The themes emerging from the Barometer on Change 2015/16 resonate throughout the legal sector. A focus on cost reduction, coupled with a desire to re-invest in innovative client service delivery dominates the agenda. It is clear that adopting a mind-set that is open to change is a challenge that must be overcome.
Changes to the competitive landscape have put pressure on the cost base of legal services firms
For decades the legal sector has been relatively insulated from the efficiency challenges faced by sectors such as financial services. As we see an increasing buoyancy in the economy, organisations are striving to anticipate the needs of their clients in a way that requires greater agility and responsiveness. This means that there is an increasing urgency and immediacy to what legal services consumers require, whether this is provided in-house, outsourced or by a third-party. Coupled with eroding client ‘stickiness’ it can be seen that working relationships, the pace at which things are done and costs are being fundamentally challenged.
Alternative Business Structures (ABS) and commoditisation of services means that firms have to invest in transforming their operations
The Legal Services Act 2007 opened up the market to ABS. Since then large commercial and Magic Circle firms have faced competition from the likes of PwC Legal – now one of the top 100 UK Law firms. In step with ABS is a trend whereby consumers are willing to pay for premium services whilst expecting transactional and administrative tasks to be delivered more cheaply. These drivers have seen significant investment in new ways of serving the client. Spurred on by challenger firms, such as Axiom’s alternative solutions to legal resourcing, traditional firms have begun to adopt fixed-fee services, ‘lawyers on demand’ and Legal Process Outsourcing (LPO) to reduce costs.
Meeting the challenge of developing new capabilities and accepting change is the new normal
We have seen how the adoption of project-based approaches to case work, better management of data and LPO has enabled firms to respond to new demand for volume support from remediation and regulatory activity. Going forward the ability to adopt a joined-up and coherent approach to data will provide greater efficiencies in equipping organisations to make quick, consistent and informed decisions as well as the removal of duplicated effort and more effective knowledge management. When used optimally, LPO should improve the fee-earner to non fee-earner ratio and result in a consistent, lower cost service. The challenge ahead has been acknowledged by sector leaders, referring to the need to avoid accepting a diminishing market by evolving and changing delivery models, not only with innovative technologies or specific fixes but by primarily shifting lawyers’ mindset to be open to change.
The Barometer on Change supports the view that small incremental changes to traditional operating models will no longer suffice if legal services firms are to compete and grow. Firms need to be clear on their brand, build the capabilities and services that their clients want whilst embracing a culture of change. This ability to anticipate clients’ needs and respond with agility will ultimately characterise and define the winners in the market.
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