Image Credit: REUTERS/Susana Vera
What opportunities and challenges lie ahead for the legal sector in the current climate? We explore some of the key issues that firms are grappling with, and the growth strategies being deployed.
As we approach the end of 2021, what lies ahead for UK law firms and what are their growth prospects? With Brexit in the rear-view mirror (albeit with bumps on the road ahead), and the Covid-19 situation improving yet still threatening disruption, the macroeconomic picture is mixed. The UK legal market remains resilient but competitive, with market size staying static at £37bn in 2020 according to data from IRN Research.
For many law firms, growth is about expanding market share and increasing top-line revenue, but when that market is not growing appreciably larger, that can be a tough strategy. Focusing on bottom line profitability remains another key area of focus; but with a talent war pushing up salaries, and clients keeping a tight lid on budgets, that’s not easy either.
Challenges exist, but so do opportunities, especially for those who are prepared to think differently. So how can firms pull those key levers of growth?
Adding value
Demand for legal services has historically been event-driven, but law firms can create more reliable, continuous revenue streams by finding ways to service clients’ ongoing requirements. To do that, they need a deep understanding of their clients’ business and marketplace so that they can anticipate their needs in between ‘events’ and offer a broader suite of services. That may mean communicating with clients on a more regular basis to find out how to serve them better (perhaps deploying innovative collaboration tools to do so) or leveraging the treasure troves of data they hold to identify ways to add value to their services.
“One of the most common complaints you hear from general counsels (GCs) when they are speaking at events is that lawyers don’t understand their business,” says Stuart Whittle, Business Services and Innovation Director at Top 50 UK firm Weightmans. “If we can engage with clients to deliver more strategic value-adding services, that’s a win-win for both of us.”
When it comes to cross-selling to existing customers, what seems like low-hanging fruit for growth is often far harder to reach. “Successful cross-selling relies on building multi-stakeholder relationships within your customer accounts—with the GC but also with procurement, with tax, with HR and so on,” says Jim Leason, Head of Proposition and Strategy at Thomson Reuters. “It also relies on having the right internal culture, incentives, and commitment to digital working within the firm so that information is shared and that the right mechanisms are in place to spot and seize opportunities.”
Acquisition strategies
Pursuing new customer acquisition is, of course, also vital. For some firms, such as Weightmans, the ultimate responsibility for new business resides at the top, with each partner tasked with winning new work in their segment, as well as being expected to “sell” the firm’s services in other areas. Many firms are also investing heavily in business development teams to professionalise the acquisition process. Some are even using customer review sites to gain digital presence. Again, using data well (from internal systems as well as external sources) and taking stock of the insights it provides, underpins the success of all these strategies. Data can demonstrate where opportunities lie, how the firm is perceived, and what work is most profitable (and why). It’s also a way to track the revenue generated by new business campaigns and the impact of initiatives such as holding events or creating thought leadership content.
Mergers are gaining momentum as a means of expanding presence, with as many deals involving Top 100 firms taking place in 2021 as in the whole of 2020 and 2019 combined, according to Jomati Consultants. However, mergers—as well as lateral hires—can be an expensive way to grow, and they do not guarantee long-term success due to integration challenges. As salary inflation spirals, firms need to think beyond purely financial incentives to attract and retain talent. The shift toward working from home could present an opportunity here. As some firms push a return to the office, those that continue to support more flexible working policies and nurture a remote working culture could gain an advantage.
The growing complexity of global regulation presents firms which have multinational clients and an international presence with a chance to take market share from domestic lawyers—and this will only increase by any regulatory divergence post-Brexit. To counter this threat, an office in a European jurisdiction may become imperative for some, driving them to acquire firms in other countries. For others, building cross-border networks where firms co-operate and innovate together will be the solution.
The Thomson Reuters Institute’s annual ‘2021 State of the Legal Market in Europe’ report shows that law firms in the region were able to grow despite a year of dramatic change. Read the report, here; State of the Legal Market Europe
Delivering the gains from innovation
Innovation is often at the root of top line-enhancing strategies, and it is also at the core of bottom line growth strategies to maximise profitability or smooth out cashflow. “There’s lots to go at in terms of operational efficiencies,” says Whittle. “Many law firms still regard themselves as artisans and hand-craft every transaction, but there are actually lots of repeatable processes, for which you can develop standard operating procedures and then automate.”
When using productivity-enhancing tools to drive growth, success is predicated on deploying them correctly and sharing the benefits. “Sometimes firms invest in tech tools, but clients still complain that prices are not coming down,” says Leason. That’s because some firms buy solutions but then fail to fundamentally change their delivery model. So lawyers continue the same ways of working. They may not pass cost savings on to clients or think about how to take costs out of the business to reflect the shift to more digital working, e.g. by redeploying spare capacity. Or they may not use innovative tools in a way that unlocks new value and justifies a higher price-point.
In essence, people (i.e., the right mix of resources), technology, and culture are the critical enablers of law firm growth. Of these, it’s culture that really matters most: creating the right environment to encourage and empower change—to serve clients differently while building trust; to look at processes anew; and to find ways to exceed expectations. In a market where competition is intense and differentiation is difficult, there are plenty of ways to think bigger.
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