Recent years have been kind to many law firms both in the US and in the UK. But such economic success is by no means uniform. Some firms have performed much better than average, while others have fallen woefully behind.
Obviously, firms in the latter category need to take a hard look at their financial strategies and policies or face a grim future at the time of the next economic contraction, whenever that occurs. And, even financially successful firms will find it beneficial to tune up their strategies and policies now, during good times, in order to develop even better baseline economics in anticipation of the next, inevitable recession.
Practice mix
Essential to economic success is ensuring that the firm is concentrating on the right clients and specialities. Clients, industries and practice areas undergo economic maturation whereby growth plateaus as marketplaces mature. This is followed by economic decline unless new client, speciality or industry focus on emerging products or services occurs.
Law firms need continually to review and evaluate clients and practice areas to identify those with high growth and profit potential, in which investment (such as marketing and staffing) is likely to pay the highest return. Likewise, areas of low profit or growth potential (declining markets) need to be identified for de-emphasis or even divestiture. High profit, low growth areas might be maintained to generate capital for investment in high profit, high growth areas. By engaging in analysis of both existing and potential new clients, industries and practice areas on a systematic basis, successful law firms can continue to improve financial performance over time.
Identification of areas where de-emphasis or divestiture is to take place does not necessarily require that clients or lawyers working in those areas or for those clients be abandoned. Smart firms will outsource such work to carefully identified networks of smaller or less profitable firms happy to provide those services competently, and will retrain lawyers working in those areas and for those clients to focus on areas and clients with greater economic potential.
