Business partnering in law firms, whereby support functions work more closely with practice areas to provide more tailored and value-added support, is becoming increasingly more important. Linked with this, pricing and profitability is reported as the most important initiative for finance functions within law firms in the coming 12 months.
2014 saw many firms strengthen their business support functions by improving operating models, increasing the effectiveness of their people, processes and systems and improving the way they engage with fee earners. This work is set to continue over the coming year, but with a greater emphasis on pricing and profitability as firms seek to grow revenues and increase profit margins.
Pricing is a particular challenge due to increasing client demands, the changing nature of the markets in which firms operate and the breadth of services provided. The ability of partners to agree profitable terms with their clients and carefully manage the scope of agreed work is key.
Firms are addressing challenges related to pricing and profitability with the introduction of Pricing Directors, the use of pricing tools and methodologies, and increased governance to hold partners accountable for pricing execution.
Key trends observed this year are:
The business support functions most often recognised as a strength are Finance and HR while Procurement, IT and Knowledge Management are most often seen to have scope for improvement.
The greatest business support costs as a percentage of fee income were IT revenue (ranging from 4.3-5.3%) and secretarial support (ranging from 2.8-4.6%); this is similar to last year.
The average ratio of non-fee earners to fee earners ranged from 0.79 for the Top 10 firms to 0.60 for the Top 51-100. The ratio decreased from 2013 across all bandings.
The majority of firms currently use procurement professionals to support less than 20% of annual spend; therefore, there is a good opportunity to reduce costs and improve third-party arrangements.
Business process outsourcing remains a viable solution for many firms, with areas currently outsourced ranging from IT user support to payroll to reprographics to reception.
Whilst legal process outsourcing remains in its infancy for the sector, we expect this to grow in importance in the coming years.