Customer Demands for Better Value Driving Slow Change Across the Australasian Legal Industry

Increasing price pressure and customer demands for better value is the number one factor driving change in Australasian law firms, according to the ALPMA/LexisNexis Impact of the Changing Legal Landscape on Australasian Law Firms research.

“This reflects the fundamental shift in power to clients and a strong buyers’ market for legal services,” Australasian Legal Practice Management Association (ALPMA) President and Financial Controller of the Legal Lantern Group, Mr Andrew Barnes said.

“The traditional law firm model has been built around billing clients for time spent on a matter. But client sophistication is growing and this, combined with the commoditisation of legal services and a plethora of legal providers increasing competition, means that clients no longer have to accept the status quo,” Mr Andrew Barnes said.

“Law firms need to work harder at understanding what represents value to their customers, ensuring they can clearly differentiate their service offering from the next firm and price their services accordingly,” he said.

“There’s no doubt that we are experiencing a period of unparalleled and irreversible structural change in the Australian legal services industry,” Mr James Parker, Executive Manager, Practice Management at LexisNexis said.

“In this transformational environment, where the level and rate of disruption will only increase, law firms and their leaders must prepare to embrace change and to innovate in order to stay relevant and competitive.”

Few law firms changing their pricing strategy

Despite the increasing price pressure from customers, only 18% of firms report a major focus on changing their pricing strategy. This increases to 25% for larger firms (with more than 75 employees).

“It is a brave step to throw away timesheets and most firms are not yet at the point where they feel they must do so,” Mr Andrew Barnes said.

“In between the extremes of time billing and pure value pricing are numerous approaches which can assist firms with adapting to the changing market and I look forward to discussing this at the panel session I am facilitating at the ALPMA Summit in August,” he said.

Law firms are investing in technology

Most firms are however enthusiastically embracing technology, with this ranking as the number one response to the changing legal landscape for the second year in a row.

50% of firms are making major investments in technology this year, an 11% increase on last year. Only 3% of firms (all small firms with less than 25 employees) are making no technology-related investments.

“With customers increasingly demanding better value for money, and employees looking for work life balance, it is no surprise that law firms across the board are turning to technology to help deliver the productivity and efficiency gains that they need in order to stay competitive,” Mr James Parker said.

Workflow, mobility and customer relationship management (CRM) are the top three technologies that law firms are investing in over the next 12 months.

The majority of respondents are also continuing to invest in growth strategies (59%) and cost-cutting programs (58%) in response to the current environment.

Change is ‘work-in-progress’ at law firms—but most firms satisfied with this

Where change is being made at firms, it is very much a work-in-progress, with most initiatives either currently being implemented or in the planning stage.

Of those making changes, very few have completed projects. Only 9% of respondent firms have completed technology projects, 6% have completed cost-cutting programs and only 2% have completed growth-related initiatives.

Despite this, the majority of respondents (58%) are satisfied with the rate of progress their firm has made in responding to the changing legal landscape over the past 12 months. Staff at larger firms are least satisfied with their progress to date, while mid-sized firms are the happiest (71%).

“Law firms are risk averse places and they have not grown to what they are today by taking risks at every turn,” Mr Andrew Barnes said. “While change is slow, responding slowly is better than not responding at all.”

"Firms need to take a medium term view and acknowledge that they should not be practicing law in five years time in the same way they are today,” he said.

Resistance to change, a lack of partner buy-in and no sense of urgency remain the key barriers to change at law firms.

As one respondent put it:

“Our partners are good at buy in but not initially - they take a while to investigate and approve which is not a negative thing. The lack of urgency is a cause of frustration at times. Support staff are slow to uptake some changes and we try to fully engage them to embrace the new initiatives.”

Non-Lawyers are playing a significant role in driving change

Non-lawyer managers are playing a significant role in driving change at law firms, most often working in partnership with the managing partner or the partner group to drive change and with support staff to implement change initiatives, according to the research.

“A non-legal perspective is an incredibly valuable component in medium term strategic planning, as it is in day-to-day operational management,” Mr Andrew Barnes said. “Progressive firms identify and respect the skills of the nonlawyers amongst them and ensure they apply the right people to the right situation.”

Positive outlook with improving confidence in law firm leadership

“Overall, most firms were upbeat about the future, forecasting a positive outlook for their firm over the next 3–5 years, with expectations for continued growth in firm size, profitability and improvements in firm culture,” Mr Parker said.

“Respondents are also increasingly confident in the ability of their firm’s leaders to respond to this challenging environment,” he said.

72% of respondents confident or very confident in their firm’s leadership ability compared to 63% last year.

The results of the ALPMA/LexisNexis Impact of the Changing Legal Landscape on Australasian Law Firms research will be presented by LexisNexis at the opening session of the 2014 ALPMA Summit "Thrive and Prosper", held from 27 to 29 August at the Melbourne Crown Convention Centre.

About the Research

The annual ALPMA/LexisNexis research investigates the impact of change on the Australasian legal profession, including how firms have responded to the changing legal landscape to date, what firms plan to do in the next 12 months, and how prepared the legal industry is to survive and thrive under in the ‘new normal’ environment.

122 respondents from law firms across Australia and New Zealand participated in the 2014 research, conducted via online survey in June, 2014. This is the second year the survey has been conducted.

The full report will be available from LexisNexis at the 2014 ALPMA Summit "Thrive and Prosper" from 27 to 29 August at the Melbourne Crown Convention Centre.

About ALPMA

The Australasian Legal Practice Management Association, (ALPMA), is the peak body representing law firm managers and leaders. ALPMA provides an authoritative voice on issues relevant to legal practice management. ALPMA delivers a comprehensive professional development program for members, which includes the annual ALPMA Summit, regular practice management seminars across Australia and New Zealand, the Leading Your Firm program, for smaller and regional law firms, online resources and a legal industry research program.

About LexisNexis®

LexisNexis® is a leading global provider of content-enabled workflow solutions designed specifically for professionals in the legal, risk management, corporate, government, law enforcement, accounting, and academic markets. LexisNexis originally pioneered online information with its Lexis® and Nexis® services. A member of Reed Elsevier, LexisNexis serves customers in more than 175 countries with more than 15,000 employees worldwide. LexisNexis is the Principal Partner for the 2014 ALPMA Summit.

About LexisNexis®Pacific

LexisNexis®Pacific is the leading provider of local and international news, business, tax and legal information, using leading-edge technology, tools and digital solutions. Both in Australia (www.lexisnexis.com.au) and New Zealand (www.lexisnexis.co.nz) LexisNexis Pacific works in close collaboration with its customers to provide content enabled-workflow systems for professionals in law firms, corporations, government, law enforcement, tax, accounting, academic institutions and compliance assessment.

LexisNexis is the Principal Partner for the 2014 ALPMA Summit.