November 16, 2021
Talent Wars Posing Biggest Threat to Law Firm Profitability
Challenges acquiring, paying, retaining talent overshadowing economic concerns, says Thomson Reuters report
MINNEAPOLIS-ST. PAUL, November 16, 2021 – Law firm business leaders are optimistic about their outlook but increasingly concerned about rising competition and cost for talent. Those are among the conclusions of the 2021 Law Firm Business Leaders Report from Thomson Reuters.
Demand and Rates Expected to Grow
Law firm business leaders see high growth on the horizon across a broad range of firm performance metrics, including demand, billed rates and revenues per lawyer. The optimism is largely driven by anticipated growth across most major practice areas. In particular, family law is expected to see high growth because of pent-up demand from the pandemic, as well as bankruptcy from pandemic-related effects as many businesses close their doors and government economic relief measures end. The outlooks for real estate law, tax, and estate planning are also positive.
Talent Wars Threatening Profitability & Growth
However, the improving outlook is ironically also producing the biggest threat to future profitability. More than half of firms (51%) say that acquiring and retaining talent is a high risk to future profitability. And the second- and third-highest rated risks are also talent-related issues: poaching of staff by competitors (31%) and associate salary increases (29%). A year ago, by comparison, underperforming lawyers and general economic pressures were seen as the highest risks, and talent concerns didn’t make the top five.
The rising war for talent carries significant implications for firms’ costs, turnover and their ability to adequately staff to handle matters. Looking further out, it also could complicate plans for growth and expansion.
Technology Priorities for Improving Firm Performance
With competitive pressures rising, firms are increasingly turning to technology to gain competitive advantages. Last year, greater use of technology to reduce costs was the top strategy for improving performance. This year, greater use of technology for objectives other than cutting costs has emerged as the top priority. An overwhelming 92%of firms will likely or probably execute on that strategy, far surpassing any other strategy. The fastest-growing uses of technology are expected to include matter management analytics, client relationship management, legal project management, competitive intelligence/market analytics, and price modeling/matter budgeting/cost tracking.
“Amplified by the pandemic, there has been a significant acceleration in use of cloud capabilities, collaboration tools and task automation to drive efficiency within the firm and improve the client experience,” said Paul Fischer, president of Legal Professionals, Thomson Reuters. “Leveraging technology will not only allow firms to continue to thrive but also be more responsive, innovative and collaborative to meet the changing needs of both their clients and their workforces.”
Top non-technology priorities include greater cross-selling, higher rates, re-evaluating real estate use of space, and directing more work to junior staff.
“Strategic, disciplined business approaches have helped firms emerge from the depths of the pandemic with improved and generally strong performance metrics,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “Firms are now looking to position themselves for continued success by further improving efficiency and establishing competitive advantages in the marketplace. Technology is clearly a top priority as a means for achieving both. And fast-rising competition and costs for talent now make that even more paramount.”
For a copy of the 2021 Law Firm Business Leaders Report visit https://legal.thomsonreuters.com/en/insights/reports/2021-law-firm-business-leaders.
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