A most disturbing survey has been released by Altman Weil The fifth annual Law Firms in Transition report received responses from 238 Chairs or Managing Partners of law firms of 50 or more lawyers. A representative sampling of 30% of the leaders of each of the major legal industry segments by firm size participated. This milestone report is neither statistically insignificant nor comforting. According to these law firm leaders:
- They are concerned that the demand for legal work is flat or shrinking in many practices
- They feel real pricing pressure from clients.
- They recognize the competitive forces of commoditization and the emergence of lower-priced, non-traditional service providers.
- They are coming to grips with the idea that aggressive growth in lawyer headcount may no longer make sense.
- They believe that the pace of change is increasing
Beginning at the end, only 12.9% of these firm leaders are highly confident their firm is prepared for the business disruptions coming their way in the near term. That represents a 50% decline from 2012. Only 5.3% believed their partners were highly aware of these challenges and 2.2% highly receptive to change. These leaders reported significant increased resistance to changing law firm processes to meet the very real market demands facing their firms. Adjusting to meet these demanding market requirements is getting harder, not easier. . . across all firms of all sizes. Cost cutting has reached its limits. Limiting firm ownership to prop up partner compensation is nearing an end. No significant change to pricing strategies has been achieved in these firms. Raising rates to improve revenue is not an option. Two thirds of all alternative fee agreements (AFA’s) are driven by clients, not the firms. Only 16% of AFA’s are more profitable than similar matters billed hourly. Growth of lawyer headcount as a means of financial success is no longer a viable option.
What are the strategies for success or survival? Despite acknowledging the permanence of the “new normal” market conditions, these firm leaders are relying on the strategies of the “old normal” (Pre-Great Recession law firm growth model) to lead their firms into these enormously challenging times: more revenue, more new business, more law firm headcount and increased profitability (from where this profitability will come is unclear). Working the old strategies harder will only bring more decline faster.
Delivering value to clients, increasing efficiencies of legal service delivery, systemic change in firm operations and educating partners on the need for massive innovation in the law firm business model are far down the list of preferred strategic responses. Navel gazing may be satisfying in the short term, but in times of crisis, outward looking tactics are necessary.
A recent “Twitter Fest” illustrates the power of outward thinking. This week a flurry of Tweets revolved around the need to develop a new list of core competencies for lawyers. Rather than the “old normal” of binary thinking (it’s either this or that), what if as an industry we developed a catalog of essential skills lawyers need for success and survival in the “new normal” of collaborative client focused leadership and problem solving? What if our law schools provided training in these core competencies for law students and legal practitioners? What if technology and professionalism became friends rather than enemies? What if these “both/ands” of innovation + technology + entrepreneurship became our mantra? (Thanks @reinventlaw!) It’s time to color outside the lines. Dancing harder at the old tunes isn’t helping us in this crisis. That strategy will only deepen the crisis.
This week’s Twitter commentators began to list a great catalog essential core competencies. Of course, we all recognize the need for writing skills. Law school teaches that skill well. What about, legal process engineering, legal project management, matter scoping, planning, pricing, execution, and the components of profitability? If P&L essentials were taught in my law school, I slept through the course. Many more skills and needed competencies can be articulated and developed for lawyers and law firm leaders.
One thing is clear: if we don’t stop worshiping the status quo, there will be no growth, only decline.
Recent studies in the neuroscience of human brain development reveals that new experiences grow new brain cells and contribute to the individual’s longevity and mental health:
Prof. Ulman Lindenberger, Director of the Center for Lifespan Psychology at the Max Planck Institute for Human Development (MPIB) in Berlin. states, “Our findings show that development itself contributes to differences in adult behaviour. This is what many have assumed, but now there is direct neurobiological evidence in support of this claim. Our results suggest that experience influences the ageing of the human mind.“
It’s time to color outside the lines.
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