It is no secret that demand traditionally slatted for large law firms is seeping out into other sectors within the industry.
A recent BTI article reported that clients have the smallest law firm panels in 15 years. A typical large company law firm panel is down 30% from last year, marking the second year in a row of shrinkage. With pressure to manage a budget and reduce outside spending, there are no plans for clients to stop trimming in the future, especially as general counsel teams continue to grow and acquire talent to handle matters in house.
The narrowing proportion of work that is going to outside counsel in combination with the overcapacity of law firms fighting for a smaller slice of the pie sets the stage for a far more competitive, bare-knuckle legal climate where one firm wins at the expense of another. Nothing illustrates this better than recent data from Peer Monitor, as of May 2015, that shows year-to-date demand growth for law firms is a mere -0.4%, continuing to hover in neutral territory, jockeying from negative to positive. Only 49% of Peer Monitor firms are sitting in positive territory in 2015, with the remainders suffering the fate of bouncing in neutral-to-negative territory. It is nearly evenly split—for every firm winning there is another losing!
Not to mention it is no longer a competition just among firms, the surge of alternative legal service providers are changing the business of law. Clients are leveraging these providers for various tasks, typically less complex work that can be done in a more cost-effective manner. Given the pressure on general counsel to manage legal budgets and outside spending, these alternatives look rather appealing.
Clients now define what constitutes “value” in this buyers’ market given all of the purchasing alternatives. It is no longer enough to be a good lawyer or have name recognition. So how does a firm gain market share and compete in this environment?
- Build strong, lasting relationships—In BTI’s client experience survey, clients expressed that they are basing hiring decisions on their daily experiences instead of qualifications and pitch. Additionally, managing the “Client Expectation Gap” by going above and beyond client expectations manages the risk of losing to another firm that is going beyond those expectations.
- Be willing to negotiate and set alternative fee arrangements—The recently released 2015 ACC Chief Legal Officers Survey sited this as one of the top three ways that CLOs manage a budget and risk. To this end many firms are bringing on price strategists to help plan and price the services they offer with a focus on efficiency, predictability and cost effectiveness.
- Set a strategy—This has been in the news a lot with Seyfarth TK’s recent hire of a Chief Strategy Officer (CSO). While a newer role within firms, it is integral given the market. Firms not only need someone to chart a course but also to steer the ship in the near and long term when it comes to go-to-market strategies.
- Be unique—Innovate and differentiate the delivery of legal services. We are seeing some firms grow select practices to become experts in certain areas. Others are strategically investing in talent (hiring the right people at a high rate). Others are also making a commitment to project management (according to Peer Monitor Staffing Ratio Survey, this area has been growing for the last three years) and leveraging technology for process improvement. Lastly and possibly the most intriguing is the gamification TK of legal work.
As the legal climate continues to evolve and competition becomes even more fierce, only time will tell the true impact on large law firms. Until then, they would be wise to be nimble and quick, and ready to adapt and compete.