Over the weekend, I had a chance to catch up on my reading while lounging on my sunny patio. Of particular note was a relatively recent report released by Altman Weil, entitled Law Firms in Transition Survey. The sixth annual report is over 130 pages and discusses the changing nature of the US legal market in 2014, as well as an emerging gap between larger firms and smaller firms in their response to those changes.
Given the scope of the report, I’m going to concentrate on the major findings and highlight some that I think are particularly important. The report identifies several key themes relating to permanent changes in the legal landscape. There have been numerous articles, reports, and opinions on the transformative changes in legal services delivery, which are occurring at a dazzling pace. Altman’s annual report does a nice job capturing and reporting on industry trends, insights and implications for law firms and corporate legal departments.
The report identifies several key themes relating to permanent changes in the legal landscape. For the purposes of this post, I’ve noted summary trends, but you can see the full report and all statistics at the Altman Weil website.
1. Greater price competition
Many law firms surveyed are responding to the pressures of the current market by significantly changing elements of their traditional business model, shifting their strategic approach to pricing in 2014. Firms are pursuing a number of tactics to support their pricing efforts, such as:
- Using data on the cost of services sold
- Training their lawyers to talk with clients about pricing
- Identifying client’s unique pricing preferences to customize their offerings accordingly for each client
When asked about the most likely change agent in the legal market over the next ten years, law firm leaders identified corporate law departments as the force most likely to lead change, followed closely by technology innovation, and non-law-firm providers of legal services. This implies that firms are largely content with their current methods and would not be eager to implement change if their clients were not requesting it. This is in keeping with my past experience with firms as well as other recent studies.
2. Practice efficiency
The top two tactics to increase efficiency in 2014, were using technology tools to replace human resources, and knowledge management. These tactics were followed by shifting work to contract or temporary lawyers or to paraprofessionals, and then by better legal project management. Firms that give their people the right kind of tools and training in this area will create new efficiencies for clients, improve profitability, and create significant competitive advantage. The challenging and essential practice of re-engineering work processes was on the lower end of the spectrum in terms of response. I was pleased to see that technology tools were right up there on the tactic priority list; however, I was somewhat discouraged that work process re-engineering was lower. I’m a big proponent of the benefits associated with implementing strong fundamentals to improve operational performance, so I hope to see improvement in this area in the future.
Many firms are making significant changes to efficiency of legal service delivery and staffing strategies. Changes in pricing and efficiency were found to be driven more often by external client demands and market pressures, while changes in lawyer staffing were more likely to be internally driven efforts to improve profitability. With respect to activities around pricing, efficiency and staffing change, larger firms were more likely to be engaged in almost all of the specified activities, and up to twice as likely as smaller firms to undertake those efforts. Larger firms were also more likely to be driven by external and client pressures in all three areas.
On issues of strategic change, in general this year’s survey showed larger firms (those with 250 or more lawyers) clearly doing more to address market shifts than their smaller-firm colleagues.
3. Outsourcing legal work
For the most part, newcomers to the game, changing client expectations, and smarter/more innovative ways to deliver service and value, are challenging the rules of legal service delivery.
When asked if competition from non-traditional (including non-lawyer) service providers will be a permanent trend going forward, the current survey response had the highest positive ranking of the past 4 years. Law firm leaders are clearly keeping an eye on this area of increasing competition. The results also showed that outsourcing legal work will be a permanent trend going forward. In the future, successful firms will grow profitability and improve margins without necessarily increasing in size. It’s no longer about growing to get stronger, but rather changing to get stronger, along with smarter alignment of staffing with profitability.
See the full 2014 Altman Weil Report here.