Out of the Recession – But not out of the Woods



(thanks to cepro.com)

Today's post is a guest post by Catherine Gannon, managing partner at the niche law firm of Gannons. I met Catherine after writing my post on micro-law. Her firm is a good example of what I meant.

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With the UK economy now recovering, can law firms expect to see a return to the pre-2008 good times, when the money rolled in and all that firms felt they needed to do to succeed was recruit more highly paid lawyers, upon the assumption that the work would follow?  In short, no.

The legal services market has changed out of all recognition into a much harder, more competitive environment.

There are three main reasons for this:

1. The economic slowdown itself;
2. More demanding, better informed clients; and
3. Commoditisation of legal services.

The economic slowdown necessarily saw a reduction in demand for legal services, with clients becoming much more price sensitive. Accordingly, firms have gone bust, merged and/or made redundancies, having to cut out the “fat middle” of expensively paid fee earners, who could do the work but not bring in the business.

Even with an upturn in demand things aren’t going to go back to where they were before. Corporate clients’ procurement procedures are much more developed and aggressive and are going to remain that way. Lawyers are regarded as far from elite and are seen as an expensive overhead if they cannot demonstrate real value.

In the round, in respect of both corporate and individual clients, new technology means that the market is much more transparent and information that lawyers could otherwise charge for is much more easily available. Clients are in a stronger negotiation position and have higher expectations as to what their money should buy them.

However, perhaps the biggest factor that has increased competition and driven down prices and will continue to do so is the deregulation of the legal services sector (as driven by the Legal Service Act 2007) and commoditisation of legal services.

Law firms are being exposed to competition from commercial business, that treat legal services as a product like any other. Any high volume process driven services can be provided by relatively unskilled labour, wherever its cheapest to hire it, and technology is making it increasingly straightforward  to provide standardized (low cost) legal products into parts of the legal sector, including the corporate and commercial market, which had perhaps until recently been considered by practitioners as being immune from “Tesco Law”.

How to survive (and prosper)?

Lawyers have to adopt a different approach to how they work, shaking off the conservatism of the past and adopting a more entrepreneurial attitude focused on meeting clients expectation.

Smaller firms that can’t compete on volume/cost need to provide a niche service and all lawyers have to provide a “value added” service. The traditional role of providing neutral advice on the law has to give way to lawyers acting more as problem solving consultants, with better and broader commercial knowledge and understanding of the world their clients operate in. Academic excellence has to be combined with a genuine business focus which is an area lawyers struggle with as their background and training typically lends itself to detailed analysis rather than the “quick and dirty” approach often taken in business. Lawyers on a personal level feel more comfortable if they have advised on all bases but these days the clients are not prepared to pay for lawyers to feel comfortable.

Lawyers have to be excellent communicators, being able to provide their services through a full range of media, whenever and wherever the client needs it, taking full advantage of social media to both develop business and maintain client contact. Clients expect to be relieved of their problems and kept fully kept informed. Additional expense can only be justified by excellent service quality on demand to suit the client rather than to suit the solicitor.  

In many ways lawyers are now operating like hairdressers in that they can be chopped and changed at the drop of the hat with the exception being hairdressers do not carry such large overheads in terms of insurance and compliance.

Absolute clarity on fees and a willingness to provide meet clients requirements for services to be delivered on a fixed cost basis is the way charging has to go, rather than this being resisted. This is a difficult challenge as in many cases when a matter starts there is little visibility on the work involved yet clients do not understand, or rather, will not accept a fudge answer. The outcome is the margins for law firms are reduced and one of the reasons is these days considerable work goes into the fee estimation process before terms are agreed and clients use the fee estimation to shop around. There is always someone who can under cut to win the business.

The business structures that lawyers adopt need to be flexible and allow for the involvement of other professionals with disparate and valuable expertise.

In a nutshell, lawyers need to focus on recognizing client expectation and finding new and effective ways of meeting them.

Innovation and entrepreneurialism will bring the rewards. With change come winners and losers and there is scope to be a winner.

Catherine Gannon / cg@gannons.co.uk / Telephone 0207 438 1062/ www.gannons.co.uk



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