Here we are then, 2011, the year of the alternative business structure. If you don’t believe that implementation of the Legal Services Act will have a major impact on the legal market then don’t bother reading on, as nothing I can say will change your mind and neither will I attempt to do so.

There has understandably been a great deal of attention paid to the marketing power of the big brands that are sure to enter the legal services arena. Laudable marketing competition is emerging from the likes of Quality Solicitors and Wigster, but maximising marketing expenditure will not be enough to compete.

Some of the hyped big brands are also making the mistake of paying insufficient attention to the cost of production and I believe that other as yet unheralded players which understand the importance of this will enter the field. The equation for commercial success is fairly simple and admirably expressed in Alan Sugar’s autobiography, which found its way into my Christmas stocking. He wanted to know what his production costs had to be in order to sell his Amstrad products at a price attractive to the market, so he established this formula (which I have shortened for our purposes):

(Market price) – (Dealer’s margin) – (Amstrad’s gross margin) = Target cost price (including labour cost)

In our terms, we need to know what it should cost us to do work that will enable us to sell our services at a price that will be competitive even with the big brands and still achieve the profits that we aspire to. Once Amstrad knew that its target cost price should be it examined every component and processing cost with a view to meeting that target.

How many firms examine their costs of production? I venture to suggest that there are not many which pay sufficient regard to the importance of this. It is not just a question of producing management information about these costs, but having an operational strategy to lower them where they are found to be too high to achieve target cost price.

I can confidently guarantee that in most firms there is vast scope to lower production costs without sacrificing quality.This has at least two requirements: (1) devise an operational strategy and (2) insist on its delivery. Many of the firms that get something approaching the first requirement right then shy away from the second. It is no use spending money on IT systems but then allowing individuals to decide whether or not to use them. This is your firm and you are entitled to require not just suggest that the systems you put in place are adhered to.

Some imagination is needed when considering expenditure required to accommodate the above formula. It is not uncommon for a firm to baulk at IT expenditure where the one-off cost is less than the annual cost of employing one of the secretaries employed who would not be required if proper systems were put in place and used (or who could be put to fee-earning work if simple principles of delegation were employed).

None of this is rocket science, but law firms have not in the past had to pay too much attention to these basic business considerations. Partners and other law firm leaders should have been changing this attitude long before the year of the ABS and there might still be time to act before it really is too late. It is in our hands to make this not just a happy new year, but a happy new era.

Martin Langan is a solicitor and founder of Legal Workflow Limited, providing services tailoring practice and case management systems and legal IT strategy and operational advice and assistance.