Books, Articles & Perspectives

Our Principals have authored books and articles on professional services. Our Perspectives series encourages us to crystallize our knowledge into succinct, quickly readable summaries and provides our clients with a selection of thought-provoking views on the business of running a professional firm.

To request copies of the Perspectives, please use the form further down this page.

Perspectives

 

Partners should feel obliged by responsibility, rather than compelled as subjects of authority, to support the partnership, to play a constructive role in its decision-making and to apply themselves to the common good.

In a number of professions regulatory change has provoked debate about how professional firms should be organised and managed and whether they should transform themselves from partnerships into companies. Often this debate has built upon older discussions about whether professional firms operate more effectively if they adopt corporate forms of organisation and management. This discussion has been further complicated by the prospect of large financial rewards for the holders of a firm’s equity if it converts to a corporate form.

This Perspective steps back from the detail of the debate, away from the nuts and bolts of taxation and operational efficiency, to examine the nature of professionals, and the link between professionalism, individual autonomy and management control.

It is only by broadening the debate to include an appreciation of this context that it is possible for a partnership, and its management, to have an informed discussion about the future of the firm and to weigh accurately the costs and benefits of any organisational change.

A magical sense of cooperative professional satisfaction occurs when the firm’s ethos, its partners’ professional ambitions, and its competitiveness, combine with market opportunity to produce a powerful and profitable practice.

In the corporate world it is common for a business to be steered according to a “Corporate Strategy”. This strategy provides a framework to guide management decision-making. It is typically defined as an integrated set of actions leading to a sustainable competitive advantage.

In professional services a rather different approach to strategy is required. Certainly it is crucial that the strategy provides a mechanism for coordinating action towards a competitive market position, as does a corporate strategy, but it also serves a wider purpose. This Perspective explores the way in which a firm may use a “Professional Strategy” to establish a sense of direction and cohesion within the partnership, how this may act to bind partners and other professionals together and enable a firm to build a strong and competitive practice.

The Perspective examines how a market downturn may cause a loss of cohesiveness as partners focus on the individual and short-term. It explains the way in which a good professional strategy may address this problem by encouraging partners to raise their eyes to the horizon, to rediscover their ambition and to rebuild a sense of shared purpose within their firm.

Partners’ time is the fundamental resource of a firm. The crucial measure of whether an activity is financially worthwhile is the return generated on the investment of this resource.

Partners in most professional firms are familiar with the concepts of hourly rates, billings, and realisation. These traditional measures are useful indicators of financial performance at a practice, departmental or firm-wide level. However, when it comes to understanding financial performance on individual matters or projects, the level at which most partners work most of the time and the fundamental root of firm profitability, they are of secondary utility. One measure stands far above them in value:

Matter Contribution per Partner Hour

Educating partners to think in terms of Matter Contribution per Partner Hour (MCPH) is a prerequisite to the effective management of firm profitability.

This Perspective explains the concept of MCPH, how it is calculated and applied in practice, and its implications for partners and firms. Although MCPH is by no means the simplest of measures to grasp it is by far the most important. As will be demonstrated, the application of MCPH can dramatically improve the way in which partners staff and manage matters, the profitability of a practice (and, therefore, partners’ earnings) and, ultimately, a firm’s competitiveness.

When developing a pricing strategy management need to consider both the hard, analytical perspective provided by an economic analysis and the softer, subjective concepts of fairness and professionalism.

Most professional firms struggle with how to price their services - Should we set a fixed fee or hourly rate? Raise or lower prices? Loss-lead to win new work? Use pricing to encourage cross-selling? At the same time, clients are challenging firms’ current pricing models, putting pressure on rates, enforcing rigid request for proposal processes, or introducing panels and procurement specialists to control costs.

In the corporate world there has been a great deal of thinking about how organisations should set and manage prices. Professional services firms, and law firms in particular, are frequently unaware of how these frameworks may help them to define their approach to pricing.

Firms that develop a structured and thoughtful approach to pricing, and educate their partners in its application, will gain significant professional, competitive and financial advantage. This Perspective provides an introduction to the management of pricing, through a discussion of its theoretical foundations and a description of the three critical components of an effective pricing strategy.

The potential to add modern sources of leverage to the firm presents opportunities for further extending the profitability of the practice and the earnings of its partners.

Traditional professional firms have been structured as pyramids with a broad base of junior professionals supporting a smaller number of partners. Building this pyramid is relatively straightforward. Maintaining an appropriate structure over time as professionals develop is more difficult and firms often find themselves under pressure to grow continuously in order to satisfy the aspirations of their people.

But satisfying the aspirations of a firm’s professionals is not the only consideration. In today’s professional markets a firm’s structure must be competitive and its staffing must reflect clients’ needs. Furthermore, changes in the way in which professional advice is provided are both complicating the task of building a sustainable and competitive firm while presenting tremendous opportunities for firms to develop their practices.

This Perspective begins with an examination of the traditional pyramidal model of the professional firm and the six variables that may be adjusted to manage the growth imperative. From page 12 onwards, it builds on this basic model to explore the concept of ‘Modern Leverage’ so as to provide Managing Partners and Boards with a novel view of the evolution of the professional firm business model and the challenges and opportunities that this presents.

An understanding of the experience curve provides powerful insights into the market for professional services, the nature of competition between practices, and the development of an effective professional strategy.

The experience curve quantifies the effect, found in business and elsewhere, by which the labour required to complete a task reduces by a similar proportion with every doubling of experience (number of repetitions).

This simple but informative concept has profound implications for the management of professional services firms and yet it has received surprisingly little attention.

This Perspective introduces the concept of the curve and examines the key implications for the management of a professional practice, notably by providing an additional dimension to firm management’s thinking about professional markets, competition and strategy.

In practice, partners respond much better to ‘we ought’ than ‘you must’.

The responsibilities of partnership are many, they also often vary from firm to firm, over the course of a partner’s career, and from practice area to practice area.

Nevertheless, it is vital that partners understand the role that they are expected to fulfil. In small firms this understanding may be transmitted by a process of informal osmosis but this works less well with increasing firm size and geographic spread. Nowadays partners also often move laterally between firms and they have less opportunity to absorb the norms and standards prior to entry into the partnership. Most firms are well advised, therefore, to codify their expectations.

This Perspective begins with an examination of the four facets of the partner role and the constituent responsibilities. This examination provides an overall framework and identifies the major issues to be considered. The second part (page 22 onwards) explains how this general model may be applied in specific instances and how and why the role of a partner may differ from firm to firm.

The Perspective proposes an approach for thinking about the partner role. There are others but we hope that this novel view will assist firms as they consider the complex question of what they expect of each other as partners.

Consolidation in the legal market is inevitable. Isn’t it?

Consolidation in the legal market is the result of three processes which, while distinct, share similarities and certain common causes.

First, clients consolidating their legal purchasing (i.e. directing their work to a smaller number of law firm ‘suppliers’ through panel processes or other means).

Second, law firms consolidating their client base (i.e. focusing their efforts on their Global 100, Top 50 or similar).

Third, the consolidation of firms and practices (i.e. building capacity and capability through organic growth and merger).

The overall change in the market that results from the combination of these three processes is what is typically meant by ‘legal market consolidation’.

This Perspective describes the process through an examination of the causes of purchasing, client-base and practice consolidation. It builds upon this to identify the implications for competition and ends with a summary of how this will influence the attractiveness of different markets and the efficacy of different strategies.

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Authored books
and articles

 

International Segmentation
by Lisa Smith and Giles Rubens
Published in “Law Practice Today”
American Bar Association, May 2014

“How to Merge: Lessons from 20 Years of Law Firm Mergers”
by Lisa Smith
Published in “Law Firm Strategies for the 21st Century”
Globe Law and Business, 2013

“Law Firm Mergers: Taking a Strategic Approach”
by Giles Rubens
Palgrave Macmillan, 2005

“Anatomy of a Law Firm Merger”
by Lisa Smith and William Johnston
American Bar Association, 2004