As December ends and January dawns, report cards on the legal profession are issued and crystal balls are studied. This year is no different with many articles offering assessments of the industry’s current state and its prospects.
Two pieces recently written about the industry’s present and the future are worth review. Mark A. Cohen’s Something’s Gotta Give: Partner Profit Rises While Law Firm Market Share Declines for Forbes takes stock of the prevailing state of the law firm market and some of the challenges faced. He notes Big Law’s penchant for dealing with disruption by turning to short-term remedies that tend to not address the real challenges faced. One thing Cohen observes is that the “fixes” in the Big Law toolbox tend to focus on maximizing the value proposition for the law firm partners instead of the client.
Elizabeth Owens’ With Competition Fierce, Even Elite Law Firms Resort to the Unusual written for The New York Times is a good compliment to the article written by Mr. Cohen. In her article, Ms. Owens writes about Big Law’s willingness to “think outside the box” as competition mounts. For the most part, the creativity Ms. Owens details seeks to preserve firms’ financial health. For those firms that are successful, higher profits per partner, market share and increased size can result. But of the law firms resorting to the unusual, few appear focused on altering their business model fundamentals to drive a better value proposition for clients.
The articles by Cohen and Owens focus on Big Law and don’t posit whether smaller concerns, law firms outside the Am Law 100, likewise face similar challenges. Lest there be any confusion, the answer is a resounding yes.
Indeed, the very challenges faced by Big Law today discussed in the Cohen and Owens articles, promise rough seas for Big Law’s smaller brethren. If not noticed already, smaller firms will feel the consequences in at least five ways:
More Swimming Downstream. The competition among major law firms is fierce and driving an all-out war for market share. As legal work for the super large law firms becomes scarcer, those same firms will be willing to swim downstream in search of the legal work they previously eschewed. A domino effect will ensue and firms raided will have no choice but to act similarly by seeking legal opportunities among client classes previously not attractive. Trickle down supply and demand will result in the smaller law firm’s relationships coming under constant assault.
Dissatisfaction with the Law Firm Value Proposition Will Spread. Increasingly, clients are consumers who are conditioned by their experience with an economy in which efficiency and competitive pricing are but a few clicks away on a mobile device. Billing by the hour will not only become less acceptable, but it will seem illogical and anachronistic by the clients firms seek to court. Tinkering to improve the financial health of the law firm will not seem relevant to the most important party-the client. They will want value. Firms that can’t deliver value will struggle.
Alternative Providers’ Value Offering Will Spread. Right now alternative service providers are impacting larger firms the greatest. But as these non-traditional providers gain more experience and refine their processes and technology, they will find ways to touch upon the small law firm portions of the market largely immune from their reach. Advances in processes and technology will make their offerings scalable. The pain being felt today by large law firms will soon be shared with all law firms.
Band-Aids Won’t Stop the Bleeding. Much of the actions taken by large law firms in this disrupted market are designed for the short-term. If law firm financial metrics are down in a given year, steps often are taken to change the variables in the calculations behind some important metrics, but little typically is done to address the root cause of the problem-a broken model. Yet most large law firms are loathe altering the way business is done. Law firms of a smaller scale, usually more nimble, should not make the same mistake.
The Efficacy of In House Competition Will Develop. Client legal departments, relying on processes and technology heretofore unavailable, will become more efficient and effective. The legal services provided in house will be in sync with the client’s mission, value needs, and business philosophy. As that happens fewer clients will need law firms (or even, perhaps, alternative service providers) to solve their issues. Thinking like an in house lawyer that delivers results without the severity of outside law firm costs will become important.
Many large law firms are reacting to disruption-often by looking inward. Today’s smaller firms face or will face many of the same challenges. If you are at a smaller firm, will your firm look inward or take a client-centered approach?