Law firms cannot rely on law alone
More and more high-volume/low complexity cases are being automated by smart technologies. That causes some law firm to try to go up market and focus on larger cases like M&A’s that are less likely to be automated. But why would a company trust a new law firm with their due diligence over the loyal firm that has serviced them through their entire lifetime. A firm that not only helps when the profits are over the roof but also stand by their side when the revenue forecast is more moderate?
You can take it even further. Why would a company choose a firm to handle their legal matters when they can get several types of professional services? Such as those one-stop-shop concepts offered by alternative legal service providers like the Big Four?
Traditionally, law firms have rested their business model on a single pillar: Legal. But in the future, law firms will not be able to focus on law alone if they are to survive in an increasingly competitive market. In the coming years, whatever can be outsourced, will be outsourced to maintain total flexibility and agility. That means recruitment, accounting, consulting, IT, law and other support functions will be areas that most companies will consider outsourcing for various reasons. Whereas law firms have decided to focus narrowly on legal, accounting firms have decided another approach.
For example, E&Y boast themselves of their one-stop-shop concept where their offer services in everything from cyber security and IT to R&D, legal and management consulting. As their Head of Law in EY Denmark, Susanne Scott Levinsen, previously stated in this very publication, the one-shop-stop enables them to “develop and offer counselling which is deeply specialized and at the same time builds on a broad economic, technical and commercial insight.”
That means, law firms need to ask themselves: If another accounting firm handles IT, accounting and data security for a company. Why would that same company let a law firm do the legal due diligence if those capabilities are also to be found in the accounting firm?
For now, law firms base their competitive advantage in their brand and legislative protection. However, the lawyer profession seems to be losing credibility. Some research from Princeton University even shows that lawyers are ranked on par with prostitutes when it comes to trust. The legislative protection won’t last forever either. Many Western countries have already liberalized their legal markets with the British Legal Services Act (also known as the Tesco law) as the most prominent. That is a very loose foundation for a building.
The legal pillar is a strong one. But it needs support from other pillars. In some countries, law firms are prohibited from offering other services which forces them to create sub-brands. But in many other places, law firms could easily add other pillars to their services. Especially cyber-security, compliance and HR seems like obvious pillars to incorporate. In that way, the law firm will have more touch points with the companies that they want to support. That will give them a competitive edge against accounting firms doing the same, and that will truly enable those firms to compete for the big cases when they arrive.
Preventive regulation is not the only reason law firms are hesitating to go in this direction. First of all, the journey from traditional law firm to a professional services company seems unmanageable to many law firms. That is totally understandable. But a manageable solution could be to incorporate project management and insourced resources for other types of services. By adopting a more fluid strategy, the firm would be able to experiment more with the right service-market fit instead of or at least before making huge investments in new pillars.
The future belongs to those who are able to create a surplus-value. Law firms must begin overcoming the chasm to other professional services. Either by merging with other professional consultancies or by developing new pillars if they want to sustain their competitive advantage in the professional services industry of the future, and not end up like an ancient isolated pillar in the ruins of Forum Romanum.