Strategic reflections for law firms this season.

Antonio Gómez Montoya
Black Swan Consultoría

With the arrival of December, law firms face the usual questions: How much did we bill? Did we manage to grow? Which partners or areas stood out in the rankings? How is the team doing? What challenges will we take on next year? Although this period is ideal for taking stock, limiting the strategic assessment to a quick annual analysis may not only be insufficient, but also counterproductive. In a dynamic market where expectations are constantly evolving, strategy cannot be reactive; it must be a continuous and flexible process that allows us to anticipate changes, not just react to them.

Strategy, in essence, is the set of decisions a firm makes to achieve its objectives. However, law firms, as human capital-intensive firms rather than financial capital-intensive firms, have unique characteristics that shape this process. These differences should guide strategic thinking in a clear and specific manner.

At Black Swan, we compartmentalize strategy into two major dimensions. On the one hand, external strategy defines how the firm positions itself in the marketplace, competes to attract talent, enhances its reputation and differentiates itself from the competition. On the other hand, the internal strategy focuses on structuring and optimizing the firm’s systems – partner compensation, associate compensation, governance, evaluation, retirement, among others – as tools to achieve the externally stated objectives. Both dimensions must be integrated and supported by key indicators to measure performance and make timely adjustments.

The average value per billable hour is one of these key indicators. This figure, which results from dividing net revenue by actual hours spent, clearly reveals the firm’s strategic approach. A high value suggests a qualitative strategy, while a low value points to a quantitative strategy. However, it should not be assumed that a higher value automatically implies higher profitability. Both approaches can be highly profitable if properly configured and aligned with market characteristics.

Each firm must define a clear strategy, whether it is focused on qualitative growth -more turnover per professional-, quantitative growth -greater turnover- or a combination of both. These decisions directly affect the firm’s positioning in the market. A well-designed, executed and communicated strategy generates a solid and differentiating positioning that is essential in a competitive environment.

In this context, qualitative and quantitative strategies have opposite dynamics. The former tend to be characterized by higher margins and average hourly values, but with lower utilization and leverage. Quantitative strategies, on the other hand, tend to have lower margins, but with higher utilization and leverage.

Designing and executing a strategy involves more than financial analysis. It requires understanding customer needs, anticipating market trends and building a clear industry identity. A strategy that is not shared by the entire organization loses effectiveness. Its communication must be consistent and function as an element that attracts the right professionals, allowing the firm to filter out those who do not fit its vision. A strategy is not changed or modified every year.

It is equally essential to align internal systems with strategy. If systems do not reinforce strategic objectives, partners, professionals and even clients will perceive a disconnect that will affect the firm’s credibility. In addition, it is crucial to balance present benefits with necessary investments for the future, avoiding generational conflicts or excessive decapitalization that could compromise the sustainability of the organization.

We should not lose sight of the fact that one of the main distinguishing characteristics of professional services firms, including law firms, compared to traditional companies, whether they are pure product or service companies, is that their strategy is based primarily on their internal capabilities and skills. In these organizations, “who we are” and “what we know how to do” precede “what needs we serve” and “how we develop them”. This approach, centered on people and the expertise that defines the partnership, is essential and should not be underestimated or forgotten.

Managing a law firm is not an operational exercise, but a prudential art. Although strategic concepts may seem simple, their implementation requires experience, practice and a deep understanding of organizational dynamics. Each firm, shaped by the sum of its professionals, must find its own path and tailor its strategy.

Finally, it is essential that the strategy has a single point of responsibility within the firm. Generally, this responsibility falls to the managing partner, whose term of office should be closely linked to the implementation and monitoring of the strategy. This leader is not only tasked with making key decisions and adjusting internal systems, but also with ensuring that these actions are aligned with the strategic objectives. However, the success of this approach requires the active engagement of the rest of the partnership, which must support the managing partner and, at the same time, play a constructive evaluation role. In essence, strategy must be a process of clear leadership and individual accountability, but built and strengthened collectively.