforward and well-known but in my opinion there are three key drivers:
It's the economy: The very painful double dip recession - and the possibility of an unheard of triple dip - has forced all industries and, in particular, banking, to scale back spending on professional services
Savvy shoppers: Customers have become increasingly knowledgeable about how they buy services and more demanding in terms of transparency and predictability. This has forced professional services to compete harder for (and sometimes less) work than in the boom times
Mobile and mobile: Employees have embraced smart phones and tablets. Those joining professional services firms now have a totally different way of working and mindset than those of past with the expectation of having information on-demand, 24/7.
So what does change mean for individual firms?
These drivers have resulted in such significant challenges on the ground that legal firms need to embrace and proactively respond to change in order to remain competitive. This reality has led to an increase in the need for accurate and timely information as well as systems that can support evolving business change.
Professional law firms can embrace the changes underway by getting control of how they obtain, share and exploit information to drive growth in today's challenging business environment.
Here are four practical tips to help you review your firm's
1) Make improvements in pricing and billing processes
New and innovative billing practices have been a feature of the pasts few years as the competitive landscape changed. Clients are now looking for things like fixed price quotes in advance, or complete transparency around how their quotes/invoices are calculated. This means that firms have to be able to quote projects as accurately as they can up front and then manage against that budget. Your systems also need to be able to factor in things such as volume discounts or success fees. This can be a real challenge for firms that are still on legacy systems. The business needs to offer this to compete and back office functions need to deliver the flexibility.
Finally, when clients have been billed, firms need to be able to measure WIP, and lock-up and chase-up invoices in an appropriate and timely manner. I have seen a real growth in demand for receivables management systems for services customers because they can achieve a very fast return-on-investment. If you can shave even a few days off debtor days it can have a big impact on your working capital which makes the cost of a project very easy to justify.
For more insight on this hot topic, check out Mark Chalfen's blog How an SAP Receivables Management project can improve your working capital.
2) Use relevant information to drive decision-making
Measuring client profitability is sometimes a dark art across legal firms. Although analysing profit for individual pieces of work can normally be achieved quite easily, it relies on the non-chargeable time being captured - and not put in a bucket somewhere else! Looking at client profitability is the next step as you really need to understand how much you spend on managing that relationship and other related activities such as marketing. There can often be some surprising results when this is information is captured and analysed such as what was previously thought of as 'key' customers turning out to be some of the most unprofitable.
In the same way profitability of departments - and even individuals - becomes key in driving decision making, there are other questions that can be asked and answers with the right information.
Do you understand who is generating your work?
Do you know which areas or individuals are best at estimating and billing accurately?
Do you know which individuals give away the most free time?
It's true that some of this information needs to be used to drive difficult decisions in a difficult market. However, I believe it is still better to make these decisions with as much accurate information as possible rather than on more emotional considerations.
3) Develop new business using social media business development
Almost two billion people use the internet globally and nearly one-fifth of internet users' time, according to social media experts, is spent on social media sites like Facebook, LinkedIn and Twitter.
Leading law firms are tapping into the power of social media as a marketing tool and strategic business driver. This can potentially give them a competitive advantage and help identify and win new clients; but only if they know how to capture and use the information.
When you are pitching to a customer the key is to make sure you can quickly access the information and expertise around your firm. This information needs to be stored in a CRM system; it's a big business risk if this still sits with individuals.
Bluefin Solutions' Commercial Director, Michael Eldridge, has written about how Bluefin Solutions is Democratising SAP CRM.
4) Keep your talent happy - and loyal
Looking after top talent remains as important as ever today. People buy people and the knowledge and insight they possess. Therefore, firms need to look after key individuals and recognise that the way individuals work is changing. The ability to work at home or on the move is taken for granted; firms that don't offer this level of flexibility will run the risk of losing talent.
Additionally, the workforce is more flexible in terms of location. If you are making information lead decisions, based on how each area is doing, you might want to make quick decisions to re-assign individuals to different practice areas or countries. To do that, you need to understand an individual's skills and what they might be able to bring to the firm now and in the future. Understanding potential is key; and monitoring progress against skills is vital.
Can your HR systems support the level of information required to make more informed decisions on and for your individuals? Whether it's what they should focus on or whether they should make partner?