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.
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:
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.
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.
“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.
Howard Hackney & Nigel Haddon