“The market for law firm services is being transformed — by clients, by law firms that ‘get it,’ and by alternative service providers — and that pace of change in this transformative process is accelerating.” This statement sets the premise found in the 2018 Report on the State of the Legal Market just issued by The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. But the report suggests that few law firms may be ready for the change.
Law firms have spent much of the past decade fortifying themselves against anticipated future challenges. But strategies based on how the market has behaved in the past may be leaving many firms unprepared for the rapid transformations that are sweeping the legal industry.
The report compares the strategies of many firms to the French strategy of the Maginot Line — a seemingly impregnable fortification that provided a false sense of security until it was easily defeated in the early stages of World War II. Strategic blind spots, decision-making inertia and unwillingness to adapt strategies to changing conditions can lead decision-makers to ignore signs that the world has progressed and current strategies may not be working.
“We are seeing some firms manage to achieve strong growth by breaking away from traditional strategies and better aligning with client expectations and increasing investments in business development and workflow technologies,” said Mike Abbott, vice president of Client Management & Global Thought Leadership at Thomson Reuters. “But for others, many key foundations that previously contributed to their success are now eroding underneath their feet, leaving them vulnerable to new competitors, further erosion of pricing power, or economic downturns. The willingness to make transformative changes is essential for ensuring long-term success.”
Flat demand for law firm services, declining profit margins, weakening collections, falling productivity, and loss of market share to alternative legal service providers and others, are gradually undermining the foundations of firm profitability.
The report also notes that many of the levers firms used to help counteract the last recession (expense cuts, de-equitizing partner ranks, rate increases, etc.) will likely be less effective during the next economic downturn.
“Sometimes, it’s all too easy to succumb to ‘the lure of failed strategies’ that may have worked in the past, to the detriment of taking bold, risky steps to deal with new challenges, such as changing client needs and expectations,” said James W. Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown Law and the report’s lead author. “Firms that take proactive steps to address these serious market realignments have every prospect of doing well. Meanwhile, traditional strategies and models are increasingly unlikely to lead to future market success.”