By Dr George Beaton, Executive Chairman, Beaton Research + Consulting
Let’s be clear at the outset, this glass is either half full or half empty. And to mix the metaphor, the coin has two sides. Which it is for you will depend on your view of the future of the legal services ecosystem and where your firm is currently positioned.
Consider how you are responding to each of the following:
- Client power is rampantly on the ascendancy. Keeping legal spend in-house, the #dolesslaw movement, use of NewLaw providers of many stripes, and intensifying price-down pressure on outside law firms are all contributing to BigLaw receiving shrinking slices of the pie. Bad news for firms with a traditional view of their position in the client’s value chain. Good news for firms focusing on ‘the job to be done’ for clients, using analytics, taking the lead in co-opetition with NewLaw providers, and adopting elements of the NewLaw business model to improve their client focus and operational efficiency.
- New competitors are not only taking share of a largely stagnant market, they are also teaching clients about new ways of procuring legal services. These new forms of competition are both substitutes (what Beaton has named the NewLaw providers) and new BigLaw business model-based entrants (i.e. international firms). For many of the reasons in 1. above this is bad news if you still believe NewLaw is a passing fad, and great news if you see the opportunity to learn from and work with NewLaw.
- The Big Four are back in law. And in a big way too. And this time round they are getting it right, as they did in management consulting 15 to 20 years ago. These behemoths have the platforms, the brands, the client bases, and the appetite to take a large share of traditional firms’ work. The Big Four are diversified professional services firms, no longer accountants. This paradigm makes most facets of law fair game for their voracious growth and competitive rivalry. For most ‘business law’ firms the Big Four are a big threat. For those that position in those (few) parts of the market where the Big Four won’t readily attract the talent or will be conflicted, there is good news.
- Technology is becoming ever more substantial in delivering value to clients. The rapid uptake of AI-based apps is one of many examples of this. This trend poses cultural and capability challenges, the like of which the profession has not previously encountered and for which it is ill-prepared. The firms that adapt rapidly to tech-savvy cultures and embrace disruption as an attractive way of being will win. Those conservative cultures based on status quo-ism, profit today imperatives, and risk minimisation will struggle.
- Firms’ brands are inexorably becoming relatively more important than those of lead and rainmaking partners, as has occurred in other professions. This trend is being driven by the interactions of clients’ buying patterns, technology, globalisation and talent. Building a distinctive brand is more about culture and discipline than anything else. Custom and practice legacies and inertia are the enemies of brand-building.
- As the world globalises, so are the procurement practices of regional and multinational clients. Many firms are responding by increasing their physical and virtual footprints and capabilities. This is one of the factors driving consolidation – and, somewhat perversely, fragmentation. Any firm can turn globalisation to its advantage through technology and leverage of knowledge.
- For talent the universal allure of life-time partnership in a BigLaw firm is no more. The implications range across the cost of recruiting, training and retaining solicitors, the risks of breakaways, the appeal and dangers of laterals, the challenges of salaried partnership, and the imperative to develop variable cost human capital frameworks. Building a portfolio of business models, each with a distinct human capital framework and suite of technologies, is not for the faint-hearted or firms without visionary leadership and first class execution capabilities. Those so endowed will win.
- Effective change management is a capability now mission-critical for survival. Likened to changing an engine on a 747 in mid-flight at 40,000 feet, change management in law firms is still joked about as the difficulty of herding cats. The stark reality of these metaphors now faces every firm. Most are not well equipped. Those starting from scratch or, more likely, those thrown together in a big bang ‘merger’ may well be the ones most likely to succeed as the slate is clean or at least cleaner.
- The partnership structure of BigLaw firms was once a major strength, but increasingly cultural inertia and lack of real equity on the balance sheet are making partnership an impediment to real change for most, and perhaps even survival for some. Sensations of the Dewey & LeBoeuf kind do not help the cause of those partnerships seeking to use delegations to give effect to more nimble decision-making and investments in strategy and business model initiatives. It’s perfectly possible to lead a partnership on an effective journey; it’s just hard and many fall by the wayside frustrated and exhausted.
- Equity management (i.e. partner remuneration) has always been a (the) major lever available to BigLaw leadership in aligning partners with the desired culture and direction of the firm. The post GFC years have seen progressive de-equitisation in many firms to maintain PPEP and right-size in response to market conditions. Ironically, there are now early signs of re-equitisation as firms seek capital contributions to de-risk their balance sheets and, to some extent, to try to lock in partners. Experiments to provide capital value for partners within jurisdictional constraints may well yield some of the most exciting opportunities for individuals and those entrepreneurs making the investments.
If you would like to hear more from Dr George Beaton, he will be speaking about "Remaking Law Firms - Imperatives and Opportunities" at the 2015 ALPMA Summit from 9 - 11 September at the Gold Coast Convention & Exhibition Centre.
If you can't attend in person, you can watch Dr Beaton's keynote presentation via livestream broadcast on Friday 11 September for just $99 (including GST).
About our Guest Blogger
Dr George Beaton is a director of Beaton Research + Consulting and Beaton Capital. George has guided clients through a wide variety of strategic decisions in his 25 years as an adviser and consultant to law and other professional services firms in many countries.
His background, in business school teaching combined with his work in public and private companies, universities and governments, gives him deep insights into the challenges and opportunities that leaders and their organisations face.
George authored NewLaw New Rules – a conversation about the future of the legal services industry, published by Amazon late in 2013. A longer version of this post was published on Bigger. Better. Both?, the Beaton Capital blog.