Lessons from NewLaw: Three ways to flex your operating structure

Many NewLaw firms have a competitive advantage over traditional firms due to their variable costs structures, use of technology, external funding, alternative fee arrangements and alternative career paths. While it is difficult for traditional law firms to abandon their existing structures and start again with a blank sheet of paper, there are plenty of lessons that can be learned from how NewLaw firms operate, of which I provide three examples.1. Dispersed law firmsOne problem with the traditional law firm model is its large and unwieldy cost base, often resulting in thin profit margins that are only rectified by high rates. The chambers model has always been an alternative, and this has recently been revived as a convenient option for independent lawyers who are willing to pay a fee for a very basic central service but prefer to operate as sole practitioners.

The dispersed law firm model provides an alternative version of the chambers model. This model sets about reducing the cost base associated with large traditional firms. The dispersed firm does this by replacing many fixed costs (mainly fixed salary and premises costs) with a variable cost base.

The lawyers in the firm are usually all highly specialised and experienced lawyers from city firms, who receive a large percentage of the fees from work undertaken by them for clients that they have brought into the firm and from slightly reduced percentages of their fees for other work. Halebury is an example of a firm with this approach.

The model differs from the historical chambers model in that dispersed law firms have usually developed the array of cutting-edge technologies and modern working practices found in traditional firms. More importantly, dispersed firms try to build a client-winning brand and make centrally-based pitches for client engagements in competition with traditional firms.

Firms that use this model offer the benefits of using a large firm but without the hefty price tag. However, this model only tends to work well in places where a pool of senior talent is available and willing to work on a flexible basis.

Traditional law firms can flex part of their fixed cost base to provide a more variable on-demand provision. BLP’s Lawyers On Demand and Pinsent Masons’ Vario businesses were primarily developed to provide a fresh approach to legal resourcing for corporate clients. But, they are increasingly being used to cope with their own peaks and troughs in client demand as well as to meet the needs of high-value lawyers who want more flexible lifestyles.

2. Franchise firmsUnder the franchise model, a central service provides a brand, together with support for technology, regulatory compliance, marketing and (sometimes) knowledge management and library services. In many cases, the umbrella brand is geared to attract potential purchasers of legal services who can be referred on to the franchisee. In return, the franchisee pays a service or membership fee.

The Quality Solicitors umbrella is an obvious and transparent example, but there are elements of this approach among some NewLaw providers and acquisitive firms. Newly-merged Shakespeare Martineau is an example of a regional firm with national aspirations which has been on an acquisition trail for a number of years now. The firm’s appeal to potential merger partners has arguably been partly the benefits of an overall brand, central infrastructure and capital funding.

3. Virtual firmsMy definition of a virtual firm includes those that – unlike the franchise model – have no central infrastructure of any substance, the major part of the resource being online, web-based and technology driven. The fixed cost of people and premises provide a large part of the fixed overheads of the traditional firm, and the absence of such costs gives the virtual firm a large pricing advantage. Virtual firms tend to appeal to the self-help market and provide opportunities for referrals.

Virtual firms such as Google’s Rocket Lawyer offer an online subscription legal document assembly service to consumers to allow them to build their own documents, but also have a panel of on-call law firms if specialist legal advice is needed. The growth of online technological aids for law firms is steadily increasing on both sides of the Atlantic, enabling traditional law firms to work faster, cheaper and more efficiently, and to offer their services to a wider audience through the internet, with varying pricing packages. One is even free – Docracy claims to be the first open-source site to make its documents freely available to everyone.

There are plenty of examples of innovative law firms that have learnt from these trends. One such firm is Stephensons, which has introduced an in-house document drafting solution, powered by Epoq, to enable clients to create self-assembled documents checked by one of their lawyersClients need high-quality services which are delivered better, faster or by different more modern styles. Unless traditional law firms embrace the lessons from new providers, their competitive positions will be further eroded.

This article first appeared in Managing Partner in October 2015 Volume 18 Issue 2 and is reproduced with their consent