26. February 2019

Business models for law firms – the curse of complexity

Once the strategy has been established, the next step is to translate it into a working business model. To make sure that this step will be crowned with success, strategies should be as simple as possible and generate very little complexity. This principle applies that the simpler and more focused my strategy, the simpler the business model. What is meant by that?

Let’s discuss this issue along the axis of the four main strategic fields of action that I described in my last blog post: (1) service portfolio, (2) client segments, (3) market territory and (4) distribution channels.

In terms of the service portfolio, the main point is that the limitation to only a few fields of the law will help you to limit complexity. If, however, a law firm covers several areas of law, it should be possible for them to be assembled into clusters in a useful sort of way. Divorce law in conjunction with construction law or criminal law does not make much sense. Company law in combination with contract and tax law does. Useful combinations are all those which cover your target clients’ requirements well and completely. Thus the configuration of your service portfolio is closely connected with the configuration of your client segments.

Client segments subsume clients with similar requirements under as homogeneous a group as possible. A border demarcation along industries, for instance, makes sense: pharmaceuticals, banks, healthcare or media. Segmentation criteria such as corporate size, stock-exchange listing or companies’ stage in their life cycles (such as start-ups) are less homogeneous.

A large Market territory naturally creates additional complexity. Travelling, linguistic or cultural differences, but also working in different time zones challenge a law firm’s processes, leadership and organisation. The same applies if a law firm runs several branch offices. In this respect, the rule applies that law firms with a wide range of services can already be successful in a limited market territory. Law firms with a strongly focused range of services, such as boutiques, often require a relatively large territory to attract the critical number of clients and briefs.

Last but not least: if a law firm makes use of several distribution channels (work from its actual premises, secondments, client training sessions, online legal consultation, etc.), they must be well attuned to each other in order to prevent too high a degree of complexity. The management of the interfaces between personal and online consultation, for example, is often highly demanding. The switch from one channel to the other must be easy for clients to achieve, different price mechanisms must contain intelligent crossovers, the services on the various distribution channels should be distinguishable in a sufficiently clear manner, and the technologies used must be well coordinated.

The reduction of complexity in all the strategic fields of action is therefore an indispensable prerequisite for a law firm’s business model to remain easily controllable in all its essential dimensions, to work in a cost-effective way, to trigger little need for explanation on the part of clients, to generate clear visibility in the market and to guarantee agility and the ability to react quickly to changes in the market.

In my next blog post I will show the principles according to which business model architectures for law firms can be built, even though this wording may sound somewhat alien to us lawyers. Yet business model design suits us. Working on processes and structures requires the same skills as wielding a finely honed blade in our client work. Let yourself be surprised!

 

This article is part of the series «Law firm management». Read more here:

Law firm management – What do law firms need a strategy for, and how proficient a swimmer are you?

Law firm management – in the beginning is a vision! 

Strategy is specification!

 

Picture by 35007 on istock

 

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About the author
Prof. Dr. Leo Staub is a Titular Professor of Business Law and Legal Management at the University of St. Gallen. He also is one of the Directors of the Executive School of Management, Technology and Law of St. Gallen University where he chairs the division "Law & Management".