Profiting When the World Is Flat

Flat is the new up—at least in the legal profession

There are many strategies for managing through this flattened market being discussed. Some involve process improvement (but what, how and at what cost?), cost-cutting (a difficult job with few variable costs and our dependence on technology) and spending more marketing dollars to gain a larger share of a declining market (which simply leads to marketing budget escalation among competitors).

Stephen Mabey Author

Karen MacKay
Karen MacKay, MBA, CHIC
President, Phoenix-Legal Inc.*

Each of these ideas addresses only a piece of the puzzle. Solving the puzzle requires a firm-wide strategy. There is one—but it is being overlooked by many firms, perhaps because of both the mind-set and behavior change that would have to be embraced to achieve it. That strategy is managing for profitability. Profitability in a law firm means doing the right work and using the right people in the right way.


First a little background.

The Evidence

Flattened, you say? Who is making such prognostications? As we move from conjecture to conviction, we share the following evidence from the 2012 Client Advisory from Hildebrandt Institute and Citi Private Bank:

  • “Unfortunately, the economic performance of the industry in 2011... was not able to redress the significant declines experienced in all key financial indicators during the first three years of economic downturn.”

  • “Since it is unlikely, based on overall economic conditions, that the demand for legal services will grow robustly for the foreseeable future, the legal industry will be forced to live with uncertainty for some time to come. ... That uncertainty will be exacerbated by both constrained growth in revenues and rising expenses.”

  • “Continued sluggishness in demand growth in much of the world will exacerbate the ongoing struggle in many firms to maintain profitability at acceptable levels. This is particularly true given other economic factors that are also at work in the current market: continuing client resistance to fee increases, growing levels of direct and indirect expenses, and the increasing cost of maintaining leverage.”

And this, from Hildebrandt Institute’s Peer Monitor Index for the fourth quarter of 2011:

  • “Demand turned sharply lower in the fourth quarter, its decline accelerating each month. And after several months of stabilizing, realization rates fell sharply. Both contributed to a weak end to the year, setting up a challenging 2012. In addition, there were clear year‐long trends. Demand slowly but steadily declined and finally turned negative in the fourth quarter. Meanwhile, expenses and headcount rose steadily. Rates eked out minor gains, but those were largely offset by a drop in realization late in the year. The clear message the market is signaling is that firms can no longer simply wait for things to get better. Thoughtful market analysis and strategies need to be translated into prompt action to reverse the diverging demand and cost trends.”

The metrics on the Lexis Firm Insight site supports the premise that the legal market has experienced a flattening. Some key performance indicators showed:

The rest of this article is available in Stephen Mabey's new Book

Book Cover - Leading and Managing a Sustainable Law Firm - Tactics & Strategies for a Rapidly Changing Profession by Stephen Mabey

Available for purchase on BookBaby.




Comments or Questions?


*Co-Author - Karen MacKay was President of Phoenix Legal and worked with law firms in consulting, career counseling and outplacement.


Previously published in Law Pratice Magazine July 2012. Copyright © Applied Strategies Inc.

Legal Strategy Consultant