Time to Read: 2 minutes

Strategic planning is the most critical tool management has when organizing for the “now” on the basis of the projections of the desired future. That is, a strategic plan is a roadmap to lead a firm from where it is currently, to where it would like to be at some pre-determined point in the future.

Strategic Planning is, at its core, a method for predicting your future. Strategy is the game plan to create that future – to thrive and to win – even in the face of resource constraints, or intense competition.  Strategy:

• Maximizes reward, and minimizes risk    
• Leverages scarce resources    
• Provides context, meaning, value, direction, and alignment for tactical actions    
• Leads to long-term success    

Consider the following list of dynamics impacting law firms and their potential clients:

Findings: the 2016 Legal Ends Op’s Trend Survey from Thomson Reuters

• Top operational challenges identified by the survey’s respondents include reducing outside legal costs, with 22% ranking this as the #1 challenge, keeping apprised of activity and impact, and dealing with limited resources.    
• 27% of respondents indicated that they’ve increase their reliance on outside counsel in the last 2 years, up slightly from 24% last year.    
• 29% of respondents reported decreasing their reliance on outside counsel in the last years, with the top motivators being to bring more work in-house (83%) and cost-containment strategy (48%).    
• Overall, 60% indicated their use of outside counsel is limited to highly specialized issues or unfamiliar jurisdictions.    
• For department relying on outside counsel, 59% use budgets to help control outside legal costs.  31%use alternative fee arrangements and 30% use retention agreements.    
• 74% of respondents said there is no planned growth for the legal department, compared with 65% in last year’s survey.    

Why are global firms less profitable?

By NICHOLAS BRUCH, SENIOR ANALYST ALM LEGAL INTELLIGENCE

“For the past two decades, global expansion has been pitched as a clear choice for big law firms. Strong economic growth in emerging markets combined with the increasing global presence of Western corporations made a powerful case that law firms had much to gain and little to lose by expanding abroad.

ALM’s recently released Global 100 dataset suggests that the argument for global expansion was oversold. The Global 100 data, which provides financial and headcount information on the world’s largest law firms, shows clear tradeoffs to global networks. International firms are less efficient revenue generators than their domestic peers. They are also significantly less profitable.

Firm leaders should pay close attention to these trends. It is not that the lower revenue and profit numbers completely undermine the case for global expansion. But the data suggests that there are inherent downsides to geographically dispersed office networks, and the reality should not be ignored.

Why Global Firms Are Less Profitable

One explanation for why global firms tend to be less profitable is the volume of litigation work in the US. Litigation tends to have higher billing rates. The result is that US practices, due to their higher concentration of litigation work, tend to have higher revenue per layer and higher profitability.

But that isn’t the whole story. An analysis of domestic US firms tells a similar story to what is seen at the international level. Firms that are spread across a wider range of geographies, even at the domestic level, earn less revenue per lawyer and less in profits per equity partner.

What Does This Mean for Law Firm Leaders?

For firms such as Dentons and Baker & McKenzie, which each have more than 6,000 lawyers in more than 40 countries, the benefits of scale and global coverage may ultimately outweigh the costs. These firms’ vast scales allow them to invest in shared service centers, new technologies, and other efficiency-enhancing initiatives. While these firms are unlikely to be as profitable as their elite domestic peers, they may be able to develop strong market positions in a wide range of geographies while maintaining average profitability.

For firms like Freshfields and Latham, the story may be more complex. While these firms have significant scale, their focus on higher-value bespoke services limits their ability improve efficiency through technology and process improvement. This suggests that these firms will bear the costs of geographic coverage more heavily than larger firms.

For smaller firms, the benefits of global expansion appear even less certain. Offices abroad will reduce the overall financial performance of most firms, lowering partner payouts and income that could have been invested elsewhere.”

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The issues raised above are all critical to the smooth functioning and continued growth and profitability of your firm.  The best and simplest way to ensure that you are not a victim of these problems is to have a well-constructed, understood, and implementable strategy.

A solid strategic plan is a firm’s roadmap to success.  If you want success in today’s world, you need strategic thinking and execution throughout your firm.  Wolf Management Consultants can help you develop a great strategy that should significantly increase your return on your people, ideas, clients, and capital.

Contact us today at 858-638-8260 or jeff@wolfmotivation.com