Over recent weeks we have presented at a number of seminars and conferences and wherever possible we take the time to listen to the other presenters and their perspectives on the current legal market.
A number of speakers have highlighted the increasing encroachment of Alternative Business Structures into the market and the potential difficulties this could cause for medium-sized law firms – which is generally producing an atmosphere of doom and gloom.
Of course this could become a self-fulfilling prophecy – if firms react by battening down the hatches they will not be in a condition or of the mindset to take advantage of opportunities arising.
Assessing the Scale of Change
Our own analysis of the prospects for the legal market is based on reviews of the patterns which have emerged in other deregulating markets, and our own independent research published last year. There is no doubt that in the medium term there will be a significant consolidation in the middle market, and that many firms will see their future being best secured through merger with compatible firms. We are, however, conscious of Bill Gates’ maxim that "we tend to overestimate the scale of change which will happen in the next two years, but significantly underestimate the scale of change over the next 10 years".
It is also clear that, whenever markets do deregulate, a range of opportunities open up, but they are only exploited by firms with the positive approach of seeking opportunity and acting decisively. There will be significant winners as well as firms losing out.
In our seminar presentations we acknowledge the increasingly competitive environment, but put the main focus of our attention on identifying the attributes of winners and the actions which firms need to take to ensure they number among the winners. The most pleasing testimonial for those seminars described them as "frightening but invigorating".
For the next few months we will let other commentators do the frightening, whilst we will attempt to invigorate by highlighting the positive actions which can secure future prosperity.
The Attributes of Winners
Our profiling of the attributes of winners highlighted 20 key features covering five areas:
• Management Structure; and
Along with this we have devised a simple self-assessment tool, with firms ranking themselves on each of the 20 attributes on a scale from 1 to 5 (where 5 fits the profile of the prospective winners), giving a maximum score of 100. Both the self-assessment and the follow-up work we have done with some firms have been illuminating.
More Strengths than Weaknesses
Whilst the audience may be to some degree self-selecting (the firms in most need rarely attend seminars), the pattern of scoring indicates that most attendees have far more strengths than weaknesses – but that almost all firms have work to do in some areas. Incidentally, follow-up work suggests that some lawyers can be very hard on themselves, giving themselves unduly low scores – and perhaps they overrate their competition.
Of the five areas we have reviewed, the self-assessments show the biggest areas of concern to be in finance and client selection. The finance issues amongst the medium-sized firms are mainly as a result of weakened balance sheets, which we find a little disappointing given that most firms actually know what they should be doing, but struggle to implement. From our perspective, since this is one of our specialist areas, we are also concerned that many firms fail to realise just how much opportunity they have to make rapid and significant improvements. It does not surprise us that many firms have not identified the client base which can provide them with continuing work at acceptable margins even in more competitive markets – there is still a fear of turning down (unacceptable) work.
Achieving a Position of Strength
We believe very strongly that firms prepared to look into the future and to play to their strengths, preferably with their finances in order, can be extremely competitive and look forward to a successful future – they may well be involved in mergers, but generally from a position of strength.
We will therefore use this bulletin as a platform to suggest the actions firms can take to fight back against the encroaching competition and secure their future. Each of the twenty areas we have identified will be covered in the coming months.
To paraphrase Admiral Stockdale (of Jim Collins fame) our motto will be "Confront the brutal truth – but never lose faith".