At the beginning of a new year it is always interesting to tune into the ongoing discussions on legal market developments and listen to all experts summarizing the market changes so far and their predictions for the upcoming year. Some of the expert predictions for 2015 that we have found most interesting and useful are, inter alia, the Citi Hildebrandt Client Advisory 2015 report, LexisNexis 25-Plus Predictions for the Legal Industry in 2015, The IT Law Community (SCL) Predictions 2015: IT and Legal Practice and Legal Loop: 2015 Legal Technology Predictions.
So, what are then the common views and predictions for 2015? Where can we expect the legal market changes to go next in areas such as the state of the legal industry, legal technology and law firm business development? What should be the top priorities for law firms in 2015? And what will be the key success factors?
Well, there is naturally a wide spread of predictions on the state of the legal industry and the direction onward, but there seems to be a common understanding in at least the following four areas:
- The legal market has stabilized, with an anticipated profit growth (although a modest one) 2015;
- Legal market changes will continue, but there will be no disruption or paradigm shift in the nearest future;
- Increased focus on legal tech and efficiency; and
- Cloud computing will have a major uptick this year.
Stabilized economy and profit growth
Confidence seems to be picking up among law firm leaders and there is a general expectation on a return to market-wide growth in demand and profitability (although modest). For example, the Citi Hildebrandt Client Advisory report expects that the industry profit growth will be in the range of 5% in 2015, based on the expectation for stronger growth in worldwide transactional activity. But even though the improved demand environment for many firms, combined with controlled expense growth, will mean a stronger overall year in 2015, the report emphasizes profit “dispersion” among industry segments. There is also a general concern that the uptake in the legal market will make law firms relax and return to some of the bad habits before the crisis. For example, Timothy B. Corcoran expresses this concern in his predictions to the LexisNexis 25-Plus Predictions for the Legal Industry in 2015:
“In 2015 some of the most successful firms will relax, having seen their profits grow at a healthy pace as the economy improves. Some will begin to repeat mistakes of the past – such as hiring larger classes of new associates at ever-increasing salaries without regard to the specific market demand, and recruiting expensive laterals in the hope that clients will follow, and pursuing mergers in the quest to become larger. Others will continue to pursue what is, and has always been, a more lucrative path to profitability – namely, proactively embracing alternative fees and delivering these projects with matter budgets, and guided by the principles of project management and process improvement. The latter approach will win, inevitably, because it’s the approach most directly tied to client demand.”
An overall conclusion seems to be that nothing too revolutionary will happen this year, just more of the same changes that have been going on for a while now – more focus on efficiency and technology, new business models and pricing models, how to meet the client demands and provide legal services in new innovative ways – but no disruption of the legal market. This conclusion is made, inter alia, by Ron Friedman in his insightful analysis of the Citi Hildebrandt report and the evolution of the Big Law market in the Prism Legal blog post “Disruption is Dead but Change Lives – What Big Law Needs to Do to Succeed”:
“Back in 2009 and 2010, when Big Law was laying off lawyers, I can understand why some (me?) expected large law firms would be disrupted. Yet most large law firms survived the financial crisis, with many thriving. If that crisis did not disrupt, what will? It makes more sense to focus on change, typically gradual. That gradual change, however, has taken on some new urgency. Before the crisis, rapidly growing demand and profits covered-up many law firm management sins. No more.”
In regard to legal tech, Charles Christian, makes a similar analysis in SCL’s “Predictions 2015: IT and Legal Practice”: “A lot of what we’ll be seeing on the purely techie front is merely a continuation of trends we’ve been already seeing over the past couple of years – Cloud, BYOD, etc”.
In the Harvard Law School Practice article “A Response to the More for Less Dilemma” Professor Richard Susskind OBE makes a comparison to the 1990s and early 2000s recessions, and concludes that even though the economy is now picking up, it does not mean that change will stop, but still not even he expects a disruption to take place:
“During the economic downturns of the early 1990s and early 2000s, law firms tightened their belts and priced themselves more competitively, but did not change the way they worked. In contrast, this recent recession has spawned alternative ways of sourcing routine work, innovative uses of technology, new entrepreneurial suppliers of services, and different delivery and business models. Clients have benefited from these, or at least have seen clearly what different might look like. By and large, they like what they see: more legal service at less cost. Why on earth would they go back to less efficient, more costly service? And even if they were inclined to time travel back to 2004, their CEOs and stockholders are unlikely to tolerate this. The genie is out of the bottle.
All of that said, I do not expect a “paradigm shift,” a big bang, or our arrival at some “tipping point.” Instead, I predict what I call an “incremental transformation”-a series of assuredly great shifts and innovations, none of which on its own will be revolutionary but, in combination over the next decade, will bring fundamental, irreversible, and pervasive change to the world of law.”
Increased focus on legal tech and efficiency
Many of the respondents in the LexisNexis predictions have focused on the need for improved efficiency and the increased use of technology in legal business. For example, Ron Friedman made a prediction on the ‘Drive for Value’: “Law departments will continue saving money by moving more work in-house and to alternative legal providers. In response, law firms will improve efficiency and effectiveness with more legal project management, process improvement, and knowledge management. And firms will hire more staff attorneys to offer lower costs than partners and associates.” He also elaborated on the topic in his blog post analyzing the Citi Hildebrandt report: “Firms increasingly must focus on margin growth, not just revenue growth. I view this a service delivery factor because it ties so closely to most other factors the report discusses. Specifically, firms must manage their leverage. More and more firms deploy lower cost lawyers such as staff attorneys.” “The leverage concept also applies to legal technology. ‘Technology has supported the commoditization of many legal services… successful firms constantly examine how emerging technology might impact their businesses, and look for ways that it could enable them to deliver quality legal services much more efficiently’.”
The Citi Hildebrandt report predicts that law firm spending on technology will increase in 2015, despite firms’ focus on limiting overall expenses. While the most familiar areas of rapid change have been in e-discovery over the last few years, investments in process automation, legal research and consumer direct products may be about to pay off for many legal tech entrepreneurs. According to the report, law firms are also expressing more interest in artificial intelligence tools that could replace core lawyer skills. “We believe that these tools are still a long way off as a scalable technology in law. We’ve seen that the experience of using artificial intelligence tools in the medical profession has helped medical teams to diagnose complicated illnesses, but it certainly has not replaced doctors.”
In the LexisNexis predictions, inter alia the following answers concerned the increased use of technology:
Michael Lipps: “With the bottom line still growing faster than the top line in many law firms, the demand for solutions/tools that enhance firm business development will continue to increase. Harnessing everything and everyone a firm knows and being able to turn that knowledge into actionable information is a business challenge perfectly suited for technology.”
Ben Stevens: “I believe that 2015 will see attorneys and law firms continue to adopt and utilize web-based software and services at an ever-increasing rate. While the legal industry has historically been slow to adopt new technology, firms that conduct the cost-benefit analysis of these services conclude that it’s almost a “no brainer”.”
Richard M. Georges: “The future of the legal industry depends upon the adoption of technology by lawyers, and 2015 will accelerate the trend. Wearable computing, wireless and mobile connections, and preoccupation with data security all will dominate legal tech news. As efiling becomes more ubiquitous, some lawyers will fall by the wayside, as they will not be able to function without active interest in the Internet and technology. Another trend will be towards even more free legal research materials online, and the increasing addition of other features to enable the legal publishers to compete.”
In the SCL predictions, Andrew Haslam even predicts the entrance of artificial intelligence during 2015: “My outside bet is the emergence of true Artificial Intelligence (AI) applications into the UK legal marketplace. It’s been three years since IBM’s Watson software beat the top two human champions at the US game show Jeopardy, since then the hardware has shrunk from the size of a small room to three pizza boxes and the software has got 95 times faster. Several large law firms are in discussions with IBM about how to use the application. I think there will be a Watson legal assistant running by the end of the year.”
Uptick in Cloud Computing
Many of the predictions concerns the rise of the Cloud. In the SCL predictions, Jan DeCerce predicts “that there’ll be a mighty shift from install to offsite this year. /../ I believe that everyone now has a good understanding of what the cloud really means – and I predict the cloud based document management vendors will be making a clean sweep.” In the same article, Joe Reevy, similarly predicts “the rise of the Cloud and the continuing integration of different pieces of software. As more and more great technology is found on the Cloud, I feel we are not very far away from seeing firms that do not have a credible cloud offering starting to lose significant market share.” But also that “the issue of data security will loom ever larger as may the importance of having top-quality robustness in the Cloud server farms used. In that context, I think 2015 may be a year in which firms take their web security more seriously.”
In the LexisNexis predictions, Michael Lipps predicts an increased IT outsourcing by law firms: “With the focus on data/information security on the rise and driving needed attention on law firm environments, I expect we’ll see more firms outsourcing in 2015. They’re asking themselves, “Why should I host and manage all of these applications and data when I can get an expert to do it and satisfy my clients need for an ultra-secure legal data environment?” In 2015, more will move to an outsourced model.” Additionally, Derek Maine makes the following prediction on legal service delivery: “The business of law will continue to cross over into new fields. With 2013/2014 solidifying firms as publishing houses, 2015 will see firms become SaaS providers through strategic partnerships with clients and SaaS companies.”
Key success factors
So, what will it take to be successful during 2015? What are the key success factors for law firms to focus on?
The Citi Hildebrandt report observes a widening gulf in the market between the most profitable firms and the rest of the pack, that might shine some light on the question, as those reporting an uptick in demand tended to fall into two categories, “those with strong brand-name transactional practices, or firms who have demonstrated value to their clients by offering quality work at the right price, while creating a well-managed cost structure to maintain or improve their margins.”
In his analysis of the report, Ron Friedman concludes that “Just hiring different types of lawyers and deploying new technology is not enough. Firms must learn to “price and manage the delivery of legal services”. That even elite firms hire lower cost lawyers and pricing + project management professionals signals the need to evolve. The good news is that differentiating can appeal to lawyers’ competitive sensibilities. The bad news is that not all lawyers and law firms will get an “A”.“
In the LexisNexis predictions, Heidi S. Alexander, Esq. makes the following contribution: “Already in 2014, we’ve seen not only an influx of new attorneys starting their own law practices due to scarce job prospects, but also new attorneys moving toward non-traditional legal jobs. As new law students become more discerning about their decisions to pursue legal careers, we will begin to see an even greater focus by educators and students to design innovative solutions to problems with the delivery of legal services, leading 2015 graduates and beyond to contemplate non-traditional career paths, particularly with respect to technology.”
In the blog post “Legal Innovation in 2014 and Beyond” Jacquie Champagne similarly predicts technology to be a key success factor: “The next five years will certainly bring acceleration in legal technology adoption, and some lawyers will be left behind. Those who ignore the changes and fail to adapt do so at their own peril. Some attorneys close their eyes to the fact that the business climate and technology will dramatically change their practice. Top management in some law firms continue to view IT as an expense rather than an asset which can contribute to revenue growth. I think technology will be king in 2015 and beyond, and we will see the amazing potential for far-reaching and irrevocable changes in the legal services industry.”
As always, it will be most interesting to follow the legal market developments and see which of the predictions above that will come true during 2015. We would also like to take the opportunity to share some thoughts from Jordan Furlong in his Law21 blog post “…famous last words”: on the importance of thinking freely and seizing the opportunity to make a change – not just accept the changes imposed upon you, but to actually drive the changes you want yourself the next year:
“We have a once-in-a-lifetime opportunity to re-conceptualize what it means to be a lawyer. The underlying fundamentals of the legal market – clients, competitors, tools, regulations – are changing so quickly that a new climate now surrounds us, a new landscape has emerged under our feet, and even greater upheaval is on the way. In the very near future, we will find that we’ve adapted how we run our businesses, how we deal with our clients, and how we feel about being lawyers. That’s the end game, regardless of how happily or willingly we get there.
Make 2015 the year you decide not only to accept the things you cannot change, but to be the driver of the kind of change you actually want to see in your own practice and your own world. This is your opportunity, and this is your time. Make it happen.”