As the Australian legal profession globalises, the role of practice manager is becoming increasingly multifaceted and challenging. Briana Everett finds out how legal practice managers are dealing with a rapidly changing legal environment.

Globalisation is no doubt the buzz word for the Australian legal profession in 2012.

The rapid globalisation of the legal market and the departure from the traditional firm structure has had an impact on almost every part of the industry.

And practice managers are no exception.

In fact, practice managers and other management professionals within law firms have been particularly affected. The way in which globalisation and constant advancements in technology have changed how Australia’s legal industry operates is obvious, but practice managers are feeling the pressure more than ever as more and more importance is placed on their role of delivering success in a more competitive market.

The spate of global firm mergers in Australia and the ongoing threat of global economic instability have well and truly changed the legal market, generating even more competition and adding pressure on firms to somehow differentiate themselves and win work.

In 2012, practice managers, or management professionals within firms, – whether they’re part of a small/boutique, medium or large firm – now face enormous pressure when it comes to their firm’s bottom line as they’re forced to deliver strong firm performance in tough economic times. They also have to address non-financial factors, such as the firm’s retention and culture issues, generational issues, flexible work demands, ongoing technological developments and the challenges that come with developing strong leadership within the firm’s partnership ranks – all while keeping the firm’s people happy.

“The challenge for the practice manager that wears every hat in a small firm is the incredible juggle of every single thing they’re meant to have their heads around,” says management consultant Kriss Will. “And that has by no means lessened. In fact, it’s only becoming more important and more challenging for them. I don’t know how they keep up with everything.”

Indicative of the increasing pressure being felt by legal practice managers is a recent survey conducted by the Australian Legal Practice Management Association (ALPMA). It reveals the issues of greatest concern to practice managers in 2012, including changes to the traditional law firm structure, finding quality staff, employee retention/talent management, and managing poor performance as the pressure to reduce costs grows.

The pursuit of profit

The overriding challenge for practice managers in 2012 is ensuring the profit and growth of the firm, while navigating a rapidly transforming industry. Given the seemingly rampant nature of global firm mergers in 2011 and 2012, it’s a challenge that will likely remain for some time.

As a result of this ongoing pressure to increase profit and growth, coupled with the increased competition for work, successful business development has become a significant challenge for managers in 2012, especially for those juggling multiple responsibilities.

While the focus on business development has grown in recent years, it is now pivotal for firms hoping to survive in this climate.

According to a recent benchmarking report conducted by Crowe Horwath, in partnership with ALPMA, it is imperative that small and mid-tier firms make business development their priority in 2012 to capitalise on the capacity they created in 2011 and to free up much-needed cash flow.

The report revealed that, while the country’s small and mid-tier firms spent 2011 gearing for growth, they struggled to maintain profitability, with gross profit for Australian law firms declining by approximately 5 per cent year on year.

“We saw many firms investing profits back in their businesses last year, creating opportunities for business growth heading into 2012,” said Crowe Horwath’s business advisory principal Andrew Chen last month. “This includes many firms investing heavily in new practice management systems, premises and additional non-fee earner employees.”

Having invested heavily in capital in 2011, the report said Australian firms must now place business development at the top of their priority list to free up cash flow, which is under pressure for many practices as a result of their lower profitability.

“From our research, and our clients’ experience in the domestic legal services market, we predict that 2012 will continue the trend of less work to tender for, and more competition to secure it,” said Chen. “Under these conditions, a solid business development strategy is vital.”

According to the report, this increase in competition and lower profitability in 2011 also put significant pressure on the cash flow of Australian firms, with average partner drawings now much less than in previous years.

“One of the issues facing practice managers in 2012 will be maintaining or increasing firm profit,” says Wotton + Kearney chief operating officer Andrew Price. “Global financial crisis pressures continue, there remains a lack of confidence in the economy, and organisations and individuals are very careful about their financial positions. Organisations are becoming more sophisticated about their legal spend as a result of financial pressures [and] there is a downward pressure on charge-out rates for many firms.”

According to Price, new entrants into the market, particularly for the mid and top tier, have resulted in increased competition for work.

“This competition will gradually flow onto the smaller end of the mid-tier firms,” he explains.

Recognising the pressure on management professionals to maintain and increase a firm’s profit, management consultant Kriss Will highlights the added challenge amongst managers to differentiate their firms from the rest.

“For business development people, everybody is fighting for the same kind of clients,” says Will. “What do they do to make it look different? A lot of that is going to be around service. Everyone wants good lawyers, that’s a given.

“Their challenge,” she says, “is to actually work within the service provision area to make sure they really do know what their clients want.”

Indicative of the concern amongst practice managers surrounding the issue of profitability and the downward pressure on costs, ALMPA has centred its annual summit for 2012 around “Change and Growth: Leading your business” to help practice managers better manage their firms and achieve profitable growth going forward.

“Change is happening at a rapid pace, whether you look up the food chain in terms of the big end of town, in terms of the global firms coming in, [or] the movement of partners out of some of the those larger firms to the mid tier, and the ongoing financial instability and the changes that has created,” says ALPMA president Warrick McLean. “Some firms are still struggling, still operating in a world where they think it’s still 2007, pre-GFC.”
Kriss Will, management consultant

The people issues

Describing the impact recent technological developments have had on the traditional structure of law firms, Will notes how different law firms look in 2012, and how these developments have created new challenges for management professionals when it comes to their firm’s people.

Referencing the mergers between medium-sized firms that took place in the 1990s to create Australia’s major national firms, Will says today’s global firm mergers have brought a new wave of cultural issues for practice managers to deal with.

“Technology is actually starting to play a bigger role, whether that is in legal outsourcing, allowing people to have remote access, or whether that is in smarter ways of doing stuff … A lot of that is making law firms look pretty different – and that’s a good thing,” says Will.

“Take the globalisation … What we’re seeing now is those mergers on the global scale. For management professionals in those firms, that means they have to be across a whole lot of cultural issues, which we, quite frankly, haven’t had to worry about too much in Australia to date. And [those cultural differences] are huge … Management has to think more globally.”

Referring to the major transition of people associated with global firm mergers, Will emphasises the challenges this presents in terms of marketing the firm to recruit talent – the retention of which remains a key challenge for practice managers in 2012. Achieving profit growth while also ensuring the firm’s staff is happy is an enduring challenge for legal practice managers and one that has only become more complicated.

Attraction and retention of lawyers has been an issue practice managers have had to deal with for years, but it is the underlying generational issues that are plaguing firms in 2012 according to McLean.

“[Within] the spectrum of the retention issue [are] the generational issues within law firms at the moment,” he says. “You’ve got the last of the ‘builders’ going out, you’ve got a bulk of Baby Boomers, the Gen Xs and the Gen Ys. The expectations and styles of each of those generations are very different. Particularly between the Baby Boomers and Gen Y, for arguments sake, what might have been traditionally accepted under a Baby Boomer arrangement is not very attractive for Gen Y.”

In light of these generational issues, McLean says good performance – and poor performance – must be clearly articulated by practice managers. He adds that managing performance and facilitating different working styles is a key challenge for practice managers and one that was identified in ALPMA’s survey as a top concern for managers in 2012.

“There is a continuing focus on cash flow [and] that links back to being able to clearly articulate what good performance is,” he says.

Additionally, McLean says accommodating flexible work arrangements while concentrating on the firm’s bottom line is an increasingly difficult task for a practice manager. In 2012, practice managers are faced with the challenge of managing part-time work and working-from-home arrangements all while proving to the partnership that client care does not require a 24/7 approach from staff.

Firm influencers

The role of the practice manager has become more sophisticated and pivotal to a firm’s success in 2012.

According to McLean, practice managers are increasingly becoming the influencers and leaders within firms and now have a much more strategic, rather than operational, involvement in the management of the firm.

“I think some people within practices look to those practice managers – and they come in many guises: CEOs, GMs, COOs, practice managers – as the leaders within their own firm. I think those firms that use those [practice management] roles effectively are ones that allow those individuals to be the influencers and change agents,” says McLean.

“There is a move from operational to strategic. Those firms in the current environment that are doing well are those firms that are thinking strategically and clearly articulating that both internally and externally.”

McLean describes the change in the role and importance of practice managers as an “evolution”, also mentioning the entry of younger practice managers into the market bringing experience from outside the law.

“There are the younger ones coming through, the Gen Xs and Gen Ys … and their skill-sets certainly add more depth,” he says. “There are also a few firms in Sydney that have actually engaged lawyers as their COOs, CEOs, and practice managers. They’re those lawyers who have generally gone off and done other things … They see things from both sides.”

Similarly, Wotton + Kearney chief operating officer Andrew Price says tough economic times have placed a greater focus on the ability of a practice manager.

“It is fair to say the practice manager role is developing, or has developed, over the last couple of years. There is a greater importance on a law firm manager’s ability in tougher economic conditions. Many law firm partnerships realise the significant benefits, financially and otherwise, for well-managed firms across such areas as HR, technology, marketing etc,” he says.

“The main trend I’m seeing with practice managers is a more well-rounded knowledge of the full range of law firm operational activities. In the past, there were many who entered into practice management with an accounting background. However, the significance of managing people, growing a firm’s business, keeping on top of technology and innovation, and driving law firm profitability is now well recognised by most law firms.”