The fifth annual Altman Weil Law Firms in Transition Survey published a few weeks ago, summarizes the opinions of managing partners and chairs from 238 US law firms, including more than a third of the AmLaw 200. Since the first survey in 2009, the subsequent reports have all shown an evolution of thinking on industry trends, pricing pressure, alternative fee arrangements, new kinds of competition and the future of the profession, including some dramatic shifts in opinion since 2009. Today, law firm leaders are acutely aware of the changes that the profession is facing, with flattening or shrinking demand for legal work in many practices, new competitive forces of commoditization and the emergence of lower-priced, non-traditional service providers and the idea that growth in lawyer headcount is no longer the answer to increased revenue.
But despite the growing awareness of the changing legal landscape, the report shows no real adjustments in business models or strategy by putting delivering value to the clients and improving efficiency as the top concern for the next two years.
Tom Clay, Altman Weil principal and survey author, reports that “There have been some dramatic shifts in opinion about the business of law over the last few years, but a lot less tangible action. Most firms seem to be operating in a short-term, defensive mode driven by market threats rather than opportunities.”
Ninety-six percent of law firm leaders say they believe ‘more price competition’ is a permanent change in the legal market in 2013, according to the survey. Additionally, eight out of ten firm leaders think ‘more non-hourly billing’ is here to stay. Despite this, only 29% of leaders report that their firms have significantly changed their strategic approach to pricing since the recession and the primary response to pricing pressure appears to be discounts. But, as pointed out by Tom Clay, “Discounting is not a strategy, In fact, it undermines the idea of value and it’s a margin killer.”
Ninety-six percent of survey respondents also believe that a ‘focus on improved practice efficiency’ is a permanent change in the legal market. Ninety percent of leaders say there will be ‘more commoditization of legal work;’ and 79% expect ‘more competition from non-traditional service providers.’ But again, despite this broad consensus, only 45% of leaders report their firms have made significant changes in strategic approach to efficient legal service delivery.
More generally, law firm leaders were also asked “What will be your firm’s greatest challenge in the next 24 months?” Top four answers were increasing revenue, new business, growth and profitability. Delivering value to clients appears only at number eight on the list and improving efficiency at number eleven (of twelve).
Tom Clay finds this result quite disturbing: “All four are internally-focused, tactical issues with the primary purpose of protecting the status quo in law firms. It is striking (and disturbing) that delivering value to clients appears only at number eight on the list, mentioned by just 5.6% of law firm leaders. Improving efficiency is eleventh on the list of twelve challenges, cited by only 2.8% of respondents. Law firms that do not put client needs at the top of their priority lists misunderstand what is driving the forces of change in the legal market in 2013. If firms would focus their considerable resources on truly understanding and aligning themselves with each client’s interests, they would be much more likely to achieve their financial goals.”
According to the survey result, most firms appear to be reacting to external forces and making incremental changes within the framework of the existing business model, rather than pursuing opportunities to meaningfully differentiate their firms in the eyes of clients. This is not an easy thing to do, but as pointed out by Jim Hassett and Matt Hassett in “New Altman Weil survey reveals law firm leaders understand the problem, but not the solution”, “Success in any business is based on only one thing: meeting client needs in a sustainable way. In the current environment, that will require many firms to focus on legal project management. To address pricing pressure, for example, firm leaders should be thinking not about cheaper discounted hours but rather learning how to meet client needs at the same quality with fewer more efficient hours.”
Altman Weil also provides some examples of what firm leaders can and should do to keep pace with the challenges of the new legal market:
- Better educate your partners: In a professional services firm, leaders must have the buy-in of their partners in order to affect change. Invest time in educating your partners about the realities of the changing legal marketplace.
- Align with your clients’ interests: Recognize that every client is different and invest time in learning what each wants and needs (beyond the baseline expectation of excellent legal advice). Learn their business strategy, understand their operations, and become their partners.
- Don’t settle for quick fixes: It is critical that firm leaders have a strategic, longterm outlook. While short-term, tactical successes can build momentum, theyare not a substitute for pragmatic firmwide planning for three- or five-year time horizons.
- Develop a proactive stance: It is easy to understand why busy leaders find themselves reacting to external and internal pressures rather than leading change in their firms and with their clients. However, it is a risky bet to assume you will always be able to stay ahead of the curve that way.
The full survey report is available for download here: Altman Weil Law Firms in Transition Survey 2013