While no industry is without its problems, the legal industry is witnessing trends that present unique challenges to law firms. Industry performance is generally flat, with only a minority of legal professionals reporting an increase in business. The vast majority of law firms are seeing the effects of these challenges in their performance, innovation, and overall growth. These trends are raising industry-specific issues that require industry-specific, creative solutions. Below are six of the most challenging trends in the legal industry and advice for how to confront them head-on:
1. Growth is slow and expenses are high.
There are many factors that contribute to slow growth and expenses that are just too high. Operational inefficiencies, lack of a defined marketing strategy, and stagnant client-service models can inhibit growth and create unnecessary expenses. The two methods that law firms have used to combat this trend— increased lateral hiring activity and mergers and/or large group hires— carry their own risks, especially to small law firms.
Streamlining firm operations, coming up with a defined marketing strategy, and updating client-service models can offer solutions to spur growth at a lower risk than lateral hiring activities and mergers with larger firms.
2. Overcapacity continues to raise issues.
Overcapacity continues to be a major plague to the legal industry— approximately 61% of law firms cite overcapacity as a contributor to low profitability. Law firms are increasing headcounts without increasing workloads, consequently broadening operational inefficiencies and lowering profit margins.
Despite the problems that come with overcapacity, such as under-performance and dwindling resources, headcount growth remains essential to a law firm’s overall success. While a challenge, overcapacity presents an opportunity to invest in innovative task-automation tools for documents and case management, resource planning, and business intelligence.
3. Firms are facing steep competition— and not just from each other.
With both overcapacity and a shrinking talent pool, traditional law firms are losing their edge to alternative forms of counsel; for example, clients are increasingly using in-house legal teams. These alternative forms of counsel present competition to law firms looking to hire from a talent pool that isn’t as interested in loyalty to one particular firm. Another example of alternative competition is found in the Big Four accounting firms, who are outspending the legal industry in technology and training in response to their client demands for efficient delivery of legal services.
To remedy this, it’s important that law firms are doing what they can to stay attractive to the high-achievers entering the talent pool. Firms can achieve this by staying up to date on business development and working to protect the work/life balance, as these are two common incentives to pursuing careers outside of the traditional law firm.
4. We’re not “there” yet with alternative fee arrangements.
Alternative fee arrangements (AFAs) are beneficial in that they often allow for more flexibility when it comes to the profitability of AFAs. Some firms point to barriers like client unfamiliarity while others note that there are general inefficiencies in the invoice process, which some argue can take up to two weeks on average.
There are steps law firms can take to ensure that the trend towards AFAs doesn’t mean a loss of profit. Establishing an honest, transparent relationship with the client can help ensure that the client understands the value of the attorney’s work and, in turn, cooperates in an AFA structure that remains profitable for the law firm. Another step that can improve the efficiency and profitability of AFAs is ensuring that a law firm’s billing department is as streamlined as possible, moving to digital forms of checking as needed.
5. Cybersecurity remains a rising concern.
In our increasingly digital world, the rising occurance of high-profile data breaches drive concern about the volume of sensitive client information law firms store, and the potential damage that a cyberattack could do. Firms are increasingly becoming targets to cyberattacks, a trend that has the potential to train a client’s trust in the firm and its practices.
To protect themselves against the threat of a cyberattack, many law firms are exploring solutions such as education about data storage and usage, revised data security policies and practices, cyberattack response plans, and cyber-insurance protection offerings.
What These Trends Mean for Your Law Firm
While addressing these trends may seem like a daunting task, there are simple steps that can be taken to holistically address these challenges that will ultimately provide your firm with the tools it needs to keep up with the dynamic nature of the legal industry. Eliminating operational inefficiencies, learning how to navigate shifts in hiring practices, and remaining up-to-date with the latest technologies can help to ensure that your law firm is profitable in a rapidly changing industry that’s confronted with unique issues.
Here at LegalRev, we understand the fast-paced nature of the digital world, and we’re here to help. For more insights on the industry, be sure to follow us on Facebook and Twitter. You can also give us a call at (800) 893-2590.