Walker Clark World View

Your law firm is making money today.

But what about next year?

What about ten years from now?

Do you even know how you are profitable today?

This is the fourth of a series of nine posts that will describe and explore seven characteristics^[note 1] that will determine which law firms remain successful in the legal services industry of the future, and what law firms can do now to build them into their operations and professional cultures.

Profitability has been a challenge for law firms for at least the past thirty years. The ability to sustain profitability -- making a profit not only today or tomorrow, but also for the foreseeable future -- will be a critical survival skill for the law firm of the future.

Although the shape and direction of the legal services industry over the next five to ten years are not entirely or precisely certain, disruptions and paradigm shifts in market expectations and law firm capabilities will undoubtedly reshape the legal services industry. The management of law firm profitability will require a flexible, diagnostic strategy, not only to protect the profitability of a law firm, practice group or solo practice, but also to assure that it can be sustained despite the disruptive changes that are likely to continue to shake the foundations of the industry. This will be especially difficult, and in some cases practically impossible, for many of today's law firms, which have only the vaguest understanding of how they make money.

As explored further in Sustainable Profitability in a Disrupted Legal Market,^{[note 2]} sustainable profitability in the successful law firm of the future will draw from two sources of strategy and tactics:

• Back to basics – but in a new way. The traditional factors^{[note 3]} that drive and determine profitability in a professional services firm remain fundamental and important. All the changes in the legal services markets that one can realistically envision over the next ten, twenty, or even fifty years will not change the fundamental laws of economics. Therefore, the successful law firm of the future will take a flexible approach to the management of profitability,  based on the six classic drivers of law firm profitability, which allow lawyers to identify promptly, define, and diagnose accurately and respond effectively to specific profitability issues before they degrade into a financial crisis.

• Change readiness. Even when a law firm is aware of the need to change, can the leaders of the firm actually do it? The successful law firm of the future will have integrated new approaches to managing the adjustments needed to respond effectively to disruptive change.

The traditional forces that have shaped law firm profitability for the past 200 years are still present and will remain relevant in the future; but they need to be understood and directed in new ways that are better suited to the seismic shifts that are beginning to shake the legal services industry today and will continue to do so for the foreseeable future. 

Norman Clark

¹The seven defining characteristics of the law firm of the future are: 

1. A conversion from a "factory" model for the production and delivery of legal services to a "shipyard" model
2. Closer, ongoing client relationships 
3. Sustainable profitability 
4. Very high workflow leverage
5. "Anytime, anywhere" service delivery capabilities
6. An intense focus on quality management
7. A predisposition for innovation.

²N. Clark and L. Walker Johnson, Sustainable Profitability in a Disrupted Legal Market (Globe Law and Business, 2019)

³The six classic drivers of law firm profitability are:

1. price
2. productivity
3. realization
4. cost management
5. staff compensation
6. leverage

For more information about the Walker Clark "futures practice,"  contact the author by e-mail.