As expectations of what legal businesses could and should offer clients evolve against the backdrop of squeezed in-house budgets, law firms need to take a close look at their operating models. But, to do that effectively, they need true visibility of their financial and operational data, says Paul Suffield.

With geopolitical and macroeconomic instability the new norm, the start of 2023 presents the legal sector with a number of challenges. Paul Suffield who specialises in business transformation for legal services firms, observes that many businesses are shoring up their positions: “Across markets, organisations are considering their commercial operating models and are looking to ‘batten down the hatches’. Or they’re finding ways to make the most of the changes that have taken place in the last few years – which have been substantial.”

Against that context, he adds, the legal sector is also set to grapple with long-term trends of its own, specifically around the remit of general counsels (GC). “The GC role is moving away from being primarily a risk-based office and is becoming a more strategic one, supporting the board in directing commercial operating models. The resulting challenge for law firms is the need to find ways of providing GCs with that valuable strategic insight,” he says.

“The GC role is moving away from being primarily a risk-based office and is becoming a more strategic one, supporting the board in directing commercial operating models. The resulting challenge for law firms is the need to find ways of providing GCs with that valuable strategic insight”

At the same time, law firms have been confronted with the need to build technology into their business models – a challenge Suffield says is reflected in Briefing’s own law firm strategy and investment research with HSBC. There, we found that “peer firms with more tech-driven business models” were perceived as law firms’ top market disruptors – be they alternative legal service providers or traditional law firms with hefty tech investment.

Those findings should give law firms pause for thought, Suffield says – and the focus now should be on ensuring that tech spend is meaningfully built into firms’ operating models and leveraged for maximum client value. “How can the firm deliver on a specific growth target for partner profit share? Can that be achieved through driving operational efficiency? Could it be achieved through a merger and acquisition strategy? Those are the kinds of questions that firms need to answer,” he explains.

Blended source

Meeting that challenge will require firms to marry financial and operational data, Suffield says, achievable with use of corporate performance management software (CPM) – also known as enterprise performance management. “It’s the ‘glue’ that joins up finance and operations and can support both business areas. It enables a firm to not only consume multiple data sources across systems, but also model the impact of operational changes from a finance perspective,” he says.

Where CPM really differs from traditional practice management systems (PMS), he explains, is the former’s ability to sit on top of multiple other systems – including multiple PMS platforms from acquired firms – and blend data together into more useful information. “The untapped goldmine law firms sit on is their data, particularly historic data, but PMS software doesn’t tend to be very good at providing practical analysis and making the most of it. Unlocking that data and turning it into useful information involves supplementing PMS data with data from HR systems and business development data, so you can understand what’s going on with utilisation rates, for instance, and then track and forecast against what the firm is expected to deliver.”

“The untapped goldmine law firms sit on is their data, particularly historic data, but PMS software doesn’t tend to be very good at providing practical analysis and making the most of it”

Visibility enhancements

In addition to blending data together, actionable information also requires an element of human intelligence, something that’s difficult to process through PMS platforms, Suffield adds. “CPM can capture commentary and treat it the same way as data. That creates both auditable information and intelligence that directly aids in collaboration between departments, as budgeting can be more than a spreadsheet-based exercise.”

Being able to surface that information, he adds, can help firms uncover problem areas and identify clients’ payment behaviours, provide useful insights back into the firm for analysts to digest, and address lockup. “If you move the needle by just 20 days from the typical lockup time in global law firms, you can release substantial working capital – which then frees up funding to invest and develop a more technology-enabled business,” he explains.

Ultimately, being able to surface such information autonomously and independently can have a big impact for the firm and its clients. “Firms can be very reliant on the IT team for reporting beyond straightforward financial reports. Creating visibility across the firm’s performance means that information can also be provided to clients – which is critical at the moment.”