When you get right down to it, law firms buy hours from their staff and then go out and try to sell them. Just like Tesco buy and sell apples. It’s a crude analogy but it’s essentially a similar activity.
The big difference is that Tesco go to great lengths to buy the right number of anything and minimise wastage. Surely law firms would benefit from having lower fixed costs and higher variable costs. In other words supplement existing staff number with a more flexible resource of qualified lawyers or paralegals.
Let’s look in a bit more detail at these hours…..
Assuming time off for holidays, training, sickness, we might expect 46 weeks’ worth of work. With five working days a week, that’s 230 days. At the senior level, and with the high salaries and rewards being offered, we might expect 10 hours a day in the office. So that’s 2,300 total hours per person a year.
So what might we think is a fair target for the number of hours to be charged to clients? 1,900, 1,700, 1,500 hours? It turns out that a recent survey for about 70 firms in the £2 million -£10 million turnover range showed an average of 874 chargeable hours. Surveys for the Law Management Section of the Law Society show similar figures. These seem worrying low to me.
What should be done? It seems to me that firms have a choice of two approaches:
- Buy in fewer apples
- Do some more marketing to sell more apples
Then how would Tesco respond to the increasing pressure to keep costs down? They would do the following:
- Analyse what people do with their time
- Determine if the activity adds value or not
- If it does add value, they would work out how to do more of it
- If it doesn’t add value, they would eliminate it (unless it was a compulsory activity, in which case they would streamline it or automate it)
It makes me wonder what lawyers are doing with all their non-chargeable time. Are they spending their time adding value? If you’re wondering what they could be doing, here is a list of useful activities for non-chargeable time:
- Developing precedents to help do work more quickly
- Capturing useful knowhow from work they’ve done on recent matters
- Doing research on industry developments
- Helping to produce any insights for potential thought leadership material, so partners can keep in touch with clients and provide useful information between active engagements
I don’t see a lot of such activities going on and I’m not sure why it isn’t.
I started by questioning how Tesco might run a law firm. The truth is that the Cooperative, with all its skills in logistics and efficiency, already is! They’re offering probate, personal injury, employment law and conveyancing amongst other services. Others are likely to follow!
This article was inspired by material presented by Barry Wilkinson, partner at Wilkinson Read & Partners at the 8th Annual Managing Partner Conference on Financial and Business Planning for Law Firms on 6 December 2012.
Other insights from Wilkinson Read are at http://www.wilkinsonread.co.uk/news/category/blog