The Future for Law Firms
The Law Society has this week released a new report, The Future of Legal Services, seeking to identify the key drivers for change in the legal market, predict how lawyers' interests may change, and highlight likely sources of opportunity and competition.
The drivers identified in this piece of research – namely Globalisation, Technology, Buyer Behaviours, External Investment, and Competition – reflect themes we have been discussing for some years, and in particular since our 2011 report Beyond ABS: The Future for Independent Law Firms.
In our report, the key themes we highlighted included deregulation, globalisation and low-cost competition, technology, external capital, delivery, and pricing. It is interesting to note that these factors are still regarded as fundamental challenges for lawyers in the coming years, according to market-wide research.
The key question for partners considering these analyses is how to respond. In a recent Law Management Section review, we addressed this very question.
Twenty years ago, Clayton Christensen wrote his seminal Harvard article introducing the concepts of 'sustaining innovation' and 'disruptive innovation', and the consequent dilemmas of innovators and incumbents. For the uninitiated, Kodak was both the inventor of digital photography (innovator), and the incumbent market leader. He identified patterns which markets follow as a result, including, since 2012, the UK legal market.
Following up in December 2015, he said: 'Incumbent companies do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations.' This is clearly true of the legal sector. Firms must start with their market – identifying their ideal / target clients and what they do / will demand from the firm. The question then becomes how this is likely to change over the next few years. The larger the client, the greater the volume and value of transactions, the more important some of the radical technological innovations will be.
Firms must hold on to existing clients as long as they remain viable. Clients will continue to demand more for less, so lawyers will have to do what they do now, more efficiently, cheaply and cost-effectively. But even this will not be sufficient. Clients judge law firms (or complain about them) on three main criteria: price, speed and communication. To achieve the first two, firms will have to be much more efficient – and new 'blue sky' technologies invented by others can help. To achieve the last, lawyers will need to treat their clients as human beings and keep them constantly abreast of progress, on the way to a rapid and successful resolution or completion. Stellar service, with up-to-date communication (in all senses), is crucial. Spending on technology and training will be essential.
Most law firm instructions are generated by the 3Rs: repeat, referral (from clients), recommendation (from other professionals). These will increasingly happen via social media, such as LinkedIn, rather than face-to-face. Having said that, clients and networks are still the key.
Two strategies that will last for years to come are niche and 'local hero'. (Full service, Jack-of-all-trades will not). We at Wilkinson Read believe fervently in the value of a strong niche position, so that prospective clients have a clear reason to buy from the firm, and referrers have a clear reason to recommend, whether as an individual, department or whole firm. The niche can be technical, client type / sector, or issue, but partners must set out to be the best in that niche.
Local hero firms establish the reputation for having the best lawyers, service and value in a local market: best, not cheapest. There will still be local markets in 2020! Firms must recruit the best lawyers in their area, look after them and help them build their reputation (in niches?) and the reputation of the firm.
Partners who are to prosper will have to face up to the inevitability of change, and accept (however reluctantly) the unpleasant downsides this will bring.