10 Trends to Watch and Watch Out For in 2019.
Last year turned out to be relatively good for many firms, at least financially. While it’s nice to have jingle in your jeans, a healthy financial year can result in a dangerous sense of indifference.
Best to snap out of it.
In 2019, financial markets are anticipated to be volatile and due for a correction if not a downturn. There’s also Brexit, which is expected to have a worldwide impact that may not be for the better.
It’s my observation that even though 2018 was a solid financial year for many law firms, hiring remained flat, succession was sluggish, and major restructuring to align with market-proven strengths and key industries didn’t happen. Instead, it was a year of restrained spending and being hunkered down with a “nothing bad will happen if we don’t tempt the fates by thinking about it” kind of approach.
Well, just wait. When the financial storm hits and settles in for a stay, what usually happens with law firms during a downturn will happen again. Panic. Firings. Failures. Mergers. The “Four Horsemen” of law-law land.
Meanwhile in corporate counsel country, hiring is generally up and legal processes are being better organized. Both tactics help develop workflows, streamline processes, identify gaps, and better predict costs. Corporate counsel are getting their groove on.
Major Market Factors
Two major factors in the global legal services market continued to remain on radar in 2018 and won’t be going away anytime soon:
- Marriages of convenience, mostly between Big Four firms and practice-specific legal entities. This will continue because it makes as much sense to the combined parties as it does to legal services consumers.
- Rise of the so-called alternative legal service providers whose acronym, ALSP, can be jettisoned from the legal lexicon for two main reasons: it’s more than 20 years out of date, and those who hire legal service providers are increasingly less concerned about a BigLaw or NewLaw distinction, especially when many legal services have become commoditized.
The Citi Private Bank – Hildebrandt Consulting 2019 Client Advisory Report reveals that, like last year, legal industry revenue growth is apt to remain strong while profit per equity partner (PPP) growth will remain in the single digits. Also, successful firms will outperform the market by focusing on profitable growth areas and delivering on client needs while capitalizing on market strengths and building a strong brand.
Generally speaking, alternative fee arrangement (AFA) activity may continue to be more talk than action with discounted hourly rates being the norm, and more focus is anticipated to be applied to legal project management and pricing.
In other words, business as usual.
More interesting is what wasn’t mentioned: the continuing advancement and repercussions of an ever-expanding roster of competitive forces in the global legal services market, such as the Big Four, non-traditional legal service providers, and technology.
To that end, below is a random selection of 10 legal market and marketing trends to watch – and watch out for – in 2019.
Complacency continues even though the legal services market is becoming a tougher grind due to client expectations around greater value and lower costs along with more competition and technology.
Chronic problems within traditional law firm structures include under capacity, stagnated hiring, stilted succession, undifferentiated value propositions culminating in lack of market distinction, and not feeling enough financial pain to be pressured into making changes.
There is a general propensity for traditional law firms to cater to a what’s-in-it-for-me individualistic mentality rather than making changes by degrees that have long time horizons and defined goals to serve the greater good.
However, continuing to play the short game is foolhardy and makes as much sense as thinking that by closing your eyes, whatever is frightening you will go away.
2. Law Companies
Non-traditionally structured law companies are certainly not going away. In fact, many more will sprout organically due to legal service providers of all stripes who, becoming frustrated with the traditional structure’s status quo, prefer to break their own path.
Some traditional firms may get into the act by creating less expensive versions of themselves while others are apt to hatch operational offshoots located in lower cost centres. However, this can be a double-edged sword since while both tactics can help protect client relationships and revenues, they can also cannibalize the original firm.
Smart firms will spin off non-core practices to operate as standalones. Divestiture will enable these firms to restructure and focus on deepening distinct service lines that align with core strengths while affording agility to scale if and when needed.
Collaboration between BigNew and NewLaw is a critical factor in securing and retaining client work. While traditional firms tend to consider non-traditional legal service providers as competitors – and some of them are – neither are going away. Both need to figure out how best to coexist because that’s what clients want.
Collaboration will be successful as long as relationships between BigLaw and NewLaw remain respectful, and one doesn’t hold dominion over the other, which from the client perspective, they don’t. Best to set divisiveness aside and learn to work well together.
4. More Marriages of Convenience
Law firms will continue to acquire other law firms in an attempt to shore up clients, revenues and acquire technology and tools. After the usual rebalancing of head count, real estate, finance, and a myriad of other factors, the combined firm can be left with a discombobulated brand, an insecure and wary clientele, and diluted profits all of which can take the turnover of at least one generation before finding equilibrium and beginning to regain market traction.
Law companies will join with other law companies who provide a foothold in a new market. These combining companies will either be entirely alike or completely different from one another. And they’ll either be okay together or they won’t. If they won’t, they’re apt to choose to fail early, break apart with speed, and go their own way with ease.
Professional services firms, such as the Big Four – that are still quaintly referred to by some as accounting firms – will continue to buy legal entities aligned with the professional service firm’s core business. On the flip side, no major law firm will take a page from the Big Four’s playbook and acquire a complementary type of professional service because, well, they just won’t.
In 2018, a few of the Big Four took more bites out of the traditional and non-traditional legal services market.
EY bought NewLaw entity, Riverview, which means that at EY Riverview Law, there are 2,200 law practitioners in EY member firms across 81 jurisdictions worldwide.
PricewaterhouseCoopers LLP (PwC UK), the UK member firm of the PwC network and U.S.-based immigration law firm, Fragomen, Del Rey, Bernsen & Loewy LLP allied to provide global mobility tax and immigration services. This is an especially brilliant match and a huge injection of legal talent. Fragomen, a global immigration powerhouse, has more than 50 offices worldwide and employs more than 3,800 immigration professionals, including more than 550 lawyers and equivalent professionals. PwC’s lawyer headcount currently stands at 3,500 in 90 countries.
Deloitte, which has 2,000 “legal people” located in more than 75 countries worldwide, bought the non-U.S. offices of immigration law firm Berry Appleman & Leiden, while that firm’s U.S. offices entered into an alliance with Deloitte.
Not to be outdone, KPMG aims to have 3,000 lawyers working in its global legal services unit within the next few years.
The irony of all this is that while traditional law firms may believe that non-traditional legal companies and technology are the biggest competitive threats, none – not even all of the world’s ALSPs and legal technology companies combined – come close to the Big Four’s continuing advancement into the global legal services market.
This is because each of the Big Four has the advantage of an internationally recognized brand, legions of professionals of numerous descriptions, infrastructure that has been built up for the last 30 years or more, access to every significant business tool and system, and capital resources and financial acumen to run efficiently and effectively.
Currently, the legal units of the Big Four are aligned with core business lines of tax, audit, assurance and advisory. Legal services are also positioned within target markets and key industries, and are operating globally using a one-stop-shop platform. Because the Big Four tend to like a sure thing with no surprises, they’re not apt to stray into particular types of legal services that, as of right now, don’t make financial sense. But that may change as the Big Four continue to bulk up.
As a general rule, pricing seems to be handled by professionals with legal training rather than financial backgrounds.
Because most clients consider cost a hot button, pricing is probably too important to be handled by anyone other than those with experience and accreditation in math and money. This is exactly the reason why smart law firms would be wise to acquire a deeply experienced roster of math-minded professionals – such as those in an accounting firm – who have creative ways around balance sheets.
Because cost and value are two sides of the same coin, a law firm that uses the talents of professionally designated chartered accountants to handle pricing structures, and communicates and demonstrates this differentiator is apt to win more trust and work.
7. Information Technology
It used to be that in many law firms, IT is where good ideas went to die. This problem persists since even in these modern times, it’s not modern times in many law firms.
It is often the case that IT remains charged with servicing rickety internal systems held together with the proverbial baling wire and chewing gum. And because some IT teams continue to service personal communication devices, such as phones and manage the terror of irregular software upgrades, they can’t possibly take on new technologies even though they might desperately want to.
For 2019, investment in IT in terms of integrated, firm-wide, data protected client and firm-serving technology, as well as the addition of programming and system-specific professionals has never been more critical to a firm’s long-term survival.
8. The In-House Crowd
Clients are calling the shots and no client holds the whip hand like the in-house crowd.
Corporate legal departments are bulking up with talent that serves the company exclusively, learns and understands its industry, culture, politics, people, needs, wants, and budgets. In-house talent also has a relatively fixed cost due to being on salary, which lessens unpleasant financial surprises.
Corporate counsel expect improved work processes from external legal service providers. This is because in-house lawyers report to a corporate structure that sees legal as one piece – usually a very expensive piece – of a business.
As a result, many general counsel must manage up as well as down. Therefore, legal service providers who can make a GC’s life easier will be heroes.
Making life easier means partnering effectively by continually communicating to ensure that needs and wants are delivered on time and on or under budget, right-sizing client service teams, providing secondments and outsourcing options, commoditizing rote work, and proactively offering creative pricing structures.
9. Industry Alignment
Aligning services by industry are critical to remaining vital and solvent. The Big Four and many NewLaw entities tend to do this, and traditional law firms would be wise to step into line. For example, in Canada, every full-service global law firm operating in this country lists industries first rather than practices on their websites.
Furthermore, one of those firms, DLA Piper, partnered with Axiom Consulting in 2017 to develop a client retention model to predict clients at risk. They found that a key variable directly affecting client retention was adding an industry expert to a matter team. The results were impressive.
10. Positioning and Brand
Being everything to everyone means you’re nothing to no one. Therefore, positioning in key markets is critical to surviving while brand is everything in terms of thriving.
Brand definition is tough. Many firms lack the grit to cut a swatch through the competition by claiming key strengths and defining demonstrable traits, and remaining unwaveringly dedicated to both.
Every law firm I have worked with during 18 years of consulting is entirely different internally from those it considers its competition. However, oftentimes from an external perspective, differentiating factors tend not to be communicated definitively or demonstrated consistently. This is why from the client’s point of view, there is a degree of sameness, at least in the traditional law firm market.
For proof of this, we need look no further than the claims of many as “a leading law firm” – whatever that means.
Firms with grit need to right size and reposition their offerings. Clear and concise positioning along with acquisition of business-savvy talent and appropriate key clients that sit squarely in the centre of a firm’s expertise wheelhouse enables legal market differentiation. When differentiators become a market-recognized strength, they act as a beacon to attract ideal clients needing a particular type and brand of legal expertise.
Lawyers are good at many things, but like anyone else they’re not great at everything. And that’s perfectly acceptable. Help is at hand with the aid of professional management, accountants, engineers, technicians, legal industry experts, and those with applicable business backgrounds.
The global legal services industry has never been more challenging or interesting. And while its evolution, which really began about 30 years ago, has been gathering speed of late, it’s understandable that what has become the “new normal” of continuous change can be disconcerting.
Perhaps this is why complacency, distrust and to some degree, anger, is either quietly simmering or clearly evident in various areas of the legal services market.
But there’s also a bright side – one that includes surging creativity that is bringing forth new resources and different ways to provide legal services that are exciting, encouraging and most importantly, revitalizing.
Heather Suttie is an internationally recognized legal market strategy and management consultant to leaders of premier law firms and legal service providers worldwide.
For 25 years, she has accelerated performance within law firms and legal service businesses — Global to Solo | BigLaw to NewLaw — by providing consultative direction on legal business strategy, market strategy, management strategy, and client strategy. The result is a distinctive one-of-one legal market position and sustained competitive advantage culminating in greater market share, revenue and profits.