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Managing for Efficiency in a Competitive Market

21.09.2010

New research again suggests that the majority of solicitors view the introduction of ABS next year as a threat – and that concern is most acute amongst those involved in Conveyancing and other high volume, more transactional work.

Efficiency is Key to Competing with ABS

This hardly comes as a surprise. The question, as ever, is what firms can do to prepare for the changes in 2011. As we blogged previously, there will be opportunities as well as threats emerging, and the focus at first must be on strong financial management to ensure the firm is competing with ABS new entrants from a strong base.

Understand What Expenditure is Worthwhile

Most legal sector cost-cutting over the past couple of years has been in the form of capacity reduction, in response to significantly lower demand. This has been necessary in many cases, but there is a limit to the benefits to be accrued from reducing headcount.

Far more important for longer term law firm profitability is efficiency improvement. The key to improving efficiency is to focus on the cost incurred per unit of output – i.e. in a law firm, the chargeable hour. What many firms do not take account of is the cost incurred in terms of non-chargeable time, and this must be incorporated when analysing returns. In many cases much more can be achieved by automating certain processes, especially in the support functions.

Activities undertaken throughout the firm should be analysed and classified according to whether or not they add value. Those activities that do not add value, and are not necessary for compliance purposes, must be eliminated or automated to optimise efficiency.

The Outsourced Alternative

The alternative to improving internal business processes is to outsource to external providers. The legal sector has been slower to embrace outsourcing than other industries, but there has been a move towards outsourced services in recent years – especially in IT services. Make or buy decisions require in-depth analysis, but finance and HR are certainly two areas where the option merits consideration.

Developing the Business

Once the firm’s finances have been put on a stable footing, attention can be turned to business development. This is an area in which existing relationships and networks can be a great source of competitive advantage over new entrants, but habits must become entrenched at every level throughout the firm to secure long-term, sustainable sources of profitable work.
 

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