Mike Gorick's blogs

History has a habit of repeating itself. Why do we never learn from previous experience?

There are many good things. The introduction of non-lawyers to ownership is one following years of consideration.

Some other factors are, however, doubtful in my mind, such as more access to finance.

I keep seeing articles about the threat to the legal profession by others.

Tesco Law is now perhaps a rather dated expression, but it is true that the likes of Tesco, Co-Op and others have indicated their intentions.

Yes and sure the profession must make itself more alert to the market and client needs, but I would like to turn it all on its head using some of my experience from other industries.

To begin with the desire to venture into new products and services by large corporate is likely to have two results for the providers.

Either the new venture will not have been well enough researched and it goes ahead laden with baggage and capital outlay upon which, it is later realised, that the ROI is seen to be insufficient.

Or, the consequences of research and due diligence lead to a watered down product or service which is late or wrong for the market.

Products at the supermarket counter especially those apparently competing on price such as travel insurance may lack the full amount of cover for certain incidents and thus the consumer may be caught out when making a claim.

It is quite possible for the large industries to make wrong decisions and be naive about other industries in the belief that their business model will continue to work in another field.

How do I know? I have been there! Having also been, for my sins, an estate agent and banker, I was working for a bank at the time that it was the ‘in thing’ to take over estate agents.

It was discovered that just two of us had worked in the property market out of the thousands who were employed.

We were asked to join the senior management discussions.

The project fell apart for the very simple reason that the number of sales per agent’s office had been completely over estimated.

In some cases the over estimate was twenty fold. It was a good decision not to go ahead. How many of the original banks or building societies that went ahead are now still in that market?

The point is that I don’t think that there will be such a thing as ‘a partnership which realises synergies’ in the legal profession because the new providers will want to run things their way.

Their way will probably not recognise the intricacies of the profession and seek to provide the services through call centres.

Are we as a nation suffering from poorer services as a consequence of multiple service providers? Is this now to include the legal profession? Often the services have to be outsourced.

Or the services are provided from call centres manned by ill equipped people with insufficient training to understand the industry or customer needs.

On the whole I do not think that professional services, which now need specialists in each area and not generalists, can be broken down yet further into bite sized chunks for an untrained operator to handle. This is not in the consumers interests.

The indemnity insurers will go spare when they look at risk management issues and the likes of Tesco et al should take heed, because when the indemnity claims start rolling in after complaints about legal work they might not think that it was such a good idea.

I don’t think the regulators would be able to control it satisfactorily.

There will be few readers who have had bad experiences of call centre operations and will know what I am talking about.

Such operations already exist in the legal profession, and we know that the risk is greater where they do. So imagine this risk multiplied into an uncertain level for the future.

It is comparatively easy, (note comparatively), to make the decision to get involved and create an ABS to include legal services but what comes next is paramount to success or failure and then what very few seem to think about is what comes after that.

There are numerous examples even on an international and political basis. Take Iraq for example. It must not be assumed that just because the decision maker is big and powerful that all will go through smoothly, or that they will be right.

I think it is a useful analogy.

So what about the future of the ABS? Yes they will happen. The profession for some time to come will have to cope with the competition. The way to beat that is to be sharper, focus on the client and give brilliant service.

Not to try to compete on price as that is usually bad marketing and lowers profit on the principle of diminishing returns.

But in the future, in the ‘what happens after that’ phase, I think that they will fail.

In meantime get on with it and beat them at the personal service and knowledge game where they cannot compete.

Food for thought? Do you disagree?

Mike Gorick, The Compliance People

If you are making strategic decisions do you have sufficient financial information to make those decisions? It seems that calculating the expense of time may have gone out of fashion. Some may never have calculated it. But how do you know if a transaction is profitable? And how, if you are quoting for work, do you know if your pricing is right?

The expense of time (time recording) is often dismissed by conveyancers and some other work types because the price is fixed. This demonstrates a clear misunderstanding of the cost of doing the work. It may also be that market conditions or court rates dictate the price. But this does not mean that you are totally tied and have to accept the work. It may also demonstrate that fee-earners do not know the difference between the expense rate and the charge out rate. How do you know what the margin is and if the work is worth doing?

That said I have encountered the view: ‘But I just want to know the charge out rate.’ In some firms, the charge out rate decision is made by reference to what the competition is charging. This is subject to misinformation problems, but in any case is hardly good financial management and would be difficult to justify under rule 5. Was that all there was to their strategy? Having calculated the expense rate, that is, the cost of doing the work, only then can you calculate the desired margin and this the charge out rate.

Coming out of recession, it is essential to get the price of services right as more businesses go bust post recession that surviving through it. Why? Well probably one reason is that in order to get work in prices are held to remain competitive putting a strain on cashflow and the overdraft. It is the recovery of cash not profit that causes the problem. Only when you have a desirable margin, and the fees are paid, will you have sufficient cash. It sounds obvious doesn’t it!

I never cease to be amazed how many lawyers do not know the difference between cash and profit but accept that financial training is still not given the merit it deserves. In fact the question is not on their radar. I believe that calculating the expense of time is fundamental to this understanding but the link is rarely made, in this context.

In many law practices there will be computer software which records time. But this is used ineffectively for many reasons. Perhaps the main reason is under recording time or not recording time at all. Looking at its use and understanding the link between the charge out rate, the expense rate, and in the end cash received will help post recession profitability and survival.

Mike Gorick is associate director of The Compliance People Ltd.

• Visit the Gazette's blogs page for more In Business blogs

<!--break-->
I have a thing about financial reports and consistency. The problem for IT suppliers is that everybody they supply wants something different. I can sympathise with that.

While cashflow reports can appear to look different, the fundamentals are always the same. So whatever the presentation of the report, it should enable the user to estimate the future cash position several months ahead and check this off against the actual position.

One such report is cashflow forecasting. I think it is not possible to run any business without one unless that business expects to be surprised by a shortage of cash when it could have known what to expect – such as estimating a firm's professional indemnity premium costs in October.

Why then do some IT suppliers not even supply a cashflow forecast template for users, the requirement for which has been in the Code of Conduct/Solicitors Accounts Rules for at least two years?

Worse, it seems that they may not know what such a report actually is, which tends to suggest that they do not have one for their own business.

Worse still, they may claim to have such a report when in fact it is something different – such as the current cash position, which is helpful but not a forecasting tool to help with firm management.

A good time to check the functionality of IT systems is when a firm is changing suppliers or looking at upgrades. Most IT suppliers, understandably, have prepared demos that may not lead you down the path you want to go. In my view, it is essential to have a prepared and consistent question plan, and as in this particular case ask to see such reports operating – and see if your prospective supplier struggles.

This week I met up with an experienced entrepreneur and business man, a fellow who had started his own company some years ago and was clearly successful and making money; nothing to do with law. We were talking about business generally and got into profit ratios, business in hand (we would call it WIP) and so on.
<!--break-->
All was fine until I said: ‘Well, with the number of staff you have working for you do you set objectives?’ ‘Of course,’ he said. ‘So what are your KPIs?’ I replied.

To my surprise this alert but obviously startled man responded: ‘What are they?’
‘Why, key performance indicators,’ said I. Then we went on to discuss management jargon and computer-speak.

‘There’s too much of it!’ my friend exploded, ‘all I want to do is get on with what I know’.

Is it inevitable that every profession or trade has its own jargon. But have we all got into a routine that dictates that we try to blind others by the use of acronyms or words which are essentially made up, just to show how competent we are?

I have noted before that in the legal profession there is some resistance to professional management in general, though this is diminishing. Does that resistance stem in part from a dislike of ‘management speak’? Which sounds like it’s OK to use your own jargon while not accepting that of others…