Pressure on profits, pricing and talent: UK law firm leaders prepare for new challenges ahead

May 13, 2022

Culture, profitability, rising cost pressures and client collaboration were among the key themes of the seventh annual Sandpiper Partners’ Managing Law Firm Profitability, Pricing and Data Analytics London Conference. Leaders from top UK and global law firms reflected on the last two years where legal activity was plentiful, leading to double-digit profits while enjoying unusually reduced expenses. However, looming uncertain times are forcing leaders to think differently when making their management decisions. While topics were wide-ranging, the common denominator connecting all these key issues was data.

Williams Lea’s CEO, Clare Hart, joined the panel discussions to deliberate on how flexibility and harnessing data in the right way can help drive law firms and their clients make better informed business decisions. Here are the top three takeaways:

Data will play a key role as law firms face uncertain times and rising cost pressures ahead

Increased competition for talent, recessionary and cost pressures, rising inflation, and a significant decline in M&A activity is forcing law firm leaders to look closer into resource mapping, flexibility and the data that drives management decisions.

A managing partner at a leading UK law firm emphasized the importance of looking at management data more closely and on a regular basis, “We will ask our people to provide much greater detail on costings than they perhaps would normally. Of course, we’ve got a better idea of resource mapping, we’ve got a better idea of flexibility, and we’re going to be much tighter in terms of management reporting throughout this year because there’s that nervousness about the market and the macro position.” However, he went on to note the value of flexibility, “On the cost side, we are ready and willing to be flexible and to make decisions as the year progresses, which is necessary because we don’t know whether we’re moving into a recessionary period or not.”

Panelists agreed that the war for talent is the biggest cost pressure that may impact pricing for clients. A COO of a top UK law firm voiced his concerns on this issue, “We are seeing huge cost pressures. We face the same inflationary pressures as other firms, but the biggest pressure we’re finding is on salaries. The competition for talent is as high as it’s ever been because there’s just a shortage of good quality lawyers in the market. Now we’re getting into how that will impact our clients and what they’re prepared to pay.”

Speaking on the panel, Clare Hart, highlighted that Williams Lea is working with many law firms to help address these issues. The recent Trends and Opportunities in Outsourcing Survey, published at the end of last year by Sandpiper and Williams Lea, demonstrated an increasing trend of business outsourcing to help drive cost savings, “63% of the respondents reported that they were already outsourcing some of their business support functions. 66% said they were thinking of expanding into additional areas in the next 12 months. That’s compared to 38% prior to the pandemic. So, this whole notion of holding on to profits is very real.”

Clare also emphasized strategic element as the main driver for change, “If it’s not strategic to the firm, outsource it to an expert that can lay the foundations in the context of support services like document processing, financial support, and administrative support.”

Culture is a long-term play and law firms need to work harder to be authentic

Legal staff in all areas are not only demanding higher salaries, but greater flexibility, challenging traditional culture-building norms. Panelists accepted that improving culture in a hybrid world is frustrating, and the key to measuring culture and staff engagement requires patience. “If you’re a law firm, you’re operating at max bandwidth with little capacity to address culture,” said a panelist, “It can take months or years to show improvement in engagement, motivation, retention, all of that in the pressure cooker environment of the law firm. They so often get let go. But know that you can measure these things that build and define culture.”

Many firms are putting culture firmly as a top priority. “It’s difficult in a hybrid working environment, but the cultural piece is really important and we’re investing a lot in ensuring that it’s maintained” said one UK law firm panelist,” Building engagement by creating new development programs has become just what we all have to do to stay in the game. The culture of the organization is where you can really differentiate yourself, compared to your competitors, and work really hard to be authentic to your values.”

Importantly, a focus on culture needs to remain, regardless of economic conditions. One law firm partner reinforced that investing in culture in bad times will reap the benefits in the good times, “It is not the moment to throw those initiatives out of the window when things get tougher. If you don’t treat your people well during difficult times, then as soon as things improve, off they go. When the good times come back again, which they will, it will not only be good for your people and your organization, but it also makes economic sense in the longer run.”

Along with measuring employee data, allowing for greater flexibility and giving a clearer purpose to the office is crucial in a hybrid world. “We’re seeing that if people can do the work they were able to do in the office at home, then let them do that if they are more productive,” said Clare Hart during the panel discussion, “but be very literal and very clear about what the office is for. We’ve summed it up as four Cs: Collaboration, Communication, Celebration and Community. There has to be a real purpose for people to come into the office and we find that those four Cs make sense to people because it’s about learning and interacting with one another.”

Data needs to be captured and analyzed by the right people

Clients are putting increased pressure on law firms to supply data. From data on diversity, equity and inclusion to time spent on billing, support activities, and more. “There’s no doubt that there’s significant increased demand on law firms to supply data.”, said an operational leader at a law firm. Another law firm panelist added that client demands are pushing law firms in the right direction, “I’ll say that trend line is definitely up and any firm that’s not capturing data and recording it is going to be at a disadvantage moving forward. And I would add this is the right thing to do anyway. You should understand what your KPIs are in business and have some clear goals set around them.”

With this increased demand for data comes the need for law firms to hire the right people to collect data for reporting. One of the law firm leaders pointed out that, “It’s clear that data capture is being managed by the wrong people because when you open a matter it’s down to the secretary, lawyers and partners to capture it in the right way. Historically that’s how it always happened, but when management tries to interpret the data, it’s not correct. Right now, it doesn’t look like it’s in the right hands and understanding data and using it in the right way is critical.”

An emphasis on having the right tools that help law firm leaders capture the right metrics will help themselves and their clients make informed decisions. On the support provider side, Clare Hart added: “We manage data through our workflow tool, ENGAGE, and then we can report on the information around many aspects like document processing, billing, secretarial support, utilization, turnaround times and job accuracy. The data we collect supports the law firms we work with as well as their clients, which is why many are now using ENGAGE, not only for the work we provide, but also for their own employees and their own workflow management.”

Learn more about the factors driving law firm strategy. Download the eighth annual Trends & Opportunities in Law Firm Outsourcing.