November 05, 2019
Law Firms Bullish on Growth Prospects, Reluctant to Embrace Radical Changes to Business Models
MINNEAPOLIS-ST. PAUL, November 4, 2019 — Business leaders at law firms are optimistic about growth prospects for the next three years. But they are wary about making radical changes in areas such as compensation, practice structures or delivery models for legal services, despite client pressure for lower costs and greater efficiency.
Those are among the conclusions of “2019 Law Firm Business Leaders Report: Outlook for U.S.-Based Local & Regional Firms” from the Thomson Reuters Legal Executive Institute, Association of Legal Administrators and the Georgetown Law Center on Ethics & the Legal Profession. The report surveyed COOs, CFOs, managing partners, and executive directors at law firms with more than 50 lawyers.
Positive Outlook for Growth
More than 60 percent of law firm leaders surveyed believe that revenues-per-lawyer and profits-per-equity-partner will increase both in the next year and over the next three years. Health care, real estate, corporate law and IP were the practice areas identified as most likely to grow billings in the next year.
At the same time, concerns about fees are widespread. Ninety percent say fee pressure from clients is a high or medium risk. Eighty-two percent say the same about competition from other firms over fees. Other top risks include lawyer recruitment and retention (89%), general economic pressures (82%), cost pressures on litigation matters (79%) and underperforming lawyers (79%).
Strategies & Approaches for Change
While three-quarters of law firm leaders feel they are empowered to drive change, they also acknowledge that they face numerous obstacles. These include the firm’s existing governance/management, compensation and practice structures; resistance from rank-and-file partners; outdated technology; and lack of financial and human resources.
Less than half of law firm leaders surveyed say that the culture in their firm supports experimentation and innovation, including acceptance of some failure. Less than a quarter say there is a strong commitment from partners to change legal service delivery models.
Higher billing rates, greater use of technology to cut costs and increased cross-selling were the steps firms say they are most likely to take in the next year to improve performance.
Firms are looking to increase their adoption of technology. Nearly half of firms (45%) saying that outdated technology is impeding their ability to drive change, and a whopping 91 percent intend to use more technology in the next year to reduce costs,
More than 60 percent are already using eBilling, legal research, web and internet presence tools, and financial management systems. Top areas targeted for adoption or upgrade in the next year are CRM, matter management analytics and document automation.
“In a legal market where the pace of change is accelerating, opportunities, challenges and risks abound,” says Mike Abbott, vice president, Enterprise Thought Leadership and Content Strategy, Thomson Reuters. “The 2019 Law Firm Business Leaders Report examines the many paths that firms are evaluating and pursuing to enjoy continued success. The outlook from law firm leaders is generally optimistic, however, they acknowledge that they face several challenges including client pressures, competitive forces and economic factors. While firms continue to rely on familiar strategies such as increasing rates, lateral hires and cutting costs, law firm leaders understand the need to examine and implement more dramatic changes to their traditional business models in order to compete effectively and many are actively doing so.”
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