When you look at the legal marketplace, what do you see?
With the implementation of the far reaching Legal Services Act finally happening in the UK (albeit with some fairly significant delays in related regulation), it seems the right time to step back and assess the state of the market.
Talking to people in the profession about this, from partners to in-house lawyers, business development directors to IT professionals, through to trainees and law students, one thing is clear.
There is no single opinion on the state of the market right now.
In fact, nothing could be further from the truth.
Opinions are strong and polarised.
Is the glass half empty or half full?
The world of pain
One group see the profession as an industry in decline.
Painful struggles with increasing firm overdrafts and personal debt are symptomatic of underlying structural problems with the profession, and the cash flow challenges facing many firms are just another indicator that it’s time to get out before the interest rates rise and bankruptcy looms large.
With lawyers at both small and large law firms working harder than ever, increasing competition from overseas firms and LPOs becoming more visible, and constant talk of a new wave of competition, does not fill them with hope that easier times are ahead.
Small firms worry about hyper efficient, large scale competitors with a resource base, national reach, consumer brand and technology platform that they simply can’t match. Large firms worry about transactions being disaggregated and large chunks of profitable work being placed with legal service providers with a cheaper cost base. Mid-sized firms talk about being squeezed, with larger firms looking for work in new markets just to keep their associates busy while they weather the current economic storm, and about smaller, more agile firms punching above their weight.
These people can often see the need for change, but despair of the pace of change in many law firms, pointing out that the culture and consensual nature of partnership often make decisions glacial when they need to be made at the speed of the digital world we now live in.
They look at the management of their firm, and question whether they have the right skills and experience to thrive in such a turbulent environment. Management themselves wonder how they can free themselves from operational fire-fighting to spend time focussing on the strategic questions that will define their firm’s future.
The lawyers lower down the pyramid see equity structures remaining in some firms that encourage low performing partners to sit back and coast, while the best talent works their asses off and often still finds it impossible to break into the club.
Below them are a generation of students who have made a huge financial and personal commitment to enter the profession, and are finding training contracts like gold dust. Those that are lucky enough to find work may be confronted by suggestions that the legal training system is in need of reform and is not equipping graduates with the skills they need to excel in the profession and exceed client and colleague’s expectation.
They may also be confronted with a linear career path, and find that if that’s one they are willing to follow, then the demands made by the firm are at odds with a generation Y philosophy that puts greater emphasis on work/life balance.
Those who see the world in these terms often point to clients showing less loyalty and who have ever increasing expectations in terms of service standards, yet in the same breath are looking to pay less for that service. A widespread rejection of the hourly rate billing model leaves many firms struggling to come up with a viable alternative and without the capability to re-engineer their business model to support these new fee structures.
The downward fee pressure squeezes profit margins further, and even after several rounds of morale-sapping restructurings and redundancies, with economic growth in the core western markets slow at best, there’s no end in sight.
Pretty grim huh?
Now those that know me know that I’m on balance, a pretty upbeat person, so let’s try and bring a bit of balance to the picture.
There are plenty of people out there in the profession who don’t think like that. Who see the current time of change as tremendously exciting. These are the people who see
A world of opportunity
First and foremost they see an incredibly profitable sector that has weathered an unprecedented recession and shown real resilience with relatively few high profile casualties.
They see businesses with the ability to offer a broad portfolio of services that add real value to clients at critical points in their lives or organisational existence. Many of these services are counter cyclical (helping manage difficult economic conditions) and many of which allow the lawyer to genuinely claim that coveted position of trusted advisor.
It’s not hard to point to law firms that have access to senior people at some of the best and biggest companies in the world and advise some of the most influential people who are shaping society.
For those in the UK, having a core competency in the English language and the common law system that underpins many other legal markets means firms are well placed to support global businesses and expand intro higher growth international markets (as indeed many UK firms have done very successfully).
While there would be an acknowledgement that the bar for client acquisition and retention is being constantly raised (particularly by increasingly sophisticated business development professionals and practices) this is raising standards in the profession and represents progress. There is still a huge opportunity to win by being ahead of this curve and setting the pace.
For those with one eye on the future, advocates of the profession will point out that the chance of a career offering not just the potential to earn big bucks, but one that can offer a lifetime of intellectual challenge and stimulation, will always attract its fair share of top talent, and that the training and development opportunities within law firms have improved massively over the last ten years.
Those who see opportunity see the ability to innovate as being a genuine source of competitive advantage, and are looking at technology, process and efficiency as ways of maintaining and indeed improving profitability in a fast changing market. The ability to change quickly is a key enabler, and they recruit the people with the ability to adapt and thrive to make this a reality.
They also see that market consolidation can offers opportunities. Low price acquisitions, the ability to pick and chose individual teams, to make strategic acquisitions of particular clients or relationships, and the clearing out of some of the noise in the market place.
Yes clients are demanding “more for less” but that’s a common refrain across all business these days – the change facing the profession is not unique and in many other industries there are organisations that came out as big winners.
A somewhat simplistic categorisation, but I urge you to reflect – which messages resonate most, and critically, what are you going to do about it?
- Fiona Shackleton: legal watchdog warns lawyer fees market needs ‘urgent reform’ (telegraph.co.uk)
- ‘Landmark day’ for legal industry (independent.co.uk)
- The UK deregulates business structures for law firms (truthonthemarket.com)
- Supermarket ‘law shops’ to open (bbc.co.uk)
- A Legal Revolution is Underway in England (blogs.wsj.com)
As ever much food for thought – for what its worth I am firmly the in the “opportunity” camp. No doubt these are scary times for the profession but convinced that those who are prepared to take some brave decsions and really examine their business and how they deliver services will come out of this in a strong position.
I am very much in the camp that sees the profession thriving but not in its current form. There will be less firms for a start and they will be run as proper businesses with a vision, strategy, strong systems and an investment in their people. The sharing of gains will also become common place, rather than a few partners sharing in the spoils. No one is going to work their proverbial off, reshaping the business, if they are not given just reward.
My question to all firms is this: what do you want to be? You have to have a succinct and clear message. Absent that your scatter-gun approach will not work, and you will simply fall off the cliff. It is a fact of life that businesses have two outcomes: they are sold (or parts of them) or they die. The partners need to understand what they are in business for.
Start working on the end game, and get rid of the technician’s mindset. If you are not working on the business then you will drift off into oblivion.
Thanks Matt and Julian – sounds like we are all in the same camp. To me this is a tremendously challenging and exciting time for the profession. It’s a once in a generation opportunity to make some changes that will shape the market for the foreseeable future. For those firms with the vision, appetite, people and drive to make it happen, the rewards are there for the taking.
But no question, for those firms that are change resistant, slow or in denial, there will undoubtedly be casualties!
Am strongly in the “opportunity” camp:
First, change creates opportunity. Advancements in technology are making it possible to do get many low-complexity lawyer tasks done easier, on larger scale. This ranges from LegalZoom and Rocket Lawyer’s software for simple wills, to more complex offerings. There is a real opportunity to consider elements of legal practice that can be improved through use of technology, and to meet the need. For example, I think much Biglaw junior corporate associate work is especially appropriate for automation. Lawyers know how to practice law. They can be the ones to improve it. I’m an example of this: after practicing in Biglaw, I’m now working on legal automation software.
Second, technology (and in- and out-sourcing) can help law firms make more money.
Good lawyers and firms add significant value to matters they work on. They are compensated for this and they will continue to be compensated for this. There may be changes in the legal industry. But providers of quality legal services who embrace change will keep doing well.
Mark, I enjoy your musings… good work!
It’s Hobson’s choice really… take the opportunity or join the Dodo.
Six of the best things all firms should be doing…
2. Look at the value of what is being delivered. Commodity work should have commodity pricing. Use lawyers for the high value work and design processes to help deliver this work more efficiently.
3. Less is more. Lawyers need to do their upmost to reduce the number of billable hours on all matters. Let the client know the work that is being done to keep hours to a minimum. If the value is being delivered then fees could even increase!
4. Learn how to cross sell. Many firms may feel that over the last few years they have mastered the art of the impossible, but now they need to learn how to achieve miracles. A firm that learns how to cross sell will have a dramatic and positive impact on fee income.
5. Embrace innovation and make it part of the firm’s DNA. In molecular science they work with DNA strand replacement, therefore a firm should remove its status quo strand and replace it with an innovation strand. Easier said than done, but some firms have started work in this area and are indeed looking at embracing innovation.
6. Understand the opportunity. The legal sector is stagnant, but not all firms will be able to do anything but live the status quo. This is where the opportunity lies.
There’s great opportunity for those that want to embrace it!
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