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Financial management: Performance by structure

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Cite as: May 2011 85(5) LIJ, p.75

The structure of a legal firm can go a long way towards determining its profitability, competitiveness and effectiveness.

The profitability and capital value of legal firms is largely dependent on how the firm is structured. An effective structure that supports competitiveness will underpin profitability, grow capital value and make working within that firm, as a partner or employee, something to look forward to each day.

A firm’s structure determines its ability to compete effectively in the changing marketplace and is the fundamental building block of any successful business. So what does structure look like?

The structure of a firm is not the organisational chart but, rather, how it works as an organisation and does the things it does. When you think about structure you should think about:

  • the fundamental reasons for the firm’s existence;
  • the competitive strategy of the firm;
  • how success is measured and communicated;
  • systems and processes in use;
  • the type of staff which the firm recruits;
  • skills and competencies that are developed and valued in the firm;
  • the style of the firm; and
  • how the firm works as one to deliver services.

It is all these elements of a firm that comprise its structure and they are all interconnected. A change in process will impact structure, as will a change in recruitment policy. What you view as success will impact structure. Structure determines competitiveness, profitability and capital value.

A simple way to get a handle on the structure of your firm is to view your firm through four windows – engine, equity, metrics and value. Use these windows to examine your present structure and to identify whether the elements and traits they look for are present.

The competitive engine of the firm comprises the catalysts that influence its enduring performance. A well-tuned engine delivers efficiency and effectiveness and, in a business context, profit and capital value. A competitive engine is constructed with:

  • strong leadership providing direction and focus;
  • a single-minded focus on client needs;
  • a vision that sets clearly the future course of the firm;
  • the correct culture for your firm;
  • proactivity, not reactivity, as a firm trait;
  • recognising the importance of your employees; and
  • identifying your core competencies and building on these.

The equity structure of your firm and its partnership agreement strongly influence performance and capital value.

However, most partnership agreements are drawn to protect interests and rights and not to enhance performance and value. The terms of your partnership agreement will direct the level of contribution, commitment and cooperation between partners.

It will influence partners to either work on their clients or the business, to focus on leadership or solely billable hours, to build brand equity and the right culture, or to focus on their own client portfolio.

Review your partnership agreement and tick off the number of clauses that support the catalysts in the competitive engine and you will quickly see if your agreement is building your firm.

An absolute focus on client needs and value is essential for good structure.

Who are the clients of your firm? What are their real and important needs? What are these needs today and, more importantly, what will they be in three, five and 15 years?

Do you have a plan to improve the value you deliver to your clients so outrageously more than your competitors that they will be left in your wake? Outrageous doesn’t necessarily require a sacrifice of profit, but it does require value innovation and a willingness to do things your competitors don’t.

Does your firm have a “client first” policy where all decisions made are measured against how they will improve the value delivered to clients? Is your firm run for clients or for partners?

What you measure is what you get. Are you measuring those elements that will build structure or are you measuring those elements that will weaken it?

List how you measure performance in your firm and see if any of the catalysts in the competitive engine are present. If not, then begin to add in additional measures that will reflect these catalysts.

You will create movement towards building a stronger structure by focusing on the right mix of measures. Think of stepping-stones and begin to introduce new measures and progressively step your firm in a direction that builds and strengthens structure.

If your goal is to create a firm of enduring success and value that clients and staff enjoy working with, then focus on structure.

DR RICHARD SHRAPNEL is a director in the business consulting division of Pitcher Partners. He can be contacted at


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