Firms’ Tech Spending Stabilizes as Expense Growth Ticks Upward, According to PMI Report

Topics: Business Development & Marketing Blog Posts, Data Analytics, Law Firm Profitability, Law Firms, Peer Monitor, Thomson Reuters

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Demand seepage is placing significant pressure on law firms and setting the stage for an increasingly competitive marketplace as the legal market splits into “bet-the-house” and “legal spend” work.

This pressure is forcing firms to make strategic decisions and exercise control in areas where they are able. One of these areas is expense management. According to a recent report released by Peer Monitor, expense growth appears to have stabilized within the previous four years. After a dramatic plummet following the financial crisis, on average firms are now seeing direct and indirect expense growth within the 2% to 3% range.

While this growth is not nearly as aggressive as it was prior to 2009, it is still growth despite tepid demand (which has been essentially flat for the previous six quarters) for law firm services posing a “chicken or the egg” scenario.

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On one hand, law firms must pay close attention to profitability as they navigate through the competition and battle for shrinking market share — and this necessitates carefully monitoring expenses. On the other hand, however, law firms also must invest and innovate to remain relevant in the marketplace in order to compete. Obviously, this innovation comes at a cost.

The Peer Monitor report pays special attention to one area of innovation spend in particular — technology. This is an area where firms saw a surge in growth a few years ago; however, while technology growth still remains positive it has been steadily slowing. The spend in technology can be seen as a means to help increase efficiency and keep other costs down so firms can offer competitive pricing on legal matters.

There are various implications to what is going on within firms. Erring on the side of optimism, the slowing growth in technology investment may speak to the idea that firms are “caught up” to what was deferred during the recession. There is also the shifting of dollars to areas of occupancy, professional staff benefits and outside services, as the report highlights.

Spending on investment is necessary to compete within the current market, and based on this report it appears law firms (on the average) are being deliberate with their spending and growing expenses in a strategic manner.