Our office has the ambition to go beyond the constraints of legal services and advising and into the field of classical business consultancy. To be successful at this we need to rehone our analytical, writing and presentation skills to match the needs of the business consultancy market. So we though it would be a great exercise to make an analysis of the business of law in North Macedonia through the lenses of our office. We hope you enjoy!
My analysis will be centered around Boshnjakovski Law Office – the law firm that I manage. Most of the observations will be made through “lenses” that are generally applicable for most legal markets, but at times I will try to zoom into the peculiar conditions of the market in which the firm operates.
To give some context, the firm was established in 2020 and has three employees. It has some local recognition, solid online presence and a stable client portfolio. It operates in the legal services market of North Macedonia, with broad focus on business law. The relevant market is very small, with less than 2 million residents and low purchasing power. However, the market for legal services has been growing, prompted by the development of the domestic economy and the influx of foreign investments. This year our firm will take marketing steps to capitalize on positive trends. But to deliver its value proposition it must become more conscious about its operations management.
I. DEFINING THE “WHAT” AND THE “HOW”
By their nature legal services include a: i) high extend of customer interaction in conditions that involve stress and uncertainty; and ii) high level of compulsory customer activity[1] where the outcome somewhat depends on a client’s action (ex: procurement of evidence, giving testimony, explaining business ideas or plans). Also, the delivery process cannot be standardized due to factors such as: i) variability of circumstances, evidence, rules and practices; as well as ii) personal characteristics and expectations of clients. Still, there are some services that are standardized to an extent (ex: company incorporation, residence permits, HR templates and the like).
- What we do?
Variability of demand is mostly predictable on an hourly, daily or weekly horizon, since clients plan a head of services usage and accept some wait time before execution. Demand is unpredictable on a monthly and yearly basis, since usage depends on irregular events such as arising of disputes or investment decisions. There are huge swings in demand between periods with high activities and almost no activity.
- How we do it?
The key physical resource of a law office is its office space for two reasons. One, this is a crucial client touch point, so it needs to: i) be easy to locate and access; and ii) demonstrate sophistication, privacy and reliability. Two, the office is important for logistical purposes, such as proximity to institutions, key clients and meeting points.
Aside from the office and its equipment, most resources are of an intangible nature. These are: website, promotional materials, template documentation and simple systems for tracking cases and tasks. None however surpasses the importance of human resources. It is a challenge to train individuals to a level that allows independent: i) execution of core services; and ii) clients handling at various stages of client journey.
Human resources are also the biggest (even only) obstacle to scalability. Though some repetitive services can be automated to an extend by using templates and automated documentation drafting software, still proper oversight is needed. One way to meet short term spikes in demand is to outsource some tasks to third parties. This however decreases uniformity of the customer journey and poses risks for quality.
- Customer journey
Though it is advisable for customer journeys to stay consistently positive or have an upward trend[2], at the stage of delivery law firms encounter external risks that the customer journey may go sour, like delays or negative rulings. The lawyers should help clients understand the reasons for such developments. However, one minor friction can be eliminated to improve the overall experience[3] – providing easy payment methods, especially for cross-border clients (more below). Finally, “to end with a bang”[4] and help the client forget the frustrations at the service delivery stage, it is nice to treat clients with some courtesy gifts immediately after the conclusion of the mandate.
II. ONE ENABLER AND FOUR CHALLENGES
The key enabler that will have a positive impact on law firms across the world is the fact that in the coming years there will be an increased usage of legal services[5]. The global legal services market by revenue is expected to grow at a rate of 6.97% up to 2026 and then continue with pace of 5.6% until 2031. This growth is driven by increase of transactions (M&A and investments) and non-transaction services related to government regulatory activity, such as trust-busting, consumer protection, regulation of digital services, new technologies or business practices, or ESG[6],[7]. It is noteworthy that Eastern Europe will outpace global growth with an average rate of 8.9%.
The growth in revenue will be challenged by increasing costs that law offices face on many fronts[8]. According to Thomas Reuters[9], 2022 saw a record growth in direct expenses related to attorney compensation, as well as overhead expenses related to rent, non-lawyers’ staff, and office supplies. Overhead expenses are expected to grow further, as law firms seek to tackle anti money laundering regulation[10], data protection, and increased cyber security threats[11]. This challenge is amplified in the Republic of North Macedonia where the average salary has grown by almost 60% between November 2017[12] and November 2023[13]. Finally, one hidden cost is the increase of collection cycle that happened in 2022 and 2023[14], and is likely to continue in the coming years. This is especially acute in times of high interest rates.
However, the most cited challenge for law firms’ operations is by far attracting and retaining talent[15],[16]. The great resignation has not spared the legal industry[17] and many young lawyers have been disillusioned by the fact that the profession encompasses „intense pressure, long hours, constant deadlines and high stakes “.[18] This problem has been compounded in the Republic of North Macedonia with has seen a serious decrease of enrolled 1st year law students in the period since 2010. According to the data published by the State Statistical office of the Republic of North Macedonia, the Faculty of Law Iustinianus Primus – by far the biggest and most important law faculty in the state – has seen a drop of over 75% in 1st year enrollments, from a peak of 1130 in 2010 to 254 in 2022. These developments pose headaches to local firms, especially if we have in mind the particularities of national legal curriculums that limit the potential to fix labor supplies via migration or outsourcing.
Another challenge is the increasing complexity of legal issues[19] that is driven by increased regulatory density and evolution of our societies and technology. Clients expect practitioners to be highly specialized in the relevant legal practices and the industry sector.[20] This is a huge challenge in small markets that do not provide a scale in which narrow specializations are economically feasible.
Finally, acquisition of technology is a challenge, even though it is also a solution to other challenges. In the local legal market, there is almost no use of legal or management technology, even in well-established firms. One reason for this is that until recently high level of unemployment and low wages provided low incentives to invest in technology. However, the combination of shrinking labor pool, increase in labor costs and growth of the legal services sector will force local firms to change. This can be challenging in a country that is lagging behind most developed economies in terms of digital literacy [21], according to the Digital Skills Gap Index and in a market that does not provide economies of scale that justify high fixed investment costs.
III. Key areas of operations management action
The growth of the legal service market provides an opportunity to increase revenues and market share. To capitalize on this, we should enhance touchpoints (websites, SEO, PR, newsletters, brochures, guidebooks) that will capture clients’ awareness in the first phase of their journey. Then, during the consideration and acquisition phase we should increase chances of customer acquiring by demonstrating responsiveness, competence and loyalty. Post service delivery, we should maintain touchpoints by showing appreciation and provide relevant information. However, to retain clients and grow our portfolio on the long run, we must boost our performance on the most challenging part of the client journey – the service delivery.
The biggest challenge is increasing costs and shrinking pool of new recruits. Increasing costs are beyond our influence. As one leading partner said: “Paying people at the top of the market is a necessary price to compete.”[22] We should not be sorry to invest in fair compensation, nor in measures to attract, onboard, and retrain talent. If lawyers are motivated and stay long enough in the firm, we will also deal easier with the need to specialize in industry sectors. To stimulate the learning curve, we can a lot free time to lawyers to study the sector – luckily there are many online platforms that make this accessible. Also, we can ask clients to allow lawyers be more present in their premises and foster relations with non-legal client’s staff.
To balance increased costs in improving touchpoints and talent, we must increase lawyers’ productivity. One useful KPI for this is “utilization” that measures how much of a lawyer’s time is dedicated to billable work[23]. In the most productive markets, utilization is at best 37%[24] because lawyers are often burdened with administrative, technical or business development tasks.[25] Utilization can be improved with proper organizational measures, as employing non-legal support staff, and implementing technology that will automate some repetitive legal work.
Technology can also be used to slightly improve billing and shortening CCC. There is evidence that firms that allow online payment with a credit card get paid twice as fast.[26] This can be upgraded with QR codes on invoices that lead to virtual POS terminals and even automated payment plans for subscription type services[27]. This can also decrease friction and improve the customer journey.
Paradoxically technology is an answer to challenges, but it is also a challenge itself. As a young law firm, we are not constrained by the mediocre digital literacy rate of our country. Our main challenge is how to justify investments in technology in a firm and market with low economics of scale. One solution would be to partner with a local software engineering company to develop a software solution that we would use for our purposes, but also market it to the broader legal market. This process can be additionally stimulated by grants for technological development issued by the government of North Macedonia.
[1] Weenk, E. (2019/2023).
[2] De Freitas, J. (2023, March 31).
[3] Chernev, A. (2023, March)
[4] De Freitas, J. (2023, March).
[5] The Business Research Company (2023)
[6] The Economist. (2022, January).
[7] Maloney, A. (2024, January).
[8] Law Society (2023, February).
[9] Josten, W. (2023, September).
[10] Bogaert, F. (2023, October).
[11] Khalaf, R. (2023, November).
[12] State Statistical Office of the Republic of North Macedonia. (2018, January).
[13] State Statistical Office of the Republic of North Macedonia. (2024, January).
[14] Maloney, A. (2024, January).
[15] Papov, S. (2024, February 1).
[16] Faustino, A. (2023, February 13).
[17] Thomson Reuters. (2022, May).
[18]Mosquera, K. (2023, March 29).
[19] O’Hare, J. (2022, December 01).
[20] Brown, D. (2023, May 31).
[21] Wiley. (n.d.).
[22] Miller, J. (2022, December 6).]
[23] Clio. (2023).
[24] Ibid.
[25] Ibid.
[26] Ibid.
[27] Ibid.
For advice on how to register and protect your intellectual property, feel free to write (contact@boshnjakovski.com) or call (+38970257879).
