Indian law firms have been witnessing hypergrowth in the last three years, thanks to regulatory changes, proactive government led initiatives to favour cross border trade, and a consequent growth in the business landscape. A large part of this growth at law firms has been inorganic with frequent acquisition of rainmaker teams that can complement and supplement existing capabilities for better client engagement. The obvious upside in these acquisitions is the estimated growth in revenues. But the not-so-obvious downside is predicting when this growth will reflect in the books, and its impact on overall profitability and efficiency.
Why is this important?
Law firms have traditionally not imposed thresholds on operational effectiveness and allowed Partners to manage their operations (profitability, time billed, rates, collections) at their discretion. While this is good for Partners who are naturally fiscally prudent, it does not help those whose interests lie primarily in client service. As a result, different Partners may adopt different operational metrics that suit them. At a firm level, this can cause several challenges such as
- Impacting cash flow: If one Partner’s billing cycle is 30 days whereas another’s is 90 days, how does the delay in collections get addressed? Do you dip into reserves, delay salaries or raise funds by diluting equity?
- Affecting client experience: If Partners bill the same client different rates for fairly similar pieces of work done, it will raise a red flag in the client’s system forcing them to pull up the firm and seek blended rates. Further, if different clients are offered different rates for the same piece of work done, then word spreads in the market, creating animosity among clients and the firm. No one wants to be paying more for a service.
- Slow down go to market time, as cash may not be available to fund initiatives
- Influencing the talent pipeline: If junior lawyers emulate the behaviour of their seniors when it comes to daily operations, then they will suffer from the same challenges that plague the seniors. Further, as firms open up mobility between practices to junior lawyers, it will become challenging to re-learn a new Partner’s operating style, as an when talent moves between practice areas. This can add to the learning curve and slow the candidate’s performance, at least in the short term.
Onboarding new talent at senior levels without addressing underlying operational inefficiencies can only complicate this scenario further.
