Small is the New Big

Small practices in Singapore abound. Statistics compiled by the Law Society show that the number of small practices continues to increase every year despite the absolute decrease in the number of lawyers holding practising certificates (see Law Firm Profile by Size in Appendix A). It is also clear from the statistics that many small practices do not aspire to become large.

Small practice owners everywhere tell us their primary reason for starting their own practice is to ‘be their own masters’. In addition to a deeper sense of ownership and purpose, they also testify how running their own practice is more rewarding and more fun!

You Don’t Have to be Big to be Strong …

We used this tagline to launch our Small Practice Solutions family of outsourced services and technology applications a year ago, and it is still true today. Growing big for the sake of size is no longer fashionable when the focus is on profitability, the quality of service delivery and the durability of the client relationships.

The good news is that being small can be profitable. The main thrust of this article is to show you how the business environment today favours small practices over large.

In our capacity as technology and business process consultants to law practices over the last four years, we have witnessed, at close proximity, the trends taking shape in the industry in Singapore and abroad. These are the prevailing global trends which support our claim.

Small = Fast and adaptable

The increasing pace of change wrought by technological advancements makes it increasingly difficult for any business to predict the future. The best strategy for survival in an ever-changing business environment is the ability to stay responsive and agile.

With few exceptions, we are constantly discovering that entrepreneurial drive, innovation and derring-do are much more evident in the Davids than the Goliaths of the legal scene. A small practice only needs a dynamic and business-minded head to respond to the challenges of an increasingly competitive market; while business and management decision-making in a larger firm are convoluted processes often encumbered with self-interest groups and cronyism.

A striking example of this is found in the impact of the liberalisation of conveyancing scale fees in 2003. In a very short time, traditional giants such as KhattarWong and Lee & Lee gave up their dominance in the retail conveyancing sector to emergent practices such as KK Yap and PKWA Law Corporation. These practices responded to the liberalisation with lightning speed by restructuring their lawyer-staff ratio and relocating their offices to the HDB Hub. By investing heavily in document automation systems and in ‘customer relationship’ skills upgrading for their staff, they have worked an amazing transformation. With waiting lounges that rival those of first tier law practices in the CBD, these practices now offer efficient and consumer friendly legal services in conveyancing and personal law to consumers in the heartlands.

Not surprisingly, every small practice lawyer we interviewed in the making of our CD, Joys of Being Small, referred to their ability to respond quickly to market forces as one of their strengths over larger practices.

Economies of small vs economies of scale

Let’s look at the business of law from an economic viewpoint. The practice of law is a quintessential ‘knowledge’ business where the theory of economies of scale (cost of production decreases as the scale of production increases) does not apply.

Where your sole means of production is your knowledge worker and not factories or machinery, having more fee earners to share your cost does not necessarily translate to a lower cost of production. Why? Firstly, each fee earner can only support a fixed amount of work, and after all, there are only 16 waking hours in each day. Secondly, the task of managing, supervising and training more fee earners invariably requires the practice to support a suitably large pool of non fee-earning personnel such as an office manager, IT technicians, accounts staff and a financial manager, a librarian or knowledge manager, a HR manager, amongst others.

Quite clearly, in terms of cost, being large enough to own the means of production (in relation to support and non fee-earning capacity) does not necessarily translate to lower costs of production per knowledge worker.

Reducing operational overheads can be achieved by smaller practices through sharing of office premises, office equipment, and clerical staff, while back-office administrative functions such as IT support, courier services and book-keeping can be outsourced to professionals.

The fundamental wisdom of outsourcing lies in the principle – ‘Do what you do best and let others do what they do best; most efficiently and at least cost to both parties’. Outsourcing allows the lawyer to focus on core fee-earning activity while leveraging on the expertise and resources of the outsourced services provider to fulfil the other non-core areas – at a cost that a small practice can afford as fees to the outsourced provider are easily tailored according to degree of utilisation of services.

While outsourcing of administrative and non-legal support functions by law practices is commonplace, the recent phenomenon of ‘legal off-shoring’ by big companies such as GE and Citicorp which began outsourcing low value legal work, primarily in transcription services, document drafting and management to low cost centres in India proved that even work that requires legal input can be outsourced to legally trained professionals. In Singapore, we are likely to see small practice lawyers cross-hire other lawyers to provide legal research or litigation support whenever they need more legal minds on 
a project.

The problem with larger practices

The drivers of profitability in a law practice (as for any other business) are utilisation, expenses and leverage. I have explained, in the earlier paragraphs, why I believe that size has no positive bearing on the first two factors.

As for ‘leverage’, large practice profitability depends on having the work completed at the right level of delegation and on successful collaboration and teamwork. The truth is that lawyers, lacking training in project management roles, make poor managers. Too often, supervision is done at the output rather than the input level, thus negating hours of work which the junior associate has put in. Lawyers are prone to under-delegate, negating the advantage of leverage.

Law practices are notorious for inherent cultural and organisational inhibitors to knowledge sharing. Maybe it’s a psychological tic carried over from the adversarial nature of our legal training, or maybe it’s because lawyers are paid to know things which others do not. Whatever the cause, in an imperfect knowledge system, the benefits of previous work products, know-how and experience will not be fully realised.

Technological advances level the playing field

In his book, Thomas Friedman describes how exponential technical advances in telecommunications and the internet have levelled the playing field by allowing people from all over the globe to plug and play, collaborate and compete, share work and knowledge. ‘Globalization 3.0’, coined by Thomas Friedman, is driven not by major corporations or giant trade organisations, but by individuals – desktop freelancers and dynamic startups from developing countries who can compete and win, not just low-wage manufacturing jobs but, increasingly, high-end knowledge services.

By levelling the playing field and granting individual lawyers the same access to resources, information and expertise traditionally held by the large law firms, a small practice is now bestowed the same potential to succeed.

The ‘levelling’ of the playing field makes it even more attractive for lawyers to run their own practices for these reasons:

1   The falling cost of hardware and software (for word processing, practice management and other work processes) has made technology resources affordable to small practices. In our experience, smaller practices in Singapore are quicker to adopt and benefit from new technology than larger practices as they are not burdened by legacy systems nor deterred by the comparatively larger implementation cost.

2   Small practices now have access to communication and collaboration systems to help them deliver services as effectively (and impressively) as larger practices. In fact, small practices that deploy cutting edge, sexy applications (such as deal rooms and video collaboration) do so not only for the useful cost-saving functions such applications offer but also to enhance their image as dynamic, progressive and big.

3   The democratisation of information, yet another consequence of a wired planet, is a great leveller. Lawyers today have immediate and direct access to law libraries and legal resource providers (both free and paid) such as LawNet, LexisNexis, Westlaw and Bailii. Online search facilities are now widely available on the internet, granting public access to credit information and government databases for a fee.

The result is – you do not need the reach nor the resources of a large organisation to serve your client as well as (or even better than) a large practice.

Ask any solo or small practice lawyer today what his motivations are and he will sum it all succinctly in one word – autonomy. Unspoken yet understood tacitly, is the human aspiration to determine your own work-life balance, to build something you are proud to own, and to imbue it with your values and principles. For this reason alone, you will not see the demise of the small practice.

Some areas of practice such as conveyancing, family and personal law will remain the domain of small practices serving individuals and SMEs. These practices will thrive if they keep up with the increasing sophistication of their clientele (the democratisation of information impacts on the ordinary consumer as well as the business world) and focus on client care and service delivery.

Looking into our crystal ball, we foresee the rise of breakaway boutique/specialist law practices helmed by entrepreneurial and progressive founders with enough clout and dynamism to attract high-end legal work.

Galvanised by twin facts: (a) that their corporate clients are discerning enough to recognise that it’s not size that matters; and (b) increasing collaborative alliances between specialist law practices, and between boutique local and foreign practices, more lawyers will take the plunge.

With the benefit of mobility and virtual offices, we also foresee that contract lawyers offering their expertise on a project basis to other practices and corporations will become commonplace.

We live in exciting times. The winds of change favour the small and the adaptable. We believe that while small practices will not replace large practices in the legal services market, nevertheless, they will increasingly present considerable new competition to the incumbents.

Serena Lim

Bizibody Technology Pte Ltd

E-mail: slim@bizibody.biz

Notes

1   Making Sense of Law Firms by Stephen Mayson.

2   The World is Flat – A Brief History of the 21st Century by Thomas L Friedman.

3   ‘Small is the New Big’, Blog by Seth Godin, posted on 19 January 2005.

4   The Future of Work by Thomas Malone.

5   Survey by The Economist on ‘The Company’, January 2006.

6   ‘Technology Levels the Business Playing Field’, New York Times 25 August 2005.