The recession has had a big impact on law firms. The volume of work declined post Lehman and although firms shed staff faster than they had done in previous recessions there are still too many firms for the work currently available in the UK.
With supply greater than demand prices have fallen over the last three years. Clients have taken steps to reduce their legal spend and law firms have had no option but to agree to lower prices. Panel reviews (often conducted by procurement specialists not lawyers) and beauty parades continue to force prices down as equally competent law firms who need the work are pitted against each other.
This process is likely to establish new norms for pricing for the foreseeable future. These norms will not be based on the law firm’s traditional approach which is still, essentially, a cost plus model – “how much do I need to charge to make a margin based on the lawyers I employ to do the work”. Instead the norms will be a market driven price that increasingly sees law as an everyday purchase.
The legal profession needs to find new and more efficient ways of delivery that will do what the client needs for the price that the client demands. This approach requires law firms to start with the price and re-engineer the way the work is done to produce the margin. The problem for most law firms, of course, is that they start with a lot of history and baggage that makes this difficult.
The challenge is even more acute now alternative business structures are emerging. New entrants can bring a completely different mindset to the legal market with a more professional approach to sales, technology and customer satisfaction.
If these new entrants can combine with a law firm that knows how to deliver legal services efficiently this could rewrite the law firm model for the 21st Century.