Virus Exposes Major Weaknesses Of Underperforming Firms

By Michele Gorman
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Law360 (August 28, 2020, 4:45 PM EDT) -- While many underperforming law firms can often squeak by with a deficient number of rainmakers who bring in clients or with unwanted attrition, these weaknesses are now more of a liability to the business as firms tighten their belts during the ongoing coronavirus pandemic, a legal consultant said during a virtual legal technology conference Friday.

A common thread that runs through these types of firms is that they are either under-scaled or under-profitable relative to their competitors — or both, said Kent Zimmermann, a principal at Zeughauser Group. He led a presentation on the final day of the International Legal Technology Association's annual conference.

"This environment has laid bare some of those weaknesses, and they've become more glaring and more of a threat for the firms," he said. "It's like when the tide goes out, you see the rocks along the coastline: It's a little bit like that."

In addition, underperforming firms sometimes lack a big enough bench of next-generation stars and have upcoming leaders who question whether the business has the balance and resilience to compete on a long-term basis, Zimmermann said.

Another similarity of these firms, Zimmermann mentioned, is over-capacity — having too many people and not enough work.

In a strong economy, firms struggling with these weaknesses typically make it work by, say, giving enough money to the high-performers or relying on a relatively shallow bench of rainmakers, according to the presentation.

"But then in a weak economy, where it's tougher for everybody, their lack of scale and/or profitability becomes more of a liability and more of a threat to them," Zimmermann said.

Meanwhile, the firms that are generally thriving are balancing size, profitability, quality and culture relative to the firms they compete with for talent and clients, according to the presentation.

Zimmermann stressed the challenge of the balancing act: A firm could increase its scale in a hurry, but at the expense of profitability or quality, or be more profitable — but risk quality or culture in doing so.

He also noted that higher-performing firms invest in technology and data analytics capabilities on par with or ahead of their peers, but are also cognizant that they won't be able to credibly say that they're the best at everything they do.

"These firms pick their spots, and they prioritize their time and their money around having those be centers of excellence," said Zimmermann, adding that by doing so, they draw a playing field on which they can win.

"They're not trying to be all things to all people, compete with all of the firms that are possible to win against," he said. "Instead, they're picking their spots in areas where they're strong."

On the other hand, underperforming firms often try to compete in too many areas relative to their size, he said.

"Not only is it not possible," Zimmermann said, "but it's not credible to the market that they would be the best in that many areas."

--Editing by Steven Edelstone.

Correction: An earlier version of this story mispelled the name of Kent Zimmermann. The error has been corrected.

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