In a new series of blog posts, we will examine the characteristics of Focused Firms, those with 50% or more of their work concentrated in one practice area
Over the last two years, the large law firm market has enjoyed a period of sustained success, all things considered. Demand grew in both years by an average of 1.0% across all segments and worked rates have reached near historic highs by the end of 2019, particularly for those firms at the top of the market.
And while it is true that productivity has declined as a result of a significant wave of hiring, revenue and profitability metrics have both continued to rise. However, law firms are faced with ever increasing levels of competition from new entrants into the market, often referred to as Alternative Legal Service Providers (ALSPs). There are a number of different strategies firms have pursued in an effort to secure their foothold on the market, and one result has been record-highs in law firm mergers and acquisitions. Other firms have consolidated their focus, homing in on one or just a few practices that they believe give them a competitive advantage over others.
Whether that is due to expertise in that practice or efficiency in its legal delivery in that particular area, it is now more common than ever for a firm in the Peer Monitor program to have at least 50% of their total hours worked consolidated to a single practice.
Over the next few weeks, we will take a closer look at these Focused Firms, their performance over the past year, and whether their singular focus has translated to increased levels of success in an ever more competitive law firm market.
Of the 156 firms included in our 2019 year-end extract, 35 of them can be classified as Focused Firms. They existed within each of the three main segments the program is broken into, but they were not evenly distributed throughout. Almost half of our Focused Firm population is classified as a midsize law firm, meaning they reside outside of the Am Law 200.
The areas of focus varied as well. While firms that had more than 50% of their work classified as Litigation made up the largest proportion of a particular area of focus — with 54% of our Focused Firms having Litigation as their primary practice — there were seven practices in total that at least one firm fell into. Further, 17% of the Focused Firms main practice area was Labor/Employment, and an additional 14% of Focused Firms’ primary practice falls into the greater Transactional Practices bucket, with 8% for Corporate General and an additional 6% for Real Estate.
While the firm segmentation and area of focus varied, what is more evident at first glance is the performance advantage our Focused Firms enjoyed in 2019. Focused Firms averaged 2.9% demand growth for the year, significantly outpacing the 0.8% growth from our All Other Firms grouping, which is composed of all law firms minus our Focused Firms group. While average worked rate growth was lower among our Focused Firms group, the average fees worked outpaced all other firms as result of that aforementioned significant demand growth. Finally, despite lawyer growth of 2.6% on average, the productivity declines were actually less among our Focused Firms group, again owing in large part to increased demand in the group.
Over the next few weeks, we will further examine our Focused Firms group performance, and highlight areas in which they surpass or fall short of their colleagues that have a more diversified portfolio of legal offerings.
The entirety of the story is yet untold, however, it initially appears that those law firms with more singularity of focus are more able to continue to attract new business, increase their total dollar value of fees worked, and do so more efficiently than all other law firms.
Check out the Focused Firms series of blog posts here.