The improvement of a firm's competitiveness is the most important item on the agenda of the majority of medium-sized legal practices; that is those firms with between ten and 30 partners and with a fee income between £3 million and £20 million annually.Almost all firms have improved their performance over the past five years, but this is not necessarily enough.

Providing clients with better services more quickly, more comprehensively and less expensively are all laudable improvements.

They are not, however, automatically the same as improving a firm's competitiveness.Efforts to improve performance usually concentrate on how a firm undertakes something today compared with how that same task was undertaken -- or service provided -- six months, a year, or even two years ago.

There is a strong internal focus.

Improving competitiveness, in contrast, has a strong external focus.When considering competitiveness, the benchmarks for assessing performance are not related to how a task or service was previously undertaken or provided.

What is examined is the extent to which a firm meets its clients' needs, both in absolute terms and in relative terms compared to competitor firms.Firms may dramatically improve their performance but, because competitors' performances have improved even more in terms of meeting the market's expectations, the firm's competitiveness will have declined.Maintaining competitiveness, let alone improving it, needs constant effort because of ever-increasing client expectations regarding service provision, service delivery and, most importantly, value for money.A number of options are open to medium-sized firms to help improve their competitiveness and, in time, assist them to improve their margins and profitability.The optimum strategy for each firm will depend on a number of factors, including:-- The current position of the firm taking into consideration its capabilities, resources, structures, economics, culture, and so on.-- The changes facing the firm, both in terms of the issues affecting medium-sized firms and the specific issues affecting individual firms such as client base and regional/local market variations.-- The aspirations -- professional, personal and financial -- that the firm's employees (particularly the p artners) have for the future and whether they are prepared to make the commitment needed to realise such aspirations.The first stage in developing a strategy is for the firm to ensure that it has a clear and shared view of its competitiveness.

It is from this basis that its future competitiveness will be built.

Legal practices compete on a number of fronts, including the range of services offered, technical expertise, client relationships, service delivery and profit margins.On which front a firm decides it will concentrate depends on the importance of that front in meeting the needs of its target core clients, winning the work it wishes to focus on and the basis on which it intends to compete.

But, before addressing this issue, which is essentially concerned with the future, it is important that a firm should have an understanding of its existing competitiveness.There are six factors that impact on a firm's competitiveness.

An analysis of how a firm performs in each of these areas will provide a highly focused diagnosis of a firm's competitiveness.1.

CLARITY OF DIRECTIONThe first issue is whether the firm has a clear direction.

Is there a shared objective both across the partnership and across the firm, or are there a number of different views about the firm's direction?Is everyone in the firm clear about the types of clients and work being targeted and the basis on which the firm competes, or are individual partners and groups following their individual agendas?Firms without a shared sense of direction can be successful in the short term.

But a shared sense of direction and a commitment to joint objectives is necessary to achieve longer term success.The long-term validity of the firm's direction should also be assessed.

This should include a review of the structural changes that are occurring within the market in which the firm intends to compete.2.

ORGANISATIONAL STRUCTUREThe second area to review is a firm's organisational structure.

Structure in this context means how the important issues facing the firm are raised, decisions made and actions taken in order to achieve the desired results.Reviewing structure means assessing employees' roles, responsibilities and accountabilities, and looking at lines of communication and constraints on decision making.There is no uniform approach that will be right for all firms.

Every firm has its unique history, culture, values, resources and capabilities.

Every firm also has its unique aspirations.

The purpose of any firm's structure is not, however, unique: it is to transform that firm's strategic direction into actions, and those actions into results.

Many firms have a structure that is unrelated to the firm's strategic direction and are labouring to achieve objectives with an inappropriate underlying organisational regime.3.

INTERNAL RESOURCESThe third area impacting on the fundamental competitiveness of a firm is its people -- both professional and support.It is crucial that the firm's employees are of the required calibre and have the right attitude to deliver the services the firm provides, at the levels of quality demanded by its clients, and at a fee level they are prepared to pay.Employee performance can be assessed in three ways.

First, by comparing the firm's capabilities with the level of work being undertaken and ensuring that there is a match between the two.

Secondly, by asking individuals what they think is the match between the two.

Thirdly, by analysing the firm's finances to show any mismatch between the firm's capabilities and the work underta ken.4.

CORE SERVICE RANGEThe firm's range of services should be analysed to see how they correspond with current market demands.

Clients have re-assessed the fees they are willing to pay for many legal services.

Many have concluded that a small number of services are of significant strategic and competitive value to their business and for these, subject to the going market rate, there tends to be less pressure on fees.

There is, however, less of this work, and in some areas much less than, say, three years ago.

Clients have concluded that other work, while necessary, is not of great strategic or competitive value and they will pay accordingly.In assessing a firm's service range, it is necessary to compare the firm's strengths with market expectations.

A review of the synergy across a firm's core practice areas is also needed.

Does the range of services appeal to different groups of clients or is their potential to cross-sell services to the firm's core clients?A review of the likely impact of market forces and changing client expectations and demands on each of the firm's core practice areas should be undertaken.5.

CLIENT BASEReviewing the firm's client base can give important information about a firm's competitiveness.

An analysis of the fee income generated over the past three years from a firm's top 25 or so clients can show whether or not the firm has a stable core of clients, consistently purchasing a significant amount of legal services.Questions that should be asked include: what percentage of each of the top 25 clients' work does the firm undertake? Do the majority of top 25 clients buy only one service from the firm, or do they buy a range of services? If the former, why? Is the client base homogeneous, or does it lack focus? Does it correspond to the services offered by the firm or are clients' needs different from the strengths of the firm?This type of detailed analysis gives considerable insight into competitiveness, particularly when the output is compared with the norms of comparable firms.6.

ECONOMICS OF THE PRACTICEThere is a tendency, using modern software applications, to produce a mass of figures: too often the few essential indicators become buried in the process.The most important indicator is the cost multiple: the ratio of fee-earners' salaries, including a notional salary for equity partners, to fee income earned.

A low cost multiple indicates problems within a firm on either the cost side or the income side, or both.Further analysis can help to identify the underlying reasons for the cost multiple being at the level it is and can reveal where competitiveness could be improved.Such measures include:-- utilisation rate -- hours charged as a percentage of hours available;-- average billing rate -- the value of work done divided by hours charged;-- realisation rate -- the percentage of value of work done billed to clients;-- leverage -- the ratio of fee-earning staff to equity partners;-- overhead rate: overheads as a percentage of fees earned.Comparing performance with similar firms allows valuable market-based benchmarking to be undertaken.