Back in the late ‘70’s, there was a popular commercial where a young professional commented above the din of a dinner party conversation that his broker was E.F. Hutton. The room fell silent and the punch line was: “When E.F. Hutton talks, people listen.” Above the din of legal pundits (myself included) opining about shifts in the global legal market comes Deloitte’s June, 2016 research study on “Future Trends for Legal Services.”
Lawyers tend to shy away from data, preferring subjective evaluations that preserve the status quo—pedigree and reputation, for example. And lawyers tend to evaluate things from their own perspective rather than from the more important prism of clients. Law firms often tout what they can do and how well they can do it rather than focus on client needs and expectations. And their message is typically undifferentiated—ditto, their brand.
The Deloitte study examines the client side of the market. It is data driven- the quantitative findings derive from an extensive global survey of CEO’s, CFO’s and Legal Counsel of multinational companies in different sectors. Each of the more than two hundred respondent companies operates in at least five countries. The data are based upon survey responses as well as several in-depth interviews.
The study’s findings confirm that customers are neither pleased with, nor tethered to, the incumbent law firm partnership model. They are looking for alternatives and are increasingly viewing those alternatives as an imperative rather than an option. Deloitte’s findings reveal:
- Demand for legal services is growing
- Purchasers’ expectations of legal service providers are evolving
- Purchasing patterns are changing–55% have recently or will soon undertake comprehensive review of legal suppliers
- Demand for non-traditional legal services is increasing–52% would be happy buying legal services from a non-traditional law firm entity providing a range of services
- Legal expertise alone is insufficient; clients want it combined with industry, commercial, and IT expertise
- Law firms are not meeting purchaser expectations in a number of key areas:
Integrated, multidisciplinary services other professional service providers deliver
Use of IT, especially in data management and cyber-security as well as operating from an integrated platform
Regulatory compliance/utilization of technology
Fee structure, especially fixed fees, value pricing, and transparency
Deloitte’s study parses client dissatisfaction and receptivity to providers that offer a departure from the traditional law firm structure . This explains some key market trends that include: (1) institutional capital being pumped into tech-driven service companies; (2) the growth of cottage legal service businesses such as litigation finance; (3) the interest—and growth– of the Big Four in the legal services market; (4) the proliferation of “alternative” law firms; and (5) the growth of corporate legal departments. And it explains why clients are “voting with their feet” and looking beyond established law firms to outsource work or, in some instances, to collaborate with.
Deloitte’s study provides answers to some key questions including why:
- Demand for law firm services has been flat for almost three years
- More work is being taken in house
- Service providers are experiencing 30% annual growth
- Client dissatisfaction with law firms is so high
- Discounts, RFP’s, reverse auctions, consolidation of outside firm, and other examples of buyer leverage are common
- Big money is being invested in legal service providers, especially those with tech-driven solutions
- Law firms are feeling the squeeze
More Changes Ahead
Buyers have changed the rules of engagement—literally and figuratively—for procuring legal services. This has resulted from several powerful socio-economic factors including: rapid technological advances; globalization; the economic crisis of 2008 and its aftermath (hopefully not reprised by Brexit).
These factors have affected the delivery of legal services, once based exclusively on selling legal expertise. Now, legal delivery involves legal expertise, technology, and business process. Law firms have been slow to adapt to IT and process, and they are starting to feel the consequences. They are losing market share to corporate legal departments, service providers, and multidisciplinary professional service providers. What can law firms do to stanch the bleeding?
Collaborating with service providers and corporate legal departments is one way. Focus on differentiated legal expertise—those areas where a firm truly excels– is another. And providing an equal seat at the management table for technologists and process experts is a third. Paramount, though, is a client centric approach to delivery. Law firms must understand the client’s business—its goals, challenges, and DNA. They must deliver service more efficiently, cost-effectively, collaboratively, and transparently.
The Deloitte survey shines a light on where legal delivery is headed. Demand for services is robust, but satisfaction with the incumbent delivery model is low. This disconnect underscores the opportunity for disruption. Who will prevail? Might be wise to follow the money.