A fair amount was made in response to last week’s news item in Lawyers Weekly that [legal] industry revenue would grow by 1.9 per cent a year between 2016 and 2021 (‘Revenue growth on the cards despite challenging conditions‘ by Stefanie Garber on 6 April) to reach a total of $24.8 billion (the Lawyers Weekly article draws on, and quotes, information contained in the latest IBISWorld Industry Report: Legal Services in Australia – March 2016).
Leaving aside the IBIS quote in the Lawyers Weekly article that:
“Wages were also set to increase, from a total pool of $10.5 billion in 2015-2016 to $11.4 billion in 2020-2021.”
or a “dire lawyer pay increase of just 1%” as another industry publication put it, banking 1.9 per cent revenue growth year-on-year over the next 5 years will simply won’t be enough if you have any ambition of your law firm staying afloat.
Why do I say this? Simple, The Australian Bureau of Statistics (ABS) Consumer Price Index (CPI) rose 1.7 per cent through the year to December 2015. This was a slight upward movement from 1.5 per cent for the year through September 2015. And with record low interest rates in Australia, it is highly unlikely (although not impossible) this will go down.
That means, by banking just 1.9 per cent annual revenue growth through to 2021, at best your firm will be standing still and more likely it will be going backwards.
If we agree then that 1.9 per cent annual revenue growth through to 2021 is not going to cut it if you want your firm to stay in business, what measure can you adopt to buck this?
In ‘Grow from Your Strengths: The only sustainable way to capture new opportunities is to remain true to what your company does best‘ a post by Gerald Adolph + Kim David Greenwood published on 18 August 2015 in strategy + business, Adolph and Greenwood contend that there are essentially four (4) ways a business (in our case, a law firm) can grow, which are:
- ‘In-market leverage‘: which is where you seek out new growth opportunities from your existing customer-base. For law firms this could either be (a) grow the amount of current work you do (i.e, doing loan work for ABC Bank?, well do more loan work ABC Bank); or (b) cross-sell services to your current client-base (i.e, currently doing patent protection work for Pharma A?, well do corporate M&A work for Pharma A too).
- ‘Near-market expansion‘: this is where you pursue opportunities in unfamiliar sectors with a product that has been tried and tested in a core sector of your business (in technical speak, ‘expansion through adjacencies‘). In laymen’s terms, if you currently do compliance work for banking clients but have never done any compliance work for insurance clients, then examine how easy it might be to transfer that existing [compliance] skill to the new [insurance] sector.
- ‘Disruptive growth‘: where you respond to the current tight market conditions with a dramatic change in strategy by offering entirely new service lines. To a degree we can see this in last week’s announcement by Minter Ellison that it was launching Flex – but Minters are by no means the first to do this, nor will they be the last!
- ‘Capability development‘: get better at what you are currently doing!
I wanted to expand briefly on ‘capability development‘. In Adolph and Greenwood’s post this has a number of meanings but one of those is ‘operational improvements‘ (legal project management anyone?).
For law firms operational improvements can be achieved really, really easily:- get better at billing; and, specifically, collecting what you bill.
This is a 10 year outlook on ‘Billed and Collected Realization against Standard’ taken from the most recent  Report on the State of the Legal Market by Georgetown University Law Center and Thomson Reuters Peer Monitor. It shows fairly graphically the fall off in realized rates over the last decade. Now can you imagine what it would do to your firm’s revenue and bottom line profitability if you could get that figure back closer to the 93% of a decade ago by 2025? My guess would be, significant.
ps – if you would like to see a little more on this, you can purchase this video I did for CPD for Me a few years (2014) ago.