How can mid-sized law firms compete for a larger share of the market? Mahesh Nandeeshaiah, Vice President at InsightBee discusses the options.
Changes in the legal sector are challenging the existing structures of many firms, making the market more competitive than ever - but it's not the big firms that are struggling. A PwC survey of UK law firms showed that the top 10 law firms saw their profits rise slightly in 2014, whilst mid-sized firms performed comparatively poorly. Over the past four years, mid-sized firms have seen their margins shrink from between 30-40 per cent to just above 20 per cent. What’s more, profit per equity partner is significantly lower for mid-sized firms too, leaving the mid-market feeling the squeeze.
Several forward-looking commentators have boldly predicted disruption and the possibility of a significant change in the legal landscape, bringing with it the very real possibility of several mid-sized law firms going bust. So what are firms to do?
While there’s no doubt the legal space is over-supplied, there still haven’t been any clear signs of disruption within large and mid-sized firms. However, smaller businesses are beginning to embrace new ways of working and challenging existing structures; these new enterprises come in the form of mass-market online providers like LegalZoom, DirectLaw and Rocket Lawyer. New players in the market borne out of ABS (Alternative Business Structure) licensing, like Admiral Law and BT Law, are also picking up clients and attracting a lot of interest.
Even though big city/magic circle firms will always be the first choice for many, this group tends to focus on bigger, more complex deals that deliver better margins. As a result, law firms interested in less complex mid-market deals may find that a significant portion of the market is now up for grabs – provided that they offer an affordable service and can demonstrate a strong understanding of client markets.
In the past, mid-size firms were often overlooked in favour of larger firms that seemed to have a wealth of information at their fingertips. However, with business information more readily available than ever before, this ‘information inequality’ has become a thing of the past. As a result, mid-size firms may find that a wide range of business is now theirs for the taking – but how can they ensure they’re the ones winning it?
Learn lessons from other sectors
Mid-sized law firms can actually learn a great deal from other segments of the professional services market. The consulting market, for example, is particularly advanced in dealing with the forces that are shaping professional services business – the disaggregation of the value chain, cloud services and Big Data.
IDC’s 2014 survey of global consultancies revealed that 73 per cent of these consultancy companies are migrating to the cloud for most of their processes. Interestingly, over 60% of these businesses had fewer than 500 employees, mirroring the headcount of mid-sized law firms.
McKinsey, and its tech-based platform McKinsey Solutions, has helped pioneer a transformation in the consulting world. However, it’s not just the major players like McKinsey, Accenture or Deloitte – a lot of smaller firms are also pursuing strategies focused on technological innovation. Investments like these can help smaller firms to compete much more effectively, not only by making them more agile, but also be enabling a more flexible business model.
While it’s likely that some of the larger law firms will try to build their own proprietary platforms to retain their market dominance, readily available new technologies like cloud-based Software-as-a-Service (SaaS) platforms can help level the playing field for mid-sized firms. The upfront investment required for cloud-based solutions tends to be much smaller, yet the benefits are immense, as they can help firms strengthen their knowledge of client markets and communicate insights much more effectively.
Knowledge is power
Embracing new technologies like these will help mid-size firms to ‘future-proof’ their operations, which will be critical if they are to compete successfully in this fast-changing market. After all, with scale and finances on their side, big firms will always be able to make significant investments in high-end technology – big city firms typically invest a few million dollars on CRM platforms.
However, with the right approach, smaller firms can often have the advantage of knowing their clients better, reacting faster, and providing a more personalised service than their larger peers. High-end technology is not always possible for smaller firms, yet this doesn’t need to be a problem; it is not actually essential for every firm to invest in such high-powered data analytics.
Indeed, a study by Harvard Business Review titled ‘You may not need big data after all’ argues that some firms may actually be better off making use of information that is already readily available. Many law firms – and small-to-medium firms in particular – may be better off using tools that provide incredible research power, but with much lower overheads, to gain the business intelligence they need to compete with larger firms.
Without a doubt, the legal market is changing – and will continue to evolve in the months and years ahead. For mid-size firms, these changes can offer a wealth of opportunities, but only if firms can find new ways of maximising the benefits that this new era of information equality can deliver.