Controlling legal overhead for law firm resilience

Ways to create and maintain your optimal cost structure

July 27, 2020

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legal overhead

Ten years ago, an economic crisis hit law firms sharply enough to compel a new pace of firmwide change and innovation. The new health and economic crisis of 2020 may have the same effect on the coming decade, making overhead and operational cost structures a new priority.

The rocky road to recovery

Law firms and other professional service providers will need to look for structural cost savings and make strategic investments in order to survive and thrive.

  • With so many companies facing deep financial challenges, client pressure for discounts, lower costs, and fixed fees will only grow, and law firms will feel that pressure.
  • Competition will continue to be fierce (as we’ve seen with Lexis+ trying to compete with Westlaw Edge) with alternatives for legal services stronger and more widely available now than they were ten years ago—not to mention that times of crisis often give birth to entrepreneurs and other ventures for streamlining work efficiencies (check out ECFX).
  • Ongoing restrictions to safeguard public health and manage the spread of the coronavirus will continue to create operational obstacles and probably add new costs.

New opportunities for legal services have arisen pre-pandemic and its aftermath continues to create innovative LSPs (see – recent UnitedLex acquisition from Paul Hastings). As these gains materialize, management must now consider the next crisis-related issue: controlling overhead costs on a sustainable basis.

Controlling overhead costs on a sustainable basis

After the last economic crisis in 2009, a McKinsey Quarterly survey showed that 79% of all companies cut costs, but only 53% of executives thought that it helped their companies weather the crisis. McKinsey believes, as do we on LAC Group’s Spend Management team, that cost reductions can be done more effectively.

The management experts at McKinsey went on to say,

“Companies should start any cost-cutting initiative by thinking through whether they could restructure the business to take advantage of current and projected marketplace trends or to mitigate threats, such as consolidating competitors. An important part of the analysis is to understand a company’s financial situation and the range of potential outcomes.

The future has become even less knowable than usual. As legal technology expert & consultant Ron Friedmann has said, “We are at the beginning of the middle.”

Instill spend management discipline and principles

Spend management is often discussed and viewed as cost cutting, but it’s actually more nuanced and strategic. Spend management takes a look at all indirect costs through a methodical, holistic view of:

  • All expense categories and subcategories to identify savings potential.
  • The procurement function and reducing off-contract purchasing decisions.
  • Vendor relationships through a more knowledgeable and objective lens.
  • Contract negotiation and ongoing management and compliance.
  • Spend data analytics for benchmarking and continuous improvement.

Spend management should become a standard operating procedure in big law firms as it leads the way to more effective, firm-wide cost containment.

spend pyramid

Explore and consider all options to improve efficiency

Staff layoffs and furloughs have been widespread, more cuts may be on the way, and firms will be hesitant about rehiring for some time. Yet somehow work needs to get done. No firm can risk poor client service and satisfaction or overburdening reduced support staff. Technology and streamlined processes can help, as can looking outside for temporary or supplemental help.

Outsourcing specific tasks, functions and special projects to a managed service provider is a suitable option for the current business climate, and in most cases, you don’t need to go all in. LAC Group, for example, offers flexible solutions on a spectrum of service levels. Our management expertise is in two primary areas:

  1. Research and library / information center support.
  2. Procurement and spend management support.

Outsourcing offers a way to lower overhead and improve cost structures, gain immediate access to knowledge and experience to bring new value into the firm, fewer administrative headaches and burdens (especially with more people working from home), and shared risk.

Most large law firms have been outsourcing some of their operational, back-office functions, and it’s likely that more can and will be done during these uncertain times.

Deliver value, receive value

The current economic climate will require every law firm and business to become more focused on value: how to add value to clients and gain value from suppliers. For example, we talk about the value we deliver to law firms in terms of our flexible, turnkey solutions for greater agility, the depth of expertise and added capacity we can deliver, the access to market data to expand the view beyond the firm’s walls, and for continued health safety, our ability to offer remote / virtual support.

spend value

Cutting expenses is a relatively fast and easy fix. Creating a lower, more sustainable administrative cost structure takes more time and greater effort. Firms that operate “below their means” can grow cash and reduce debt to strengthen their position if the recovery is slow or another shock comes around.

Contact us now if you have further questions about optimizing your cost structure for the long haul.

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Robyn Rebollo

Robyn Rebollo

LAC Group Vice President, Robyn Rebollo, is a research services consultant, strategic procurement adviser and information services professional. Her reputation has been established through many years of experience and numerous contributions to the design, development and implementation of information and knowledge solutions for corporations, law firms and universities.
Robyn Rebollo

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