The year ahead: new realities and legal market trends of 2014
As 2014 gets underway, the legal profession is continuing to feel the bite of rapidly changing business models, practices and processes that are dictating the success or failure of firms.
Here are some of our observations on trends set to impact the legal market in 2014 …
Legal market trends of 2014
Economic downturn and recessions have taught clients lessons – they have learned to bargain. Price models which share risk and increase certainty are winners.
Pressure on rates and margins is here to stay. Even if there is a sudden upswing in economic activity, clients won’t forget about price. They’ve learned a lot about cost control, and are working through how to do even better at trimming costs.
Client procurement processes are here to stay, for now. They place pressure on rates, margins and price risk. The number of berths for worthy firms to serve on bank, insurer and government provider panels has shrunk and will continue to shrink as large consumers seek to deal with fewer firms.
Consumers are “head officing” or centralising purchase of legal services, limiting access for the smaller, single-state and territory firms. Twenty years ago, for example, local bank branches would frequently appoint local law firms; that rarely happens now. Those that benefit are national firms and those with a strong East coast presence.
Smart law firms will work hard on cost of production – not just trimming overheads and pushing salaries down, but really excising effort and cost from matters to produce finished files/legal input for less without reducing margins.
Different service models are already here – virtual firms, daily rate lawyers, contract/project assignment, legal process outsourcing and back office outsourcing. Axiom is a great example of a firm turning the old model on its head.
Full service strategies are dumb for most law firms. Few large enterprises want or expect to buy all their services in one place. Niche specialists are shining and there are real opportunities to dazzle.
In a market crowded with generalists, many substantial consumers of services still see few realistic options that fit their needs. Mostly, supply exceeds demand for generalist commercial and property lawyers. We cannot see much which will change this. The way out is for these lawyers to become sector specialists; we still hear that in many sectors, demand exceeds supply.
Undifferentiated general service firms must expect price competition to become central to their world.
Clever firms are using technology to work smarter. Upgrading, refining and investing in systems, workflows, web portals and mobile apps meets client demand and increases productivity. For an excellent case study, see this firm’s move to a paperless office.
Very high performers (partners, senior lawyers) have better bargaining power than ever. Under-performers have already been dealt with and excised from the best firms. Firms who continue to tolerate (and by implication, sanction) continuing under-performance are costing themselves and their high performers more than they know.
Combining firms (mergers, acquisitions, alliances) doesn’t fix core problems, and it rarely delivers as much benefit as hoped. Mostly, it delivers unexpected problems and unwelcome challenges. It may delay important changes. Only if it’s well conceived, then carefully executed, can it work.
For smart strategy, insightful advice and skills development to set a successful course for 2014, please get in touch.
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