Contents. Key characteristics. Financial performance. Technology, operations and client service. People. Outlook and future growth

Transcription

1 Innovation in a changing market 2015 Legal Benchmarking Results macquarie.com

2 Contents Key characteristics Financial performance How to get the most out of our benchmarking results Click on a section to read more about the topics that interest you most, including best practice tips. Ready to learn more? Technology, operations and client service Contact us today People Outlook and future growth 2

3 Key characteristics Contents 3

4 Benchmarking your performance About the research Our 2015 survey is exceptional in its breadth and depth, capturing insights from Equity Partners, Directors, CFOs and General Managers at 226 legal firms in every state from sole practitioners to large national firms. Objectives Identify the trends shaping the future of the legal industry Track the performance of firms across Australia Uncover the unique characteristics that enable firms to outperform and offer insights to help you repeat their success Establish best practice benchmarks you can use to improve your own performance 4

5 Benchmarking your performance The participants Number of completed surveys 2011: : : 226 Age of firm % 8% 16% 63% % 9% 19% 57% % 5% 10% 67% Gender % 56% 57% 36% 44% 43% Up to 3 years 4 5 years 6 10 years More than 10 Role Equity partner /Director Finance specialist GM 48% 36% 17% 23% 15% 17% 19% 15% 46% Other 18% 22% 24%

6 Participant characteristics Measuring firm size and performance Despite declining demand for legal services and an intensely competitive market, some firms continue to achieve high levels of growth. 27% of firms grew their profits by 20% or more in FY2015 the same proportion as in Throughout this report we will describe firms using these definitions: Firm performance Low performance Increased annual profits by less than 20% or saw profits decline (164 respondents) 73% High performance Increased annual profits by 20% or more (62 respondents) 27% Firm size Small Gross fees less than $4 million (147 respondents) 65% Mid-size Gross fees between $4 and $20 million (63 respondents) 28% Large Gross fees over $20 million (16 respondents) 7% 6

7 State performance A multi-speed economy While Western Australian firms have successfully weathered the end of the mining investment boom, their Queensland peers are under financial pressure. Firms in other states reported healthy growth, with New South Wales and Victorian firms benefiting from improving state economies. Key insights NSW firms had the highest average fee growth (14%) 28% of SA firms saw gross fees decline WA (15%) and NSW (14%) outperformed on profit growth QLD is the only state where average profits fell ( 1%) Change in last financial year 2015 versus 2013 Western Australia 9% 15% 59% 41% South Australia 12% 6% 61% 50% Increase in gross fees Increase in profit Average change in gross fees Average change in profit Queensland 6% -1% 61% 45% New South Wales 14% 14% 63% 61% Victoria 12% 5% 59% 41% 7

8 Charge out rates Rates remain competitive Key insights Average partner hourly charge out rates in 2015 WA property and QLD employment law partners have the country s highest charge out rates ($481) Commercial law Employment/ workplace law Estates/wills Family law Litigation/ dispute resolution Property law NSW VIC QLD SA WA 8

9 Billing methods Alternative billing takes off in NSW and QLD Key insights Billing method expectations next 12 months by state NSW firms are most likely to use alternative billing methods (23%) 31% of firms said billable hours would not be their primary billing method in the next 12 months 91% 78% 71% 65% 57% 23% 12% 16% 15% 14% 16% 11% 6% 0% 0% 1% 2% 0% 6% 0% 4% 2% 3% 6% 3% Billable hours Fixed fee Value-based billing Not sure Other NSW VIC QLD SA WA 9

10 High and low performance firms What makes a high performance firm? They have the same number of staff and similar charge out rates to their peers. Yet high performance firms grew fees by an average of 29% in FY2015, while other firms grew by just 5%. High performance firms grew fees by an average of 29% in FY2015 So how did they do it? High performance firms tend to focus on growing revenue by attracting and retaining great staff. Low performance firms are (relatively) more likely to prioritise cost cutting. High performance firms often outsource non-essential activities, while investing heavily in technology to simplify systems and liberate staff to work more flexibly. They are also relatively likely to be flexible in their pricing structures, using alternative billing methods to attract clients. High performance firms tend to focus on growing revenue by attracting and retaining great staff High performance firms often outsource non-essential activities, while investing heavily in technology 10

11 High performance firm characteristics Profit growth through innovation Gross fees excluding disbursements and WIP movements in FY2015 Under 4m 66% 4-10m 18% Average gross fees in FY2015 $6,721,774 10m+ 16% Firm profits in FY2015 Less than $250k 250k - $1m 23% 37% Average firm profits in FY2015 $892,338 $1m+ 39% Unsure 2% Billing method expectations in the next 12 months Billable hours Fixed fee 26% 53% On average 4.6 staff joined high performance firms in FY2015 Value-based billing Not sure 3% 13% Other 5% 11

12 Low performance firm characteristics Struggling for growth in a competitive market Gross fees excluding disbursements and WIP movements in FY2015 Under 4m 65% Average gross fees in FY2015 $7,750, m 10m+ 16% 19% Firm profits in FY2015 Less than $250k 250k - $1m $1m+ 27% 32% 36% Average firm profit in FY2015 $679,420 Unsure 4% Billing method expectations in the next 12 months Billable hours Fixed fee 12% 73% On average 0.9 staff joined low performance firms in FY2015 Value-based billing Not sure Other 1% 3% 10% 12

13 Created by Ruud Smit from the Noun Project Innovation in a changing market 2015 Legal Benchmarking Results Three trends shaping the industry s future A changing market Demand for legal services is falling, with increasingly sophisticated clients doing more in-house or turning to a new generation of low-cost virtual firms for lower value services. The result: downward pricing pressure, which our survey shows is the number one challenge facing the industry over the next 12 months. Disruptive technology Technological innovations have helped firms become more efficient while powering flexible working practices that help attract and retain valuable staff. Yet they are also disrupting the market by giving clients access to low-cost online services, from will kits and family law agreements, to employment contracts and other commercial documents. New business models Many firms have responded by re-engineering their business models either focusing on high-value added services, or offering commoditised fixed fee options for costconscious clients. External issues expected to impact firms in the next 12 months Clients seeking more competitive prices 69% Another downturn in investment markets/economic conditions Slow recovery of investment markets/economic conditions 38% 35% The threat posed by new and different competitors 31% Rapid disruption of traditional business models by digital technology 26% Clients seeking to disaggregate services among different firms and providers 21% Changes in legislative requirements 19% Expected impact of competitors on firm performance in the next three years Low-cost virtual law firms Legal process outsourcing (LPO) services Big 4 accounting firms International law firms 46% 28% 19% 14% Our model is to run the business like a software company, not as a traditional law firm We re aiming for 100% growth year on year. Lachlan McKnight CEO, LegalVision Read the case study 13

14 Financial performance Contents 14

15 Fees Growing revenue in a tight market 62% of firms increased gross fee revenue in FY2015, with an average increase of 12%. Small firms recorded the largest increase at 15%, more than double the average increase for large and mid-size firms (6%). Change in gross fees Increased Decreased Stayed the same % 15% 23% % 16% 22% % 12% 18% Gross fees 12% in FY

16 Billing Billable hours still dominate Billable hours continue to be the billing method of choice across every practice area, except property and estate law. Yet the pressure for change is growing. 31% of firms said billable hours would not be their primary billing method in the next 12 months, with 16% preferring fixed fees and 11% turning to value-based billing. Use of billable hours in key practice areas Commercial law 80% 77% 29% Property law 44% Estates/wills 36% 52% Litigation/ dispute resolution Family law 95% 96% 95% 93% Employment/ workplace law 92% 92%

17 Expenses Salaries remain the biggest expense line People remain by far the biggest expense for the vast majority of firms. More than one dollar in every two is spent on salary and wages, highlighting the importance of retaining the high quality staff who are the firm s biggest assets. Firm expenses 2011, 2013, Salary and wages 51% 49% 52% Rent and premises 13% 14% 13% Firm expenses by size, 2015 Salary and wages (excluding equity partner/director but including on costs) Rent and premises costs Finance costs including interest, bank charges and professional indemnity insurance IT/communications costs 9% 5% 5% 8% 7% 4% 14% 11% 14% 49% 58% 59% Finance costs 7% 9% 8% IT/Communications 7% 7% 7% Marketing and business generation 5% 4% 5% Training and HR 3% 4% 4% Other 13% 13% 10% Marketing and business generation activities including advertising Training and human resources costs including recruitment 6% 4% 3% 5% 3% 4% 9% Other 11% 10% Small (<$4m) Mid-size ($4-20m) Large ($20m+) 17

18 Profit Small firms lead on profit growth One in two firms increased profits in 2015, down from 57% in The average increase was 10%. Small firms achieved the largest increases (an average of 14%), followed by large firms (5%), while mid-size firms simply held their ground in real terms (2%). Profit change in last financial year 2015 versus % 52% 50% Increased 20% 25% 38% Decreased 30% 22% 13% Stayed the same Small firms lead on profit growth Small (<$4m) Mid-size ($4-20m) Large ($20m+) Profit 10% in FY2015 Change in profit Increased Decreased Stayed the same % 23% 27% % 18% 25% % 22% 10% 18

19 Profit drivers Great staff building strong client relationships How do you drive profits higher? While firms agree that quality staff, strong client relationships and excellent service are critical, not everyone agrees which factor matters most. Large firms tend to see relationships as key (75%). High performers are more likely to focus on retaining great people (66% versus 55% of other firms) and are relatively likely to say investing in technology is important (16% versus 12%). Aspects of service having the most impact on profit Retaining quality staff 58% Maintaining and developing relationships with clients 58% Excellent customer service 44% Strong financial management 24% Marketing and business development activities Keeping costs as low as possible 23% 21% Highly structured and efficient billing and debt collection 19% Strong cash flow management 15% High performers are more likely to focus on retaining great people The top profit drivers High performance firms: Retaining quality staff 66% 19

20 Technology, operations and client service Contents 20

21 Driving business efficiencies Improving revenue generation Since 2013, many firms appear to have become more confident that they have collections and working capital management under control. Instead, the focus of the hunt for new efficiencies has shifted to improving business development and performance management keeping revenue flowing in, rather than stopping expenditure from flowing out. 1 in 4 also believe they can make better use of the cloud and mobile computing Areas where firms are seeking efficiency Business development 54% 50% Fee earners performance management WIP/debtor management 42% Invoicing/collections Client management 30% Online operations (cloud/mobile computing) Compliance and Law Society obligations 16% 27% 40% 44% % 41% 43% 55% 43% 49% 40% 42% 40% 9% 14% Banking and account reconciliation 12% 8% 8% Other 2% None of these 9% 21

22 Debtor days Reining in debtor days Keeping debtor days under control helps reduce the working capital needed to keep the firm running from day to day, lowering borrowing costs and preventing cash flow gaps. Yet our 2013 survey found debtor days had blown out significantly, as sub-par economic growth affected client cash flow. Firms have responded by tightening credit controls, leveraging technology to improve collections, and implementing fixed fee billing. Average change in debtor days % 47% 19% % 44% 39% Decreased Stayed the same Increased That has seen one in three reduce debtor days in FY2015, with another 47% holding steady. Overall, four in five firms now collect more than 75% of billings 22

23 Best practice Did you know? If your firm turns over $3m pa, a 30-day increase in debtor days could mean finding an extra $250,000 a year in working capital. Here are three best practice tips for keeping collections under control: Use customer relationship management software to automatically send reminders of unpaid bills. 2. Offer incentives for early payment and charge interest on overdue invoices. 3. Make it easy for clients to pay with DEFT*. *Talk to a Macquarie relationship manager about DEFT payment options for your firm 23

24 Technology Investing in technological innovation Technological innovations have helped firms achieve new efficiencies and offer more flexible work conditions to valued staff. Yet they have also intensified the threat from online competitors. Clients now have more freedom than ever to access low-cost, commoditised legal services online. 34% of firms less than four years old now collaborate with clients online Digital statements We operate from an online platform and our lawyers can work from anywhere We have a mobile device-friendly website We are active on social media -eg Twitter/Facebook/LinkedIn We use Search Engine Optimisation (SEO) on our website We offer publicly available legal information and documents online 15% 29% 44% 44% 57% 68% 57% 63% 54% 53% We collaborate with our clients using online software None of these 24% 21% 15% 11% Low performance High performance 24

25 Adapting to a changing market Smart technology helps drive client and staff satisfaction High performance firms are more likely to have invested heavily in technology in the past or plan a significant investment in the future. Many use an online platform to support flexible work practices, aiding staff retention. Expected investment in technology Expected technology investment in next 12 months Areas of intended investment As a result, many say they are leading the way in innovation or keeping pace with industry changes. In contrast, half of all low performance firms believe that they could either do more or are falling behind. <$50,000 $50, ,000 20% 27% 65% 52% Website IT systems/platforms 65% 73% 58% 55% Firm s ability to adapt to industry changes $150, % 21% Practice management software Mobile enabled technology 36% 47% 28% 27% We are falling behind our competitors We have made some changes but could do more Low performance 4% 46% High performance 2% 37% Cloud platforms/data warehousing Software integration 29% 23% 23% 29% We are keeping pace with industry changes 37% 42% We are leading the way in innovation 13% 19% Low performance High performance 25

26 Outsourcing Outsourcing is an increasingly popular strategy to drive efficiency High performance firms not only use technology to drive efficient work practices, they are also enthusiastic users of IT outsourcing and are starting to embrace LPO. By outsourcing both IT functions and non-essential support services, they are able to focus on their core strengths and reserve their salary spend for fee earners. Overall, 81% of firms outsource at least one business function, up from 66% in Firm functions currently being outsourced IT Finance Other business/ support services Marketing ediscovery Legal research 3% 0% 9% 2% 12% 19% 18% 16% 15% 27% 60% 74% Other legal work 4% 2% None of these 11% 23% Low performance High performance 26

27 Created by Ruud Smit from the Noun Project Innovation in a changing market 2015 Legal Benchmarking Results Best practice What to look for in an outsourcing partner A 2014 Grant Thornton* report found that reliability was the number one characteristic businesses seek in an outsourcing partner (named by 56% of businesses), outranking even cost (43%). Trust (40%), an understanding of the business (35%) and a proven industry track record (27%) also played a key role, completing the c-suite of outsourcing criteria: compliance, cost and confidence. *Grant Thornton Outsourcing: driving efficiency and growth, 2014 Read the case study 27

28 The ideal firm and the reality Room for improvement For our survey participants, the ideal firm is expert, knowledgeable, reliable and, above all, professional. But while many mark themselves highly on professionalism and friendliness, there is still room for improvement on knowledge and reliability. These attributes may become more important for firms seeking to differentiate themselves as specialists in a high-value niche. Ideal firm attributes vs firm strengths, % 50 46% 45% 43% 46% 40% 40 43% 41% 38% 38% 34% 30 28% 30% 23% Firm strengths Ideal attributes % 17% 17% 12% 14% 11% 10% 8% 13% 12% 8% 8% 0 Professional Reliable Knowledgeable Expert Friendly and approachable Fast acting Has integrity Proactive Forward thinking Successful Fresh thinking Credible Innovative 28

29 People Contents 29

30 Hiring intentions Solicitors wanted 60% plan to hire new staff in FY2016, up from just 41% two years ago. The focus is on costeffective fee earners, including solicitors and graduates, then on the support staff required to help them do their jobs effectively. Does your firm plan to hire additional staff in FY2016? Yes 60% No 24% Not sure 16% Hiring intentions for FY2016 Solicitors 65% Graduates Support 36% 32% Senior associates 29% Partners Back office/administration 23% 22% Associates 16% Marketing 7% Sales/income generation/ business development 5% Counsel 4% Other 4% 30

31 Hiring challenges Skilled staff at a premium The challenges of hiring quality staff have been steadily rising since Firms say it is now harder than ever to find people with the right skills and experience, with a flood of applications from unsuitable applicants. 71% of Qld firms find it hard attracting skilled staff, compared to just 53% of WA firms Hiring challenges Hard to find staff with the right skills Hard to find staff with enough experience Too many applications from people who are not suitable Salary expectations 11% 11% 21% 20% 33% 31% 42% 41% 47% 57% 63% 31% The length of time of the recruitment process 4% 7% 11% 1% Being able to offer attractive incentives 9% 10%

32 Retention Flexibility is seen as the key to retention With skilled staff at a premium, firms are more focused than ever on retaining quality staff. Especially high performance firms, who see great people as a key driver of higher profits. #1 Retention strategies across the industry Flexible working arrangements Powered by mobile devices Practices for keeping quality staff Flexible working arrangements Interesting work Career progression 64% 66% 57% 60% 74% 79% Cloud-based systems But most firms are using a range of other non-financial benefits as well from interesting work to training opportunities. Education and training opportunities Location 46% 45% 40% 34% Being able to offer incentives 10% 8% Low performance High performance 32

33 Did you know? Currently, around 12,000 law students graduate each year, while there are just 66,000 solicitors in practice nationally. With business appetite for legal services slowing, that points to a difficult employment market for new graduates. Yet demand remains strong for experienced solicitors, with many firms reporting that they still find it difficult to hire staff with the skills they need. Sources: Law Society of NSW, 2014 Law Society National Profile; Australian Financial Review. 33

34 Outlook and future growth Contents 34

35 Growth outlook Optimism in the east, pessimism in the west 72% of firms expect their profits to rise in FY2016, with one third predicting an increase of 20% or more. Expected change in profit FY2016 NSW 53% 20% 19% 3% 6% VIC 58% 13% 23% 2% 4% QLD 48% 35% 13% 3% SA 35% 35% 24% 6% WA 34% 28% 22% 16% At least 10% higher 1-9% higher Roughly the same 1-9% lower More than 10% lower 35

36 State outlook Growth outlook far from consistent around the country After a subdued FY2015, Queensland firms are the country s most optimistic. 84% of Queensland firms forecast higher profits next financial year. In contrast, only 63% of Western Australian firms expect profits to increase, while 16% anticipate a fall. Expected change in gross fees FY2016 NSW 55% 16% 19% 3% 8% VIC 56% 16% 26% 2% QLD 55% 35% 6% 3% SA 29% 47% 12% 6% 6% WA 34% 19% 41% 6% At least 10% higher 1-9% higher Roughly the same 1-9% lower More than 10% lower 36

37 Industry outlook Different states, different outlooks Similarly, one in four Western Australian firms believe that the legal industry as a whole will perform worse over the next 12 months, along with 39% of South Australian firms. Industry outlook for the next financial year Large firms are most optimistic, with 81% predicting stable conditions and 0% saying conditions will worsen 39% 67% 67% 58% 56% 66% 35% 25% 22% 27% 11% 6% 6% 6% 9% Worse Much the same Better NSW VIC QLD SA WA 37

38 Created by Ruud Smit from the Noun Project Innovation in a changing market 2015 Legal Benchmarking Results New business opportunities Creating opportunities through strong relationships With demand for legal services constrained, it s more important than ever to hold on to good clients. Repeat business is still overwhelmingly the most important source of new business enquiries, accounting for 41% of new business across the industry. However, high performance firms are noticeably more adept at harvesting referrals from satisfied clients and converting word of mouth recommendations into new business opportunities. Source of new business enquiries Repeat business External referral or word of mouth 9% Business development activity 8% 7% Website enquiries 9% 24% 31% 37% 42% Culshaw Miller spend around $50,000 a year on search engine optimisation and receive around 15 web enquiries a day, with around half of all new clients coming from online enquiries. Appointment to legal panels Internal or staff referral Advertising Walk-ins Other 6% 4% 5% 4% 5% 4% 2% 2% 1% 2% Read the case study Low performance High performance 38

39 Marketing LinkedIn has become the second most popular marketing channel Over the last five years, marketing practices across the industry have continued to evolve, with most firms taking advantage of multiple media and digital channels. Use of social media has skyrocketed since 2013, especially LinkedIn. Use of marketing and communication Nonetheless, firms are not neglecting more traditional channels in their enthusiasm for digital innovation; around the same proportion of firms use the Yellow Pages as Facebook. Use of marketing communication by year since 2011 Website 89% Twitter 31% Website 88% 82% 89% LinkedIn 70% Direct mail 20% /Electronic marketing 46% 48% 59% 59% Local newspapers 18% Yellow Pages 40% 46% 38% Newsletters Yellow Pages Facebook 45% 38% 37% YouTube Other None 10% 9% 5% Newsletters Local paper 18% Direct mail 21% 20% % 27% 31% 34% 45% 54% 39

40 Business development Growth is everyone s responsibility Most firms say that business development is the responsibility of every fee earner, rather than specific partners or a dedicated BDM. However, since 2011 firms have become increasingly reliant on key referral partners outside the firm. 60% of firms say Business Development is everyone s responsibility Staff responsible for business development All fee earners 60% 73% Specific partners Key referral partners 27% Senior associates A dedicated business development manager 17% 16% 33% 2011 (All partners) % 13% 32% (Snr partners) 4% 8% 35% 25% 24% 7% Other 8% 8% 16% 40

41 Best practice Driving business development Five business development tips from Alistair Marshall, Partner at Julian Midwinter and Associates: Make it everyone s responsibility. Empower every employee to act as an advocate, even support staff. 2. Provide targeted training. Train staff to pursue referrals actively and systematically. 3. Make it a KPI. Reward staff when they generate new revenue and take action when they don t. 4. Be visible in your market. Define a specific target market, then influence the influencers. 5. Make it part of your firm s DNA. Create a culture where business development is seen as a natural part of every lawyer s job. 41

42 Succession planning A majority now have succession plans in place The proportion of businesses with succession plans has risen steadily since 2010, from 28% to 54%. This may reflect the higher proportion of firms with at least one owner preparing to retire in the next three years (27%, up from 20% in 2013). Selling equity to existing staff remains by far the most popular option, preferred by 73% of firms. But owners are also much more likely than before to simply transition to a new owner without a payout (15%, up from 4% in 2013). Firms with succession plans: % % 2015 Yes 54% No 46% What does your succession plan look like? Staff to acquire equity 73% Gradual transition to new owner for no consideration Sell to another firm 11% Other 9% 15% 42

43 Succession planning Planning or procrastination? Among those without a succession plan, most say that it is simply not the right time. Reassuring, only around one in four of these firms say they have no successors, down from 42% three years ago. Reasons for no succession plan Not the right time 23% 42% 2015 Yes 54% No 46% No successors Not on my list of priorities Too busy working Plan is too hard to establish 8% 11% 16% 22% 23% 22% 27% 42% No one wants to acquire my practice 5% 7% Other None of the above 7% 3% 5% 7%

44 Drivers of future performance The challenge is staying profitable despite pricing pressure Firms of all sizes are united in their concern about the fragile state of the market. Their greatest worries: maintaining profitability while clients seek more competitive prices. Large firms are also particularly concerned by clients disaggregating work among multiple firms (50%), alternative business model competitors (56%), and changing their own pricing models to be more competitive (56%) 56% of large firms are concerned about alternative business model competitors Expected impact of external issues on firm performance in the next 12 months Clients seeking more competitive prices Another downturn in investment markets/ economic conditions Slow recovery of investment markets/ economic conditions The threat posed by new and different competitors 31% 38% 33% 27% 40% 37% 38% 33% 56% 70% 68% 63% Rapid disruption of traditional business models by digital technology Clients seeking to disaggregate services among different firms and providers 24% 18% 30% 25% 21% Changes in legislative 18% requirements 24% 0% 50% Small (<$4m) Mid-size ($4-20m) Large ($20m+) 44

45 Building new relationships Attracting new clients is critical for smaller firms In contrast, small and medium firms worry about attracting new clients and the prospect of an economic downturn, while small firms are particularly likely to find valuable time absorbed by low-value clients. 56% of large firms see changing the pricing model within the business as a concern Expected impact of internal issues on firm performance in the next 12 months Maintaining and growing profitability Attracting enough new target clients Spending too much time with lower value clients Staff retention and recruitment 24% 19% 38% 46% 52% 52% 29% 46% 44% 61% 65% 63% Changing the pricing model/fee structures with the business The breadth and depth of solutions/services you offer your clients Occupacy costs (efficient floorspace/headcount ratios) Reduced client confidence 8% 11% 6% 6% 7% 18% 17% 13% 13% 10% 0% 56% Leveraging/ integreating the IT infrastructure within the firm 18% 32% 31% Finding investment opportunities with a better potential for growth 6% 6% 6% Small (<$4m) Mid-size ($4-20m) Large ($20m+) 45

46 Competitive threats Emerging competitors Firms are highly aware of the competitive threats emerging in a rapidly evolving marketplace. Yet their perceptions of which threats matter most depend on where they sit. Large firms see the big four accounting firms as their main rivals (63%), whereas only 12% of small firms see them as important. In contrast, small firms are the group most concerned about low-cost virtual competitors. Meanwhile, both large and medium firms see legal process outsourcing (LPO) as a growing risk. Expected impact of competitors on firm performance in the next three years by firm size Low-cost virtual law firms 37% Legal process outsourcing (LPO) services 35% 12% 22% Big 4 accounting firms 22% 44% 51% 50% 63% 10% International law firms 17% 31% Small (<$4m) Mid-size ($4-20m) Large ($20m+) 46

47 Best practice Turning LPO to your advantage With clients making increasing use of LPO, many firms see it as a significant competitive threat. Yet there are also potential benefits in partnering with a reputable LPO provider. By outsourcing low-value work to a cost-effective partner, then devoting your own time to higher value-added activities, you can potentially offer clients better value while protecting both your margins and your market position. 47

48 Focus areas Engaging staff and seeking efficiencies For most firms, business improvement is an ongoing activity. But high performance firms are generally more likely to tackle a wider range of issues over the year ahead, with an emphasis on engaging and training staff, as well as building efficiencies with the aid of technology. Other firms are relatively likely to focus on sales, marketing and performance monitoring, as well as reducing costs. Only around one in five firms across the industry plans to develop new products or advice areas. Areas of focus over the next 12 months Managing staff More effort on sales/business development and marketing Cash flow management Back office efficiency Increasing training and skills development Integrating digital technology to improve delivery of legal services Improve monitoring of business plans and performance Reducing costs Spending more time with clients Changing pricing structure Developing new advice areas New product development Changing office layout for flexible working/hot desking Getting back to basics Consolodation 54% 65% 54% 48% 49% 56% 46% 56% 46% 53% 46% 53% 49% 37% 38% 34% 29% 40% 29% 29% 20% 23% 19% 19% 10% 11% 9% 15% 10% 10% Low performance High performance 48

49 Achieving best practice Three habits of high performance firms Invest in technology and outsourcing High performance firms use technology and software integration to streamline and automate everyday tasks, including workflows, case management, accounts and collections. At the same time, they outsource non-essential tasks, including IT functions and business support services, freeing staff to focus on client service. 2. Drive higher profits through quality staff High performance firms see quality staff as the key to profit growth. By focusing on recruitment and retention, rather than cost cutting, you can secure the outstanding people you need to build high quality relationships. 3. Invest in productivity High performance firms invest in staff productivity, including technology to support flexible working arrangements; staff engagement initiatives; and training, with a focus on customer relationship building and industry knowledge. 49

50 Ready to learn more? If you d like to learn more about putting our best practice insights to work in your firm, contact me and my team. Office locations Sunshine Coast Brisbane Gold Coast Ian Marshall National Head of Legal Segment Macquarie Business Banking T I Perth Adelaide Sydney Canberra Contact a relationship manager T I Melbourne Contents 50

51 Important legal notice This information has been prepared by Macquarie Bank Limited ABN AFSL & Australian Credit Licence ( Macquarie ) for general information purposes only and is based on statistics and information sourced from the 2015 Macquarie Business Banking Legal Benchmarking Survey conducted by Celsius Research PTY LTD ABN ( the Survey ). This information does not constitute advice. Before acting on this information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. You should obtain financial, legal and taxation advice before making any decision regarding this information. Whilst Macquarie has taken all reasonable care in producing this information, subsequent changes in circumstances may occur at any time which may impact the accuracy of information. Graphs and forward looking forecasts have been included for illustrative purposes only and have been derived from information provided by third parties that participated in the Survey. Macquarie does not warrant the accuracy of any information provided by any third party. Past performance is not a reliable indicator of future performance. Forward looking forecasts are estimates only and are based on the Survey results. Macquarie does not warrant the accuracy of these estimates and actual results may vary based on a number of market, regulatory, financial and environmental factors. Copyright is reserved throughout. The information contained in this document must not be copied, either in whole or in part, or distributed to any other person without the express permission of Macquarie. 51