The way forward: embrace change

Published on Sunday 2 March 2008 20:47

THE latest Legal 500 report raised interesting questions whether Scottish practices should expand south of the Border.

Many of the financially best performing practices were those which had concentrated their efforts on expanding their Scottish base and deliberately not shifting their interests to London. The trend has been for Scotland's larger legal firms to look to London as a means of building their practice and their fee base.

Coupled with this is the complication that this involves considerable financial investment in people, premises, marketing and development and closes off work they might otherwise have gained because of a conflict of interest.

London-based legal firms increasingly look for advice and information from Scottish firms on issues of law, and for those Scottish firms that have a London outlet, there can be situations where they may be precluded from advising if there is a perceived conflict of interest. For the solely Scots-based firms this has proved lucrative, with London-based firms increasingly looking for legal advice from them.

The "all roads lead to London" view may be going out of fashion as firms find the competitiveness and scale of many of the London-based firms means that even Scotland's largest practices can look like minnows in comparison.

That isn't to say investing in London offices is necessarily bad. These are clearly investments for the long term and many of the Scottish firms will be absorbing initial front-end costs in establishing these practices which may consequently pay dividends in the future. The key issue is the element of investing.

There is a need therefore, for practices considering opening in London, to invest enormously in individuals, technology and marketing, without which Scots practices will find themselves falling behind.

The risk involved in investing heavily in London-based staff is that they are then poached by larger rivals. There is also the issue that though fees can be much higher in London, the overall operating costs are substantially increased, reducing the profitability of any work gained.

What will distinguish the successful Scottish practices will be their ability to specialise in more esoteric areas at the same time as commoditising the more mainstream elements. Once Clementi is implemented in Scotland, many more organisations will be able to provide the simpler services that were once the bread and butter of all practices. What will mark out the successful Scottish practices will be their ability to be specialists within their marketplace and generalists where required.

This may sound contradictory, but there are contrary influences: the need to provide very cheap basic services for the mass market coupled with the need for specialised niche advice for a small but lucrative marketplace. These two areas will grow in the coming years, and geography may actually be less important for future success than developing a fuller understanding of which areas to specialise in, and how to deliver such services profitably. The successful legal practice is likely to be the one which is responsive to the marketplace, able to adjust its services quickly and effectively. The most successful firms of the future will be the ones changing now to reflect the market's shifting needs.

&#149 Charles Barnett is a professional services partner with accountants and business advisers PKF.