It is no longer headline news that demand for litigation in large law firms is shrinking. This is a trend much of the industry has been following for some years now. Many hoped that it was a mere aberration after the “Great Recession” hit the legal market in late-2008.
There was a lot of chatter about litigation being counter-cyclical to the larger economy, suggesting that if the economy was doing poorly then litigation would do well. However, during our last downturn this was not the case and ever since litigation has not been able to rebound to the wonder years of 6%-plus growth. As Bob Dylan so elegantly put it “The Times They Are A-Changin’” and I don’t think I am the first to say, these changes are here to stay.
The first indicator of this is the fact that for most of large law firms, litigation did not go into its normal counter-cyclical pattern in late-2008, indicating that there were other powers at play. Those other powers have come out full force within the last few years (providing further evidence that this change is not going anywhere) and have been called “market disrupters.” These alternative legal service providers are growing exponentially, eating up much of the day-to-day legal work that used to go to law firms. Alternative legal service providers are not the only legal disrupters taking work from law firms — corporate legal departments are keeping a lot more work in-house as an effort to reduce outside legal costs.
Interestingly, despite the tepid demand growth for litigation in law firms, there is evidence that the demand for litigation industry-wide is growing but the demand is going elsewhere. A recent report by Legal Executive Institute released today, provides mounting evidence that “litigation matters are still being filed” and slices the data to show where those filings are coming from across various industries and regions.
The report also shows that the litigation work that is going to law firms is the high-profile “bet the house” kind of work, and the firms getting litigation work come from both ends of the spectrum… large law and down-market. All in all, this only further emphasizes the hyper-competitiveness within the industry as law firms not only have to compete with peers but also down-market firms and market disruptors for a smaller slice of work.
This poses a fundamental question for each area of the market:
- In-house legal departments will need to face the make-or-buy question as they also strive to decrease costs;
- Law firms will need to ask, in turn, what strategy can they pursue that will set them apart from their peers: and
- Alternative service providers are faced with determining how they can continue to climb the value chain.