You have been hired to manage the business aspects of a local legal firm with a staff of 6 attorneys, 10 paralegals, and 5 staff persons. Clients of the firm are billed a fixed amount per hour of attorney time. The fixed hourly charge is determined each year by dividing the total cost of the legal office for the preceding year by the total billed hours of attorney time for that year. A markup of 25% is then added to this average cost per hour of billed attorney time to provide for a profit and for inflation.
The firm's partners are concerned because the firm has been unprofitable for several years. The firm has been losing its smaller clients to other local firms-largely because the firm's fees have become uncompetitive. And the firm has been attracting larger clients with more complex legal problems from its competitors. To serve these demanding larger clients, the firm must subscribe to expensive online legal reference services, hire additional paralegals and staff persons, and lease additional office space.

What do you think might be the reason for the unprofitable operations in recent years? What might be done to improve the situation for the coming year?