Long-Term Aspects of Office Downsizing: Cannot Downsize? Then Hire...

In my article last month on the potential long-term effects of the Covid-19 lockdown on law firms and other professions, one of the key themes was my view that afterwards we will see the rapid expansion of remote working. This received a lot of comment, and other industry commentators have raised the same issue since then. I also got some of my sums wrong – so in this article I will pick up that idea and give it a more thoroughgoing analysis.

Before the Covid-19 emergency most professional firms had some degree of remote access – usually sized on the basis that at any one time up to (say) around 10% of its fee-earners might be out of the office needing access to the firm’s systems. This would be because they were either out of the office on business, travelling, or at home – often outside normal working hours.

In order to provide such access both hardware and software is required:

· hardware in the shape of remote access servers and sufficient related Internet bandwidth

· remote access software, usually either:

o  VPN

o  VDI

o  RDS

Microsoft DirectAccess and Remote Access Service (RRAS) will provide some of this functionality, and depending on the remote method chosen, additional software from Citrix or VMWare may also be required.

It is not the purpose of this article to go into the relative advantages and disadvantages of these various options; suffice to say that – depending on your current infrastructure and your remote access requirements – one or more of them will be suitable for you.

What is equally applicable to all of these solutions, however, is that they are sized according to the anticipated load – the number of concurrent users that the firm expects to want access at any time - and that there are hardware and software cost elements of expanding the remote access capability.

In the last 4-6 weeks most firms have been rapidly expanding such capability in order to enable their staff quarantined at home to carry on working as effectively as possible. This process has often brought to light operating deficiencies and security issues relating to their previous configurations, which have all had to be dealt with.

In a similar fashion, in-office and remote videoconferencing and screen-sharing capabilities have also been escalated and expanded. In the longer run, additional collaboration tools will also be of increasing interest as the lockdown continues, such as:

· discussion forums centred on particular business areas, departments, clients and matters

· dynamic collaborative document editing – from Microsoft and Google

· instant messaging tools – like Jabber etc.

Microsoft Teams is the up and coming solution for many of these areas, primarily because it is from Microsoft. However, as with much other ‘Microsoft’ software, it was bought in - and is still in the process of being rewritten to be fully compatible with the rest of the Microsoft software. Which is why bits of it, at the moment, are rather flaky.

In order to get match fit for enterprise remote collaboration each firm will need to select the right combination of hardware and software to meet its particular needs.

How are those needs likely to change after the Covid-19 lockdown is over?

From 1986 to 1994 I worked for KMPG Management Consulting in London. When I started, each consultant had their own small desk in open area, and each partner had a sizeable office. Over the next eight years – without any significant remote access capability, but armed with a laptop and floppy discs – we slowly migrated to an environment whereby consultants had their own desk pedestal which they could manoeuvre to a smaller number of ‘hot-desks’ when they were in the office. Even partners went from dedicated offices to shared offices. We were essentially, expected to be either at a client site, at home or at work - KMPG sized on the basis that as a result they only needed to provide ‘hot desks’ for between one-third to one-half of its consultant population.

This worked, showing that it can be done.

In my previous article I argued that whilst law firms have historically geared up for minimal remote access capabilities, and have had to gear up since - afterwards they are likely to want to keep an enhanced home working capabilities for the following reasons:

· they will have overcome their innate fear that setting people up for longer periods of working from home will reduce their productivity – one hopes

· they will want to downsize their office space accordingly.

The latter is a major economic opportunity.

However, before a firm can get into this position, there are many other considerations about the provision and use of ‘office space’. Some of the reasons why it is good to have your people in the office regularly are:

· building communal spirit

· developing and sharing common values

· morale building

· supervision of junior staff

· training of staff

· key meetings

· annual appraisals and other HR issues

· the ability to focus when other things are happening in the home.

With today’s modern office systems, document management systems and remote access capabilities it is definitely possible to provide capability for many of these objectives to be met remotely, but only by being willing to look at all the firm’s working practices and making defined and specific adjustments designed to exploit the available technologies. This would have to be undertaken with modified or new IT systems, and a suitable program of training and change management.

Essentially, you will, need a new office manual covering all aspects of office and remote working, with guidelines on working practices, hours worked, KPIs etc.

Nevertheless, for all these reasons above, a firm will still need a significant amount of real office space.

Most professional firms’ outgoings have historically divided up broadly as follows:

· employee salaries:   50%

· property cost:           15%

· other etc:                  35%

Assuming this to be the case, and assuming industry standard profit margins, then some elementary financial analysis would indicate that if a firm can reduce its accommodation costs by, say, one-third (which I believe to be a conservative estimate) then its profits can be increased by some 10%. Reducing property-related costs by half would mean a 15% increase in margin, and a two-thirds reduction would mean an increase of 19%.

What they do with this largesse will depend on other economic factors, but they could, say, reduce their fees by 5%, and still increase their margin. These are market disruptive numbers that other competing firms would have to deal with – one way or another

Another aspect is that firms may wish to follow this rubric, but simply not be able to as they are locked in to medium to long-term leases. In some instances they may be able to sub-lease, assign the lease or request early termination of part of their premises – but this may not be possible for all; it will still leave some firms with property they no longer need, given their new downsizing objectives.

If you absolutely cannot reduce your office size, then one possible way forward is not to shrink office space, but instead to grow the firm: to grow quickly and in a managed way and take the potential benefit by getting to the requisite staff/office space ratio through hiring additional staff, rather than reducing their current square footage.

A firm with a standard disposition of fee-earners to other staff would need to increase its total staff complement by some 40 - 50% in order to achieve the same staff/square foot ratio with the same office space – if it cannot easily be reduced.

This is a viable – if risky - strategy, but if pursued single-mindedly it should be possible to get to the required position in 18-24 months or so. How will that be possible in what will be a competitive market both for work and for good fee-earners?

The answer is, by forward investment; by having confidence that the stratagem will work, and that the increased margin of 10% - 19% can be achieved – and therefore being able to get both more work (by judicious discounting) and more staff (by judicious pay hikes).

The important word here is ‘judicious’. During this entire process, the firm’s management will have to be able to keep their nerve and operate a complex juggling act involving managing this initiative, at the same time as revamping business development activities designed to win work while keeping a very firm set of hands on the standard KPIs of utilisation, realisation, aged WIP and debtor days. But the potential benefits may be game-changing.

We are going to see a contraction of the economy after Covid-19, and there will be less work for law firms to chase – but if this strategy works – as outlined – some firms will be able to start to discount ahead of the competition, and should, therefore be able to win more than their fair share of work.