The Legal Market is Fine for Those Who Adapt

In far too many instances, I hear firm management and partners attribute underperformance to a tight legal market. Yes, the legal market may be tight, but I believe it is equally important to acknowledge that underperforming firms and partners could do more to respond to a changing market.

Competition from traditional and non-traditional sources is sharp and clients are demanding more value. Firms would do well to expand their options for improving profitability beyond billing rates, production increases and unfocused cost cutting.

Clearly, billing rate increases help, but what is to be done when clients simply won't expand rates or when the competition is willing to work for less? What is to be done when a component of delivering legal services is automated or made available for free to attract new relationships?

A more difficult and immediately relevant question is what to do when the competition is able to charge less and also make a sustainable profit?

Before accepting that underperformance is solely related to market conditions that will eventually self-correct, consider the following:

MARKET FACTORS

• According to BEA.Gov, the estimated gross output for legal services was $300.4 billion in 2013;

• The legal services market has only partially recovered from the downturn in 2008 and 2009.

Sources: BEA.Gov and americanbar.org

• More lawyers were added than corresponding output in 2013, which could be a timing difference (2014 when released will answer the question);

• According to the ABA, only about 60% of the 2014 graduating class found a long term full time position as a lawyer (42% in private practice);

• The market appears soft, but it may be that clients and technology have permanently forced market efficiencies.

CLIENT POSTURE

• Previous studies  by LexisNexis CounselLink, indicated a clear pattern of clients moving work from the top 50 (750+ lawyer) firms to next tier firms (501-750 lawyer range).

• The recently released LexisNexis CounselLink study (2014 data) indicates that intellectual property work has been moving back upstream, which is likely the result of large firms making staffing mix adjustments and becoming more competitive.

• Clients now have analytics and data to manage their legal spend on levels that law firms simply do not yet fully understand. See premonition-analytics.com and lexisnexis.com/counsellink (enhanced billing data analysis) as two examples.

RECOMMENDATIONS

• Recognize that technological change will continue to disrupt the market. Determine if there are advantages to early adoption;

• Implement systems to measure matter handling efficiency and comparative results;

• Use these efficiency metrics to improve client value and strengthen marketing messages;

• Consider staffing mix, overhead structure, technological innovation and lawyer matter handling efficiency for improving profitability; and

Firms must provide exceptional value to hold on to higher tier work. An adaptive firm will be better equipped to attract the best clients and people.

Brian Kennel is the CEO and Lead Consultant at PerformLaw. PerformLaw is a consultancy focused on performance improvement in all phases for client firms. Brian can be found at www.Performlaw.com.