Category Archives: Strategy

Lost or retained your crime duty provider contract?

Whether you have lost or retained your contract your firm will now have to face up to major decisions – decisions which cannot and should not be delayed.

Strategic direction.

We have long believed in the merits of the Boston Matrix which classifies income streams in accordance with relevant market share and the attractiveness of the market:

boston

 

 

 

Legally aided crime has for a long time been a challenging market and with reduced rates is even more so. It follows that you have either a ‘Dog” if your firm has a low market share or a “Cash Cow” if you have  a high market share.  If you lost your contract and had a small market share you may be relieved (whether it was an active choice or not) that you are now out of the market and now need to consider what services you should be providing.

If you retained your contract and have a significant market share then now is the time to “milk your cows” – meaning maximise your profitability but use that profit to diversify and to invest in alternative income streams.

Profit Protection

For those who have lost their contract and as a result have spare staff capacity they face an immediate drain on profitability.  Staff costs will be the highest overheads and regrettably there will be a need to make immediate cuts in headcount to maintain at least a semblance of ongoing profit.  While there will inevitably be staff to whom you have long term loyalty, some of which you will hopefully be able to retrain, the rule of thumb is to cut deeply at the outset so as to protect the positions of the remaining staff.  By cutting deeply – in fact possibly over cutting – you can avoid the death of a “thousand cuts” and the inevitable damage to morale & loss of staff you wish to retain.

For those who have retained their contract the issues you face are no less fundamental – if a little less pressing. With the cut in rates this must reduce your profitability and potentially threaten the viability of the practice. The focus must be on “process re-engineering” and examining carefully how and in what way you service the contract so as to reduce the cost of so doing.  This is by no means easy but must be undertaken.

M&A

“Mergers” are often a euphemism for sale or purchase.  For those who have lost their contract they may be facing the unpalatable truth that there is no viable alternative to finding a buyer by way of “rescue” and indeed simply “closing the doors” may be the only option if there is little by way of an ongoing income stream without the contract.  Given the obvious implications for run off cover and TUPE for potential acquirers, finding a “white knight” may be difficult but must be the first, and urgent, option to address – often with the help of dispassionate  expert and knowledgeable advisers.

For those who have retained their contract now might be the time to make judicious acquisitions of firms in distress but who have a core – but now unutilised – expertise.  Such acquisitions my well be part of process reengineering with a view to reducing the cost of providing the service down to sustainable levels.

There will of course also be firms who have retained their contract but who have insufficient market share or an inability to re-engineer their cost base to maintain sufficient profitability.  These firms are best placed to seek an acquirer and this may present the best opportunity to obtain economies of scale and increase market share – probably after all the MoJ’s objective.  The challenge is for the stronger firms to find targets and for the weaker firms to truly recognise their weakness and their need to find a buyer.

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Howard Hackney & Nigel Haddon

Raise our prices? Are you crazy?

imagesEFBHZ8I9Many readers will have seen the recently published research by Morar Consulting for Veyo. To remind you, a few of the headlines were:

  • 42% of consumers were unsure that they would use their conveyancer again;
  • 60% found dealing with their solicitors the most stressful aspect of the process;
  • 27% chose their conveyancer because of the price being the lowest, making it the fourth most important factor in choosing a solicitor;
  • 25% said they would pay more for a faster service.

 

Why would a firm seek to raise prices in this dog-eat-dog world? When one in four choose their lawyer on price and price alone, where’s the mileage in exploring raising prices?

The answer lies in the questions. If every law firm competed to be the cheapest, who would win? Not your firm dear reader. That is a race to the bottom that nobody can win. So how, against this competitive, consumer-empowered backdrop, can law firms push back?

In business literature, commoditisation is defined as the process by which goods and services that were distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. Critically, it is the movement of a market from differentiated to undifferentiated price competition. It is the received wisdom of the residential conveyancing market that that is the position we now find ourselves in. But is that so?

Differentiation is not confined to large firms or high value matters. Pricing and service level options can be used very effectively, in isolation or combination to create significant visible differentiation around wills and powers of attorney, divorce, pre-nuptial agreements and residential conveyancing.

One of dozens of examples includes the option of a ‘premium-priced’ residential conveyancing package that includes up to two home/hospital/rest home visits by a legal executive/paralegal – one to take instructions and one to get documents signed. This is a proven and very popular option with the elderly, the immobile, the unwell and those without easy transport options. It is this kind of differentiated offering that helps you stand out from the crowd.

Almost anything is capable of differentiation. If this were not true, how is it that Fortnum & Mason can charge £5.95 for a pot of orange marmalade compared to £0.27 for substantially the same thing at Aldi? Answer – maybe there’s a clue in the names – ‘Aldi Everyday Essentials Marmalade’ doesn’t have quite the aura of ‘Highgrove Duke of Rothesay Marmalade’.  Who would know if there is much actually to differentiate the two products (although one would suspect there is)? More obviously, would anyone seriously suggest that the shopping experience is the same at both? And yet Fortnum & Mason is as busy and as profitable as it has ever been.

The firms that differentiate themselves most effectively are those that have identified aspects of their culture that make them superior service providers in their area and then communicate those advantages to the market in a consistent, compelling and memorable way.

There is clear evidence that home buyers are willing to pay more for a fast track service, so the opportunity is there for firms which are able to demonstrate both speed and efficiency.

Firms must resist the temptation to buy into the inane and demonstrably wrong assertion that legal services are all becoming commoditised and therefore you have no option but to slash your prices to preserve market share. There will always be people willing to pay for the ‘Highgrove Duke of Rothesay’ product provided you give them good reason to do so. If you don’t give them reason to do so, you will never command anything other than ‘Everyday Essentials’ prices.

 

Nigel Haddon

Pricing Consultant at Burcher Jennings, Pricing and Costs Consultant

A people business, right?

images833IJ8SAA people business, right?

 

The topic for this blog almost literally fell in my lap. I met a friend for post-work drinks when, as is the way with these things, we soon turned to a kind of ‘how was it for you?’ conversation, about the last few months in general, and our respective businesses in particular. It didn’t take me to long to take my friend through the evolution of my consultancy practice over that period – I suspect both of us were more interested in how my friend’s medium sized law firm was faring.

I heard what I expected to hear given market conditions and my knowledge of my friend’s firm’s place in their chosen markets, that is, it had been a record year in terms of turnover and profitability. Some of what I heard had made the regional press, and why not? It may not be of huge interest to clients, but there’s nothing intrinsically wrong with celebrating success. Heck, I’m in favour of it, I’ve been there and done that! But what I was told next stopped me in my tracks, and left me pondering the meaning of ‘success’.

My friend told me that over 25% of the Partners and staff who had been at the firm a year ago were no longer there. Now, some level of attrition is normal, and I’ve always thought that churning 10 to 15% of your staff per annum is what you’d expect in most professional service firms (PSFs).  After all, people retire, move out of the area, leave for a lifestyle change and so on. There is data out there (it won’t take you long to find using your favourite search engine) to suggest that around 8-10% is what law firms should be aiming for, it’s ‘healthy’ at that level, and that 12-15% is towards the very top end (or poorest outcome) that a PSF should achieve. But 25% plus? Something about that didn’t sit right with my understanding of ‘success’, even allowing for record financial results.

For me, success in a PSF is about creating a ‘One-firm’ firm which is able to harness its resources in a way that enables it to compete most advantageously in its chosen markets. Those ‘resources’ are its structural, relational and human capital (together its’ ‘intellectual capital’). And to quote David Maister, a One-firm firm is characterised by “institutional loyalty and group effort” and such firms “rarely lose valued people to competitors”. Given the challenges of recruitment in the legal sector nowadays, you’d have thought that firms would be putting discretionary effort in to talent retention, wouldn’t you, in creating a “sense of cohesion and belonging among the firm’s people”[i]?

Now, I don’t know that my friend’s firm didn’t do everything in their power in 2014/15 to do just that, and were just plain unlucky with the outcome. But I do know that the “starting point in addressing any firm’s strategy for human capital is to place people at the centre of [the firm’s] efforts to gain sustained competitive advantage by developing a workforce that feels it is an integral part of the general needs and aspirations of the firm”[ii]. After all, law is a people business, right?

In short, a firm needs to provide all its Partners and staff with a clear line of sight as to what is required from each of them, each day to help the business achieve its strategic goals. It can be difficult to do this at the best of times, but if strategic objectives are centred on vague goals like being ‘bigger’ or ‘more profitable’ it can be too big an ask. But unless meaningful efforts are made to provide that clear line of sight, people may conclude that they don’t belong in an organization that isn’t clear about where it’s going, and what it wants from its people.

 

[i] Nick Jarrett-Kerr ‘Strategy for Law Firms’ (2009)

[ii] ditto

Winners and losers

W&LI’ve been enjoying my new life as a consultant in the legal sector for about 6 months now, and I thought now was a good time to pause and reflect on what I’ve seen out in the market. Fairly obviously, the economy is providing a far more benevolent backdrop to activity in the sector than was the case throughout the recession. There is more transactional work about, and many firms are processing as much residential conveyancing work as capacity will allow.

Firms are talking about improving processes, employing smarter pricing and going for growth. But I don’t see enough law firms thinking radically about what the market needs and how they are best going to satisfy that need. I’m not the first commentator to opine that the small to medium sized full service firm has had its day – though current increases in turnover and profitability for such firms rather obscure that message. It reminds me of David Maister’s observation that it’s quite difficult to walk in to a room full of million-dollar a year attorneys and tell them they’re doing it wrong!

All firms need a razor sharp focus on which clients, in which markets, they are aiming to serve. Once clear on that, the firm should then aim to achieve competitive advantage in that market or markets. That means, for the avoidance of doubt, being able to provide its services at a higher price than its competitors, or being able to produce its services at a lower cost. Few can achieve the position of premium priced market leader over a range of services – though see for example the Magic Circle firms – but it is possible to dominate a smaller market providing a smaller range of services or to produce comparable services at a lower cost than others. An example of the former could be a niche media law firm operating out of Manchester’s Media City, while an example of the latter could be a volume conveyancing firm that has invested heavily in its IT infrastructure and processes to enable it to operate profitably charging prices that would seem unfeasible on the high street.

Winners and losers are emerging. The winners are not always the firms that are now trumpeting their rude financial health, and the losers are not always the firms that aren’t currently enjoying newsworthy growth. The winners are those firms that ‘get it’. The winners are those that know which clients, in which markets, they need to focus on, and do so. Firms that genuinely understand their clients and their markets. Firms that invest in the optimisation of their processes. Firms that understand profitability on a granular level and price accordingly. Firms, in short, that understand they are in business in the 21st century, and understand what it is they need to do to compete as effectively as they possibly can.

I’ve enjoyed working with firms who perhaps didn’t ‘get it’, but hopefully now do. There’s no doubt that some firms, by reason of service lines or geography, had an easier recession than others. Some of those, not perhaps having had the ‘burning platform’ to prompt change which so many experienced, may be starting behind the pack. But if a firm is prepared to look afresh at why it is in business, possibly by means of a facilitated strategy review, and to re-examine its target clients and markets, it could yet become one of the winners.