The fifth annual Law Firms in Transition Survey shows the evolution in thinking of law firm leaders on legal market trends and how firms are responding to market changes in 2013.
“There have been some dramatic shifts in opinion about the business of law over the last few years, but a lot less tangible action,” said Altman Weil principal and survey author, Tom Clay. “Most firms seem to be operating in a short-term, defensive mode driven by market threats rather than opportunities.”
Top Trends
Ninety-six percent of law firm leaders say they believe “more price competition” is a permanent change in the legal market in 2013, according to the survey. Additionally, eight out of ten firm leaders think ‘more non-hourly billing’ is here to stay. In contrast, only 29 percent of leaders report that their firms have significantly changed their strategic approach to pricing since the recession.
Law firms’ primary response to pricing pressure appears to be discounts. The survey found that a median of 21 percent to 30 percent of legal fees are discounted. In firms with 250 or more lawyers, the median amount of fees discounted goes up to 31 percent to 40 percent.
“Discounting is not a strategy,” said Clay. “In fact, it undermines the idea of value and it’s a margin killer.”
Ninety-six percent of survey respondents also believe that a “focus on improved practice efficiency” is a permanent change in the legal market. Ninety percent of leaders say there will be ‘more commoditization of legal work;’ and 79 percent expect ‘more competition from non-traditional service providers.’
Despite this broad consensus, only 45 percent of leaders report their firms have made significant changes in strategic approach to efficient legal service delivery.
Law Firm Growth
This year for the first time the survey asked if law firm leaders believe growth, in terms of lawyer headcount, is a requirement for their firms’ continued success. Fifty-six percent of survey respondents said ‘Yes;’ 36 percent said ‘No;’ and the rest were not sure.
In this area, opinion and action appear to be more aligned. When asked about net change in lawyer headcount in 2012, 54 percent of survey respondents reported an increase in equity partners in their law firms last year; 65 percent of firms said the number of non-equity partners grew; and 59 percent said they had a net increase in partner-track associates.
“Growth is not dead, but size alone is not a safety net,” said Clay. “Firms are beginning to think more strategically about growth – trading up to improve profitability, rather than bulking up to drive gross revenues.”
Greatest Challenges
The survey asked firm leaders about their greatest challenges over the next two years.
Increasing revenue was their number one answer, followed by generating new business, firm growth, and profitability. The top four answers, all focusing on internal priorities, constituted 53 percent of total responses.
Delivering value to clients appears at number eight on the list of challenges, mentioned by just 5.6 percent of law firm leaders. Improving efficiency is eleventh on the list, cited by only 2.8 percent of respondents.
“This is very troubling,” according to Clay. “Law firms that do not put client needs at the top of their priority lists and align themselves with those needs misunderstand what is driving the forces of change in the legal market in 2013.”
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