Walker Clark Worldview

I have noticed in the past 12 to 18 months a renewed interest in quality management in law firms. Clients are asking me questions about things that I have not heard mentioned in most law firms for almost ten years:  phrases like “TQM,” “process reengineering,” and “ISO 9000.”  (Even ten years ago, when I was working with another management consulting firm, one of my partners advised “Whatever you do, don’t mention total quality management.  It scares the lawyers.”)

Part of this renewed interest is driven by the changed profitability circumstances in which most law firms find themselves today.  Consider:

• The demand for legal services is down for many law firms.
• Costs have already been cut as deeply as possible, and in some cases more deeply that was probably prudent.
• Price resistance has increased, even in some practice areas that previously appeared to be fee insensitive — i.e., the client was willing to pay whatever we charged (provided that it was not too outrageously high).
• Clients expect more. As one partner told me, “In today’s legal market, we only have one chance to get it right.”

The old profitability strategy that many law firms used — “All we have to do to be profitable is to charge the highest fees that we can” —  no longer works.

Quality assurance is not just as a means to keep clients happy.  It is also a very powerful profitability method.

• For example, with quality assurance it is possible to improve fee earner productivity dramatically by reducing the causes of errors and rework.   In some firms where I have actually measured it, rework can constitute as much as 40% of a fee earner’s time — correcting mistakes that could have been avoided and which the client probably will not pay extra for the firm to correct.
• By eliminating the causes of errors, missed deadlines, rework, and waste, law firms can improve productivity dramatically without any significant increase in staff or resources.  This improved productivity translates into pure profit.
• By changing quality from a slogan to a system, a law firm can create a significant competitive advantage over competitors who merely talk about quality but do nothing to assure it.

In future posts, I will explore some of the rediscovered concepts, methods, and tools that law firms can use to build higher levels of consistent quality into the delivery of services to clients.

For now, however, it appears to me that the 2010s could be the decade of a quality renaissance in law firm.

Norman Clark

In my discussions recently with Walker Clark clients who are midsize law firms, I have noticed two interesting priorities emerging in the business plans for 2010. These are not the only profitability tactics that law firms are thinking about for next year, nor are they necessarily the most important. However, it is possible that your law firm might be overlooking them.

1.  A client-supportive approach to collections

A large portion of our law firm clients are ending 2009 with the biggest accounts receivable in their history, as well as record high percentages that are more than 180 days old.  Rather than write off the fees — and also write of the clients who owe them — some firms are taking the initiative to offer to compromise the overdue fees by 50% or more, in return for a payment plan to settle the account by the end of 2010. They are also offering the overdue clients significant discounts as an accommodation to help the client survive hard times.

This makes good sense. It is not in a law firm’s interest to have clients go out of business. Instead of being yet another financial wave that threatens to capsize the client’s ship, law firms should become part of the client’s damage control team. Sure, the law firm will be giving up some possible revenue; but it is money that it probably never would have collected.  In return, the law firm is receiving priceless client loyalty in the future.

Support, not shame, is the more effective collection technique.

2.  Renewed interest in outsourcing

In 2010 many midsize law firms will be taking a hard look at the costs of functions that have traditionally been in-house, such as IT and network administration, marketing support, project management, and translations. They are beginning to discover that the total cost of some of these functions — especially those with significant lawyer involvement — has become unacceptably high, while delivering only marginal quality and value to the client. These firms are trying to discover the true costs of these functions, which often include items that do not appear in the financial reports, such as the value of fee earner time and the rework caused by inadequate quality assurance.

Outsourcing will not make good business sense in every case. Substantial improvements can sometimes also be made through process reengineering. However, I expect to see outsourcing of more internal operations and tasks as part of the cost management tactics of many small and midsize law firms, especially in markets where fee income has not recovered to pre-2008 levels.

Norman Clark