As we continue into 2015, a major challenge for law firms will be getting their pricing strategies right and delivering real value to their clients. With clients demanding greater value for money in their drive to increase shareholder value, firms must assess their current pricing models, and be flexible in tailoring their packages to meet their clients’ needs.
With a focus on margins and efficiency, many law firms have hired a director of pricing. According to a report by ALM Legal Intelligence titled, Pricing Professionals: Essential to Law Firms, 38% of firms polled have “made this job a dedicated role within the firm.” Further still, over half include a pricing professional within their senior leadership team.
For some legal professionals, the pricing issue hasn’t been as simple to address, with widespread debate among in-house lawyers and law firms. A 2015 Looking Glass Report by Winmark surveyed 122 in-house lawyers and 160 law firm partners to identify trends and developments within the in-house and private practice communities.1 The report reveals the extent of which the industry shake-up is having a detrimental effect on law firms and in particular, on differentiation within the market.
With this, organizations and firms such as Santander UK, Lewis Silkin, and Mayer Brown have come forward to voice their concerns. The report concludes that “differences in the pace and the direction of change signify that there are areas of misalignment between the groups.”
Legal Sector Misalignment
Evidence of this “misalignment” is visible in the report’s findings. Despite differentiation being highlighted as important by both in-house legal teams and law firms, only 24% of firms believe they are differentiated from their competitors. More worryingly, only 19 percent of in-house lawyers said they believe law firms are highly differentiated.2
With a perceived lack of differentiation in the sector, some in-house lawyers are taking things into their own hands. Research reveals that more than two thirds of in-house lawyers have expanded teams over the last five years. This is proving to be a popular approach for 2015 with organizations such as KPMG UK committing to tripling their 50-person strong legal team in 2015.3
So, with a number of factors acting against law firms, what does the future hold? Professor and author, Richard Susskind, states in his latest book, Tomorrow’s Lawyer, that “most junior partners are inheriting outdated, outmoded, low-tech businesses that will soon not be fit for purpose.” He argues, “this means not that there is a lack of great intelligence or talent within the businesses but that the way in which this talent is taken to market is no longer competitively arranged and priced.”4
Looking at the way lawyers work today, they are under enormous pressure to service clients 24/7 and stay productive while working on the move. All while effectively project managing matters and handling endless administrative tasks. As lawyers struggle to keep their heads above water, legal efficiency is becoming a major talking point for the sector and in particular, for those firms looking to grow and become more profitable. This is set to continue with a recent survey reporting that 94% of U.S. law firms believe that a focus on improved practice efficiency will remain a permanent goal.
However, the reality is that law firms have a considerable way to go if they are to overcome the sector’s productivity challenges. Workshare’s Smarter Working report revealed that almost 80% of legal professionals are “struggling” to meet the productivity levels demanded by today’s legal profession. The report exposed a number of working practices around document review, which contribute to the current productivity struggle. For 51% of legal professionals, slow document turnaround and consolidation of feedback were everyday issues.
Looking at these issues in more depth, 87% of legal professionals stated that it’s important for them to have visibility over the editing history of a document, while 65% felt their firm could automate more processes around document review. It’s clear that administrative tasks are stifling productivity and that lawyers are struggling to balance the need to be efficient with the need to meet the legal sector’s high standard of service and accuracy.
Despite the focus on administrative tasks, when considering the attributes of tomorrow’s lawyer, it is still their expertise that will provide the most value for a firm, not their administration skills. Susskind believes that what distinguishes tomorrow’s lawyer is “the personal relationships that lawyers have with those they advise.”5 In light of this, firms are hungry for effective tools and technology that address the differentiation and efficiency issues we’re seeing.
What’s interesting is that 64% of legal professionals who participated in Workshare’s Smarter Working survey stated they needed one central workspace to share, review, and collaborate on documents no matter where they are. The modern lawyer’s acknowledgement of the need for a more collaborative and transparent way of working with clients highlights the value placed on building strong relationships with those they service.
In particular, Susskind believes that tomorrow’s lawyer will need to acquire softer skills if they are to win new clients and keep them happy. The reason being is that in-house lawyers are expected to be more demanding about costs; and more discerning about the relationships they choose to foster with external firms. As a result, law firms will have to make the most of face-to-face interactions and the use of social networking and collaboration systems to maintain regular interactions.
It’s fair to say that technology that automates administrative tasks to free up billable lawyer time will be crucial. Applications that help lawyers nurture strong relationships with their clients will undoubtedly become a core part of law firms of the future, and will help drive differentiation.
Client loyalty will be built from having a strong and unique value proposition, focused on market differentiation, personalized relationships, and flexible pricing models. Those that allow the pricing war to define their strategy and services will only be successful in devaluing their services, at the risk of the firm’s future. Tomorrow’s lawyer has a tough job ahead in overcoming the sector’s productivity hurdles as client demands continue to increase. Competitive firms must take a stance and support their lawyers, providing them with the structure and tools they need to foster collaborative and transparent relationships and ultimately, client loyalty.