Building that close-knit relationship with clients is what law firms need to invest in
We often hear how the recession ushered in a new era for the UK’s top law firms. They had said listening to clients was at their strategic core before, but now they needed to revisit their relationships and prove the value.
Andrea Delay, head of professional services at Barclays, argues this is the single most important factor that will distinguish future market winners. “Prior to the recession it was really all about top-line growth, but since then we’ve seen far more emphasis on finding operational efficiencies, cost control and cash management.” And behind that drive to better working practices are, she says, the clients. “Clients are looking for value, but that doesn’t just mean offering the lowest rates. What’s really driving growth is firms’ deeper understanding of clients.”
She draws comparison with retail − leading the way, she says, in understanding customers by profiling and segmenting based on spending patterns and personal preferences. This creates compelling offers and customer loyalty to brand. Other sectors are following fast in the footsteps – and Delay says the most innovative in legal are doing likewise, whether that’s sharing real-time information online or the use of secondees into or across their clients’ business to build understanding.
Invest to impress
And yet the structures and systems that will cut longterm costs also require investment – whether in the technology to give clients more power to control and scope matters, or the talent to project manage and price more complex resourcing and supply chains. Firms that don’t invest risk being left behind.
“Most law firms are certainly borrowing to invest in relevant people, premises and IT – and Barclays is lending,” Delay says.
But the bank believes that around a third of firms aren’t borrowing, preferring to operate with a minimum of headroom. “As others in the market innovate, delaying investment could present a risk,” she warns.
One issue is likely to be the full distribution model of partner remuneration. “It can be a challenge to convince partners to forego the rewards of immediate cash for the sake of investment in the future,” says Delay.
A strategic head start
When trying to secure bank funding, Barclays is keen to understand the firm’s strategy for growth. “We’d expect to see evidence of a three-year view in business planning,” says Delay. “We would expect there to be a focus on predicted margins and profit by each business area, but we also look closely at a firm’s target clients and strategy for growth.”
One weakness and risk that can emerge on closer inspection is poor succession planning. That too may be a result of current partners putting this year’s profits ahead of the firm’s future. But potential lenders want to see evidence of this planning − identifying key talent and future leaders and attempting to retain them.
Succession planning also covers the boardroom – an important check on all of a firm’s activity, whether that’s spending and growth plans or compliance risks. In recent years, more firms have been investing in non-executive directors to join the ranks of senior management and partners who may have been with the firm for decades. “It’s very important to have a diverse boardroom, not just in terms of gender, but to bring together a range of backgrounds and experiences,” says Delay. “Board members must feel able to debate controversial issues and challenge.”
Firms in which these best practice pillars aren’t well grounded will need to invest – or face falling behind as new entrants join the race. Any business hoping to attract an injection of private equity would equally need to convince potential investors of a strong strategy.
“We see increased competition from non-law firms and multidisciplinary practices, particularly the accountancy firms,” Delay concludes. “They are businesses with the sort of supply chains that can service the combination of legal and financial advice.”
And like the weekly shoppers, clients are attracted to the idea of a ‘one-stop shop’ destination for the spectrum of business needs. Some firms are matching that level of convenience, but staying close to clients and providing a compelling value proposition is key.