In the New Normal of the legal market, law firms must think carefully about adding the fixed cost of new full-time lawyers. Three news items this week, a Citibank law firm report, a Freshfields launch, and an Altman Weil survey, highlight this concern.
Among the 176 large law firms that Citibank surveys, lawyers averaged 1640 billable hours in 2010-2011, down 100 hours from the 2001-2007 average of 1740 (see Citi: Demand For Legal Services Up, But Outpaced By Spike in Expenses, WSJ Law Blog, 14 May 2012).
With this excess capacity and demand almost flat, hiring full-time lawyers creates a big cost risk. Yet law is a ‘lumpy business’, with many peaks and valleys in demand. Keeping bench strength to meet peak load demand kills profits. Instead, firms must find new ways to staff up for the peaks.
One answer is contract lawyers. This week, the Altman Weil 2012 Law Firms in Transition found that in 2009 28% of managing partners thought more use of contract lawyers was a permanent trend, this year, 66% do. In 2011, almost 80% of firms of 250 or more lawyers used contract lawyers, up more than 15 points from 2010.
A new item today illustrates another creative approach to managing capacity. The Lawyer reports in Freshfields turns to former lawyers to fill fee-earning gaps that Freshfields’ London office will tap its lawyer alumni (partners and associates) to staff matters.
Law firms that manage productive capacity wisely will protect their profits. Flexible staffing is key. Of course, using “temporary” lawyers can have an impact on service delivery and the client experience. If, however, firms manage this carefully and communicate the benefits and operations plan clearly to clients, both firms and clients will benefit enormously.
Over time, I expect that law firms can amass “Big Data” that helps them forecast demand. And they can and should use resource allocation technology to ensure maximizing productivity.