Publication

On what do Latin American law firms base their differentiation strategies?

05 of June 2018
Randall Corella V.

The professional success of a law firm causes growth. Increasing scale contributes to the attractiveness of the organization, its negotiating power and value creation vis-à-vis its clients, suppliers and the human talent market, while allowing you to obtain economies of scale to operate more efficiently, make larger investments, adopt better technology and encourage the specialization of your partners. 

However, growth introduces new challenges for management and can cause disorder. Hence the importance of having a clearly defined strategy, help law firm leaders meet those challenges and build a truly promising future.

In this study, we analyze the differentiation strategies in the industry and the growth patterns of 150 prestigious legal services companies from 17 Latin American countries; all with at least 10 attorneys and present on the Latin Lawyer 250 list in both 2007 and 2015.

In some firms, a single partner supervises eight or ten associate attorneys. In others, the leverage or relationship between the number of partners and associates is one to one. What explains this variability? One possible cause is that some improvise their organizational structure and make hiring, development, promotion, and firing decisions without much planning. Other, what the structure responds to the strategy and varies according to the differences in the strategic positions that arise.

It is common that large legal services companies do not have pure positioning and growth strategies. Diversification, internationalization and acquisitions have resulted in mixes of units with heterogeneous skills. In addition, the relationship of lawyers associated with partners also allows us to infer, in general terms, evolution parameters.

An illustrative case is BLP. Roberto Murillo, a lawyer for that organization, affirms that each client is served by a team made up of at least one specialized partner and two associates, however, M&A projects (mergers and acquisitions), Due Diligence (legal audit) and litigation, they handle them with two or three partners together and six and eight partners.

“The participation of the partners depends mainly on the degree of specialization that the project requires. In contrast, there is an area of ​​legal advice in notarial services, commercial advice and preparation of contracts that does not require complex specialization, made up of a practice partner and six associate lawyers ”.

According to this study, in 2015, the average leverage level rose to 3,34 associate lawyers for each partner, from 3,20 in 2007; with a standard deviation of 1,88 (1,89 in 2007). A level less than 2 corresponds to “brains” strategies, while more than 5 to “efficiency” strategies. Companies with “gray hair” strategies have intermediate levels of leverage.

Differentiation strategies
According to the specialization, the type of services they provide and the level of leverage, law firms are classified in "Efficiency", "Gray hair" and "Brains".

The efficient ones: They owe their positioning to the fact that they carry out common and repetitive jobs very efficiently, such as property registration, company registrations, company formation, tax payments, court collections, etc.
They usually have high levels of leverage and high turnover of associates. A well-implemented efficiency strategy assumes low attorney-hour prices; it requires advanced technology and expedited processes. In the eyes of the client, they have progressed through a learning curve that allows them to perform legal tasks in less time and at lower costs than they or other providers of legal services can achieve.

Brains: They are at the other end of the spectrum. They specialize in finding solutions to complex and unusual problems. They perform time-consuming jobs from senior partners, so leverage levels tend to be low, as does staff turnover, while attorney-hour rates are high. This positioning implies a lot of specialization, many hours of contact with the client and tailor-made work. Clients choose brain firms when they seek the services of "star" attorneys in very specific areas.

The gray hair: They are at the center of the spectrum, with attorney-hour rates, experience levels, and leverage in between. Clients seek them to solve serious problems, but on which there is jurisprudence and have been previously faced by experienced professionals (gray).
24% of the sample is positioned in the “brains” segment, 60,7% in the “gray” segment and only 15,3% in “efficiency”. This pattern is consistent with that found in the United States. AmLaw 100 reported in 2015 that 8% of the largest service companies in that nation had a leverage less than or equal to 2 and 14%, greater than or equal to 5.

Extract from the report, prepared by Niels Ketelhöhn and Octavio Martínez, professors at INCAE Business School, and published by Summa magazine.

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