This is the second part of this article. If you missed Part 1, you can read it here.

The Internet and competition

5 or 6 years or so ago, I wrote that the Internet had posed little threat to lawyers but that’s certainly not true today. Few firms have constructed a strategy to cope with and take advantage from it. The smart ones have embraced the opportunities that the Internet offers. Ask yourself (be honest): Are you in a fit shape to take advantage of all your opportunities?

httpLawyers now have to be much more competitive. Often, this means deliberately targeting new clients. Marketing and selling comes in many guises, from putting on client seminars to direct mail campaigns – it’s now the norm, while not so many years ago it was a disciplinary matter to seek new work in this way. Things have certainly changed.

A while ago, I read that 4 in 10 law firms in the US are reporting winning new clients through blogging and social media. Has technology passed you by?

Getting new clients

Carolyn Mumby, Barrister, provided some insights into how to get clients to choose you rather than the competition. She says that global giants like McDonalds are super marketeers and use powerful hooks that tap into modern life to make their customers choose them (differentiators). They use offers such as the only ‘calorie restricted burger’ and when their competitors catch up they look for another differentiator. In the meantime, they take the lion’s share of the market.

So you must have a compelling reason for a new client to choose you and if you don’t, then you could miss out on new business.

Ms Mumby says that a simple way to develop differentiators is to put yourself in the client’s shoes and think about what they really want and need. Once you have the answers you can devise responsive services and powerful offers which will help you convert more prospects into paying clients. The most compelling offers are often those that make the client’s life easier!

Is this the death of the hourly rate?

timerIn 2002, Master of the Rolls Lord Neuberger warned that alternative business structures may sound the ‘death knell’ for hourly billing.  Speaking at the Association of Costs Lawyers conference on 11 May 2012, Neuberger said clients were increasingly put off by hourly billing and attracted by fixed fees. As well as ABSs, he said the economic climate and the advance of legal comparison websites make fixed, and mostly lower, fees inevitable.

But Neuberger told lawyers they should not fear for their business or expect worse pay as a result of changes to the market. ‘If litigation is cheaper, elementary economics suggests that there will be more of it,’ he said. ‘Rather than charging high in a few cases, and driving away those with valid claims from the courts, lawyers should be able to charge realistic fees, and encourage many more clients to instruct them to fight their case. So, significantly lower legal costs should not lead to less money for lawyers, but it should lead to better value for money, and should give to our citizens what so many are currently denied, namely access to justice.’

Are you in Control?

Many legal practices have problems – perhaps, at the top of the list is an imbalance of partners: too often the senior or managing partners may be at, approaching (or even be past) retirement age. Both he (or she) and the other partners probably agree that someone else should take over these roles but nobody has taken the initiative.   Apart from leadership problems, many legal firms have    other problems:

  • They have huge amounts tied up in unbilled time and unpaid disbursements.
  • Worse still, the overdraft is approaching or even exceeding the limit agreed with the bank.
  • Many practices find that their profits are not what they were in the past.
  • Partners’ drawings are restricted and lack of cash prevents adequate retirement planning. 

Some firms are in danger of being completely out of control and are losing their reputation against other firms investing in the latest technology – unfortunately, the “ostrich syndrome” takes over and no decisions are taken at all. Often, no partners meetings (or very few) are held and practice budgets are conspicuous by their absence – in fact, many partners have never heard of cash flow projections. The old-fashioned accounts system provides information that is inadequate and too late. There are no procedures for disbursement or credit control and the firm is trusting to luck rather than judgement as to whether it survives. 

Changes afoot

changefortunecookiePaul Rawlinson, managing partner of Baker & McKenzie’s London office wrote an interesting article in Legal Week (here) titled: Technical excellence is not enough: lawyers need to break free from their narrow silos. He opined: In a market undergoing radical change, ‘collaboration’ is no longer an optional extra for law firms. It’s worth reading this article about collaboration and what it should mean in the context of a high-performing business law firm. He argues that, “against the backdrop of a market that is undergoing fundamental change, collaboration, with our people and with our clients, is far from an optional extra.”

Typical Lawyer and Collaborative Lawyer – what the difference?

Rawlinson says:

  • the typical lawyer as one “driven by the pursuit of excellent execution in their work –  that was OK in the past but in today’s more cost-conscious world the real growth opportunities are where clients want solutions that span multiple practice areas.”
  • The collaborative lawyer has a different outlook. “They have the technical skills but they are also constantly on the look out for opportunities above and beyond their own discipline. This is a very different way of working, but studies already show that lawyers who work collaboratively are increasingly outperforming colleagues who, while technically excellent, are less adept at thinking beyond their specialism.”
‘Agile working’ the key to future legal sector

Last week, the Law Society Gazette article ‘Agile working’ the key to future legal sector, caught my attention. It says that law firms of the future will have fewer permanent lawyers and office space for just the most influential partners, a report published by a web-based practice claims. The report was written by Canadian legal consultant Jordan Furlong and commissioned by Lawyers on Demand, an alternative legal services provider started in 2007 by international firm BLP.

The report, entitled The New World of Legal Work, concluded that private practice lawyers will increasingly be ‘entrepreneurs’, evolving to compete to join rotating teams of professionals on an ‘as-requested’ basis. Other changes in the legal sector will include:

  • Only the most important partners at firms will remain permanent members of staff
  • Meeting spaces will replace law offices
  • Current ‘lawyer work’ will be re-classified as ‘legal work’ and will be carried out by a variety of professionals, not just lawyers
  • Mid-level tasks given to trained paralegals or overseas lawyers and higher-level work will be farmed out to teams of independent project specialists reporting to the permanent lawyers or directly to clients

The full report can be downloaded at the LoD website.

So, what will the law firm of the future be like?

Emma Dickinson wrote on the Law Society website after attending last year’s conference of the Institute of Financial and Legal Management (ILFM) at the Law Society in London. It’s a good article and worth reading.

The need for professional management

Professor Stephen Mason, director of the Legal Services Institute said there is a current trend towards incorporated legal businesses, rather than the traditional model of legal partnerships. He thinks the age of the lawyer is in decline because of several recent changes in the legal market, including:

  • Increase in the role and status of “support” services in legal practices.
  • legalservicesIncrease in diversity in legal functions (such as, for example, costs draughtsmen, CILEX qualified professionals, in-house advocates, and solicitor advocates).
  • Increase in non-legal professional adviser functions within firms (for example, healthcare professionals, police advisors and town planners) who are ‘adding value’ to legal advice given.

Ms Dickinson wrote that Mason’s view is that this will naturally lead to more multidisciplinary partnerships in the future, something that will happen but slowly: non-lawyer new entrants into the legal market will be the ultimate drivers of this change. Therefore, this will not be at the larger firms, but is likely to be consumer driven. Mason also noted that, for younger people, raising investment is difficult in the current climate, which may be why some potential entrants to the market have not yet been able to have a strong impact.

Mason proposed that the profession in the future will need professional managers, with relevant training.

Money and Risk

According to the SRA, 40 per cent of law firms have cash-flow difficulties. 700 firms are currently under review by the SRA and half of those firms were found to be under financial stress. Financial management is a growing problem, with everyone in the legal services being put under more pressure. The SRA is currently building a new and more detailed version of the firm risk profile. Education and training will be incorporated into the risk assessment process because, at the moment, lawyers are not being trained to run businesses, which creates a potential risk that those businesses may run into difficulties in the future. A risk outlook for 2013 has recently been published by the SRA to show the baseline assessment of risk in the market. 

Emerging risks identified by the SRA include:
  • Lack of adequate succession planning.
  • Poor standard of service or advice, particularly where this involved vulnerable consumers.
  • Inadequate systems and controls over the transfer of money.
Potential risks identified by the SRA include:
  • Improper or abusive litigation (such as PPI or airline compensation claims).
  • Lack of due diligence over outsourcing arrangements. (For example, the SRA published an analysis on difficulties surrounding cloud computing (PDF), highlighting the difficulties of complying with regulation as technology develops.)
  • ‘Contagion’ within corporate groups.
  • As business structures increase in complexity, a lack of transparency is creating potential future difficulties in regulation.

Find out more about the ILFM on their website

Outsourcing – the future for law firms

lawyersA Connect2Law article, here, says that “UK law firms believe that outsourcing business and legal functions will help them fight off competition from new entrants but many are failing to act, a survey reveals.”  The Legal Services Act is now with us but a survey by the legal referral network, Connect2Law, found that:

  • Only 11 per cent of law firms view the Act as an opportunity.
  • 77.3 per cent believe that outsourcing business processes will help them compete with the back office resources that the new entrants have at their disposal.
  • Yet despite this, only half – 51.8 per cent – has outsourced any back office functions.

The 21st Century Law Firm

In bringing this post to a close, I must mention two things:

  • New research (read it here) from global law firm Eversheds: They surveyed 1800 young lawyers (23-40 years old) around the world to take a snapshot of the sector’s future leaders. They found an ambitious group who want to drive innovation in the legal sector. The new breed of young lawyer is seeking to reform the legal sector. The report says: “With global ambition and a desire to modernise the more traditional aspects of the legal profession, many young lawyers would like the law to be more like a commercial business than a profession and see embracing technology as the key to transforming what many consider to be outdated working practices.”
  • According to Smith & Williamson’s latest law firm survey, optimism in the legal sector is the most positive it has been since 2007 with 82% of respondents saying that they are confident about the coming year (up from 61% this time last year). This confidence is being driven by signs of a sustainable recovery in the UK economy. The recent CBI/PwC survey reported that optimism throughout the financial services sector rose at its fastest rate since the survey began in 1989 in the final three months of last year. As a result, the City – a major driver of fees for many law firms – is now the fastest-growing part of the UK economy. But despite this renewed confidence among law firms, getting a chunk of the work is proving increasingly tough with the majority of firms reporting an increase in competitive pressure. The story about this is here.

Yes, I know that I haven’t mentioned the Quality Solicitors brand or the impact of Rocket Law or Rocket Matter. Maybe, I’ll save them for another day.

Martin Pollins
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