New research: How law firms measure up against other sectors
2016 shows every sign of being a year in which successful law firms pull yet further away from struggling firms, in the face of competition from each other, from non-lawyer legal services businesses, and from alternative business structures (ABS) in which lawyers work. Law firms that are not thriving may have just a brief chance to turn things around before it is too late.
The reason? In a nutshell, our research shows the divide between those firms that have adopted modern customer service principles, and those that have not.
Despite the high-profile casualties of recent years, the legal profession has in fact by and large weathered the recession. More than 10,000 firms still vie for work and the number of practising solicitors continues to grow; in January 2011 there were 117,802, but five years later it was 132,635 – an increase of 12.6%.
Financial growth among law firms in recent years has been steady – with the latest Law Society research showing that median income increased 5.4% in 2015 – but the continuing growth in numbers has undoubtedly increased competition within the profession, driving down lawyers’ bargaining power both individually within firms and in relation to clients. Evidence from multiple sources shows that corporate clients and in-house legal departments are increasingly under pressure themselves to cut the legal spend and have passed it on to their professional advisers, demanding progressively more for less.
As well as heightened competition between law firms, a key threat to the future of many firms in the next few years will not come from rivals within the profession but from outsiders, in particular businesses already expert in providing consumer services. Solicitors in traditional firms who imagine that consumers wanting legal services will naturally gravitate to them in preference to other competent professionals could face a rude awakening.
While there have been failures and set-backs among some high-profile ABSs, plenty of others are still going about their business. Detractors often fail to consider that ABS is just a means to an end, preferring instead to characterise it as some kind of golden bullet. The reality is that forces which are squeezing law firms, in particular on the high street, are only likely to accelerate. The government plans to introduce measures to increase competition by making it easier for large retailers such as supermarkets to enter the legal services market, principally by lowering the hurdles that have to be jumped to qualify as an ABS.
A major Law Society report, The Future of Legal Services, homed in on five main drivers for change in the legal services market: the global and national economic environments, the way in which clients buy legal services, technology, competition from new entrants, and “wider political agendas around funding, regulation, and the principles of access to justice”. Published in January this year, it concluded: “Business as usual is not an option for many, indeed for any, traditional legal service providers. Innovation in services and service delivery will become a key differentiating factor… “If a business is not reinventing itself to adapt to changing market conditions then it is highly likely it will go into decline or be taken over by those that are better adapted to the new environment. This statement is no less true for law firms than for any business.”