Monday, December 3, 2012
Top law firm leaders say market is flat, competition is ferocious and innovation is necessary for survival
The Financial Times has released a list of the top 25 innovative BigLaw firms in the U.S. (you can access it here). In an accompanying article, the FT notes that nearly all the leaders from these firms acknowledge that the market is flat meaning that the only way to grow their practice is to take business away from competitors or create new markets themselves. This means that being an "innovative" law firm is no longer just a marketing slogan but instead one's very survival now depends on it.
Nearly all the leaders of the firms in the 2012 FT Law 25 had the same observation this year: the market is flat so the only way to grow is to win business from competitors or to create new markets.
Most of the top US law firms have similar strategies – to focus on retaining premium work and to avoid commoditisation. To achieve this, they need continually to prove that they are ideal for handling complex, high-value matters. This is not easy in the $240bn US legal market, which is both broad and deep. In 2010, the vast majority (78) of the top 100 most-profitable law firms globally were American.
The only way these firms can maintain their position on the value curve is to prove to clients that they are unique. This onus on differentiation may be one reason why they have been keener than ever to show the Financial Times their innovations. A flat, paralysed market has taken innovation from something that is nice to have, to being a “must-have”.
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Four years into the downturn with no sign of a boom means clients have the upper hand. Nearly all the 200 clients interviewed to compile the report wanted better fee arrangements and efficiencies from their law firms. While a few firms still feel they can sidestep client demands, most have sought to improve their process innovations and, in particular, the value proposition of their younger lawyers.
On the process innovation side, the significant trends have been a more widespread adoption of fixed and predictable fees, project managers and low-cost centres. In terms of changing the value proposition of lawyers, the trends have been subtle but more interesting.
Brad Malt, chairman of Ropes & Gray, says: “Buggy whip manufacturers went out of business as they did not adapt to the car. We are faced with a buggy whip moment. Firms can pretend that old market dynamics exist – but they don’t.” For the firms who agree with this, changing the behaviours of their lawyers to align more with clients’ demands is imperative.
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Hat tip to the ABA Journal Blog.