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    April 22nd, 2010

    ♬ With bits of memories scattered here and there
    I look around and don’t know where to start…♬

    Lyrics and Music by: Alan Bergman, Marilyn Bergman, Johnny Mandel.

    My good friend Robert (Bob) Denney has just issued his April 2010 Legal Communique: Addressing Challenges and Making Changes Requires a Thoughtful Approach.

    Aside from the use of the word “thoughtful” (which I always appreciate!) the advice that he has packed into his Communique is top notch and timed for firms coming out of the current economic malaise. With his permission, here is Bob’s latest advice:

    “Now that the economy is in the process of recovering, forward-thinking law firms are shifting from survival tactics to strategic planning as they begin to address, not only the challenges they face, but also the changes they may have to make. However, as discussed in our February Communique, the list can be long and there are few, if any, precedents for addressing many of the issues.

    The issues will vary to some degree for each firm but the first challenge for every firm is to identify those issues it must address and where it should start: Offer alternate fee arrangements? Improve, or perhaps just achieve, profitability? Change the management structure? Revise marketing and business development strategies? Or what?

    The second challenge is how to analyze and address each issue. Although these are critical decisions, the temptation will be to act quickly. The danger is that a firm will make significant changes impulsively — without strategically assessing its current situation and without understanding all the factors involved in implementing changes.

    For example, offering alternate fee arrangements (AFA) is a change every firm should address. However, a firm should not assume that all its clients actually want AFAs. Various surveys and reports indicate that as much as 70% of the current fee arrangements are still based on the billable hour and that many GCs continue to prefer the billable hour, although they are more frequently demanding discounted rates.

    The reason for this is because the real issue with clients — those who have legal departments and even those who do not — is how to most efficiently deploy all their legal resources, both internal and external i.e., how to get “more bang – or value – for their legal buck”. In some cases this may mean more work should be handled by in-house attorneys and/or other company personnel while, in other cases, it may be more efficient to assign more work to outside counsel. Therefore, every firm should begin its discussion with clients, not by proposing alternate fee arrangements, but by exploring how the client can utilize its available resources to most efficiently achieve its legal objectives.

    After this review, if there are matters where the client wants an alternate fee arrangement, there are other issues the firm should address before making a proposal:

    • How should the work be staffed?
    • How can it be handled most efficiently?
    • Will it be profitable and what management reports will be needed to measure the results?
    • What are the risks to the firm?

    Each of these issues is involved in process management, an area new to most firms. The point to recognize is that a firm should not decide to pursue alternate fee arrangements until it has addressed, not only client expectations and which clients want AFAs, but also the other factors and issues that are involved in offering them. All the pieces must fit. To adopt changes in fee structure without the proper due diligence and coordination with other factors could be disastrous. Another example is growth, a challenge every firm faces if it is to survive in what will be a more competitive legal market in the future. Here again there are multiple issues the firm should address in order to assess its situation, develop strategies and then implement them:

    • Should it follow the economic model of being a full-service firm that provides a broad range of services or should it focus on a limited number of practice areas and industries?
    • If so, which current practice areas offer the best opportunities for growth?
    • Does the firm currently have the required expertise in the practice areas and industries or will it have to recruit lateral entries or seek mergers in order to capitalize on these opportunities?
    • What new practice areas are emerging that the firm should consider developing?
    • Should the firm consider opening other offices and, if so, where?

    In order to properly address the issue of growth, the firm must conduct an external assessment of its strengths and weaknesses in the marketplace. This starts with in-depth interviews with clients to learn their opinions of the firm and its work, its perceived areas of expertise, the clients’ operations and plans for the future and the outlook for their industries or fields (See our September, 2009 Communique on Client Audits). These interviews will also provide competitive intelligence as to other firms’ activities, strategies, strengths and weaknesses.

    The external assessment of the firm’s strengths and weaknesses must also be combined with an assessment of a multitude of internal issues including:

    • Firm leadership and management
    • Financial operations
    • Availability of sufficient capital
    • Practice organization and management
    • Firm structure
    • Succession planning

    Once the firm has completed these assessments and identified what changes it should make, it is then in a position to develop marketing and business development strategies that match its strengths and resources with its opportunities while minimizing – or correcting – its weaknesses. Here again, “All the pieces must fit.” To embark on a program of growth or change without the proper research and coordination of resources and strategies could lead to disaster.

    As these and other possible changes are assessed and decisions are made, firms will face the challenge of compensation. Reducing the use of the billable hour in fee arrangements or changing the way clients are served and work is processed will, sooner or later, require firms to address changes in their partner compensation system and also possibly in how salaries and bonuses are determined for non-equity partners, associates and other timekeepers.

    These are but a few of the challenges all firms, regardless of size, face and the changes they may have to consider making. To address them successfully requires careful assessment and strategic thinking. They are not issues to be addressed impulsively or without considerable thought.”

    Strategic planning and retreats are events that are near and dear to my heart. My next post will address how to make the most of a partner’s strategic retreat. Thanks Bob for priming my pump and showing us all where to start!

    Of course you can contact Bob at:

    ROBERT DENNEY ASSOCIATES, Inc. P.O. Box 551, Wayne, PA 19087-0551 • 610-644-7020 • fax: 610-296-8726. email: bob@robertdenney.com • web site: www.robertdenney.com

    This entry was posted on Thursday, April 22nd, 2010 at 2:28 pm and is filed under Change Management, Firm Governance, Issues facing Law Firms, Law Firm Strategy, Leadership and Strategic Planning, Trends. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

    2 Responses to “PROCEED WITH CAUTION!”
    1. jeff Says:

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    2. Susan Van Dyke Says:

      Thanks, Dave (and Bob) for these thoughts. As a Canadian legal marketing consultant I get a glimpse into a lot of different firms and meet many of their clients. Anecdotally, I can tell you there aren’t many clients (or firms) applying AFA strategies effectively. Some are doing it well in the US, but not here yet. I predict that we’ll be going around the Mulberry Bush on this subject for years to come unless clients start to demand AFA, because it ain’t coming from any firms — large or small — that I know. Having said that, Bob provides interesting insight into the US market. Thanks again.

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