With the results of a just released study, Future Trends for Legal Services, Deloitte argues that the legal market continues to expand and shift; that legal services buyers are re-evaluating their spend and their range of suppliers; and that demand for non-traditional providers is on the upswing.
It also finds that that traditional law firms are falling short in integrated, cross-border advice beyond legal; in their use of technology; in their ability to keep up with regulatory and compliance advice; and in delivering value and pricing transparency.
Many of the conclusions in the Deloitte study aren’t all that new; they tell the ongoing story of the pressures that today’s in-house departments are putting on traditional legal services providers. However, the study paints the picture of a legal industry that faces a very real competition from the Big Four — even if that competition is geographically limited today. For example, a majority (55%) of participants in the study — in-house legal services purchasers — have taken or are considering a significant review of their legal suppliers. More than half (52%) said they are willing to purchase legal services from a non-traditional law firm that offers a range of professional services.
And regulatory compliance remains one of the biggest pain points for these in-house counsel and thus, for their law firms. Nearly half (49%) of all participants said that their department’s legal spend was growing in the area of regulatory compliance. In particular, global compliance is perceived as a major issue for in-house lawyers, with more than a quarter (26%) of participants saying it is the biggest challenge within their department.
Not surprisingly, all of those shortfalls and pain points are areas where Deloitte itself (and the other Big Four accounting and audit firms) are well-positioned to take revenues from law firms.
New Deloitte Partnership Announced
Also this week, Deloitte and Allen & Overy announced a new partnership called MarginMatrix that constitutes the first major partnership between a major international law firm and one of the Big Four firms. MarginMatrix will leverage A&O’s online derivatives data management system, called aosphere, in order to help banks create and manage thousands of derivatives contracts that are compliant with regulations on a jurisdiction-by-jurisdiction basis. Deloitte’s managed services team will handle the negotiations process.
According to the announcement, the time taken to manually handle the 10,000 contracts on average that any major bank holds can be reduced to just 12 weeks in lawyer hours, compared to more than 15 years currently. It will also eliminate the need for clients to appoint and project manage separate legal, technology and resourcing providers across the US, EU and Asia Pacific region.
The partnership between A&O and Deloitte, not surprisingly, hits most of the pain points identified in Deloitte’s new survey. It attacks a problem of global regulation; it involves matters on a large scale; it applies technology to solve a legal problem in a new way; and it brings in services from a provider, Deloitte, outside the traditional legal industry.
Many of the conclusions in the Deloitte study aren’t all that new; they tell the ongoing story of the pressures that today’s in-house departments are putting on traditional legal services providers.
As I said, most of the conclusions in the Deloitte study aren’t all that new. However, what the study does provide is a case for the Big Four in particular to be in the forefront among the alternative providers now in the hunt for certain slices of the legal services pie.
Piet Hein Meeter, Global Managing Director for Deloitte Legal, says that they’re targeting the need for a “new type of service that combines legal advice with strategic advice across other disciplines.” The Big Four are particularly suitable for applications like those seen in the partnership between Deloitte and A&O, where scale across a global industry is important, and where the systems-thinking and the application of technology on scale is second nature to the providers. They are also in a position to provide the adjacent cross-disciplinary services that traditional law firms don’t.
This study, and developments like the A&O/Deloitte partnership, should help shake larger traditional law firms out of their complacency with regard to the threat from the Big Four.