Good news and bad news: the many revolutions impacting law firms

Ben Kent and Alastair Beddow, following their successful PSMG National Conference workshop, explore how the world of the in-house legal team is changing, and the strategic decisions law firms need to take to remain on the front foot.

One of the highlights of PSMG’s conference was keynote speaker Gareth Tipton – Group Director of
Ethics and Compliance and COO at BT – who shared his experience of managing a rapidly changing in-house legal team. Within a short space of time the legal function at BT has radically altered how it spends its budgets, its process for choosing which legal services providers to work with and has trimmed its internal headcount significantly. Is BT’s experience typical, and what does this mean for law firms? We examine the evidence to assess the future for law firms.

In short, Gareth’s experience is far from unique. The significant change he described reflects how the vast majority of in-house legal teams at large corporates and banks across the global are revolutionising the way they do business. A significant proportion, including BT, now have their own ABS licence.

As the discussion at PSMG’s conference proved, law firms are under pressure from all sides to keep pace with the changing world of their clients. Many revolutions are simultaneously impacting law firms:
although there is a general uplift in demand for legal services, clients of law firms still want more for less from their legal advisers. At the same time the market has witnessed the rise of disruptive competitors thus offering greater choice to buyers of legal services. In response law firms need to make some tough strategic decisions.

The good news

Let’s examine the reasons to be cheerful. After a period of declining or flat-lining profitability since 2008, the last 12 months has seen a major year-on-year uplift in PEP (profit per equity partner). According to PwC’s latest Annual Law Firm Survey, average chargeable hours are up year-on-year between 7% and 9% for the top 25 law firms ranked by revenue.

This suggests that law firms are busy again, driven in part by the rise in deal activity during 2014. In line with this trend, law firm hiring is now at its highest rate for many years, especially among banking, real
estate and litigation practices.

Why should this be so? Despite budgetary pressures, the demand for legal advice continues to rise. Meridian West’s research suggests the worry-list for heads of in-house legal departments is a long one. Issues such as an increased regulatory burden, data security and reputational risk are all top of the agenda for general counsel. As businesses globalise and become more complex, the need for external expertise and support to make sense of the legal issues and their commercial implications can only

The bad news

Although headline law firm profitability is on the rise again, a closer look at the numbers suggests something different. Average fee income per chargeable hour has taken a sharp hit over the last year. Among law firms ranked 26 to 50 by revenue, the fall has been almost 10% year-on-year. Lawyers are earning less for every hour worked. This should serve as a stark warning to all law firms because it
suggests fundamental flaws in the way legal matters are scoped, priced and managed. Margin pressure is real: it appears clients who want more for less are getting precisely that from their external law firms.

Perhaps the biggest pressure facing law firms is the transformation of the in-house legal function and the impact this has on buying behaviour. In many instances in-house lawyers have adopted hybrid legal
and commercial roles with responsibility for broader risk management issues, not solely black letter law.

At the same time, in-house legal functions have become better managed, often with more sophisticated technology, knowledge management and procurement processes than their external legal advisers. The legal function in the largest corporates more often than not is now managed by a designated COO.

It is an exciting time to be an in-house counsel buying legal services. Disruptive competitors have shaken up the market, offering more choice and paving the way for multi-sourcing of legal services. Innovative
business models such as document review services, contract lawyers, legal technology and managed legal services are attractive to in-house lawyers.

Meridian West’s research suggests that usage of these services is set to increase. The threat to law firms is clear: as the legal market fragments, the traditional law firm is not always going to the most appropriate or cost-effective choice to undertake all types of legal work.

The law firm response

There is no magic strategy that law firms can adopt to succeed in this difficult and changing market. The approaches taken will vary by firm according to its priorities, culture, and, most importantly, its clients’
needs. An ambitious regional firm and a global powerhouse may face a lot of similar issues, but their strategic responses should be very different.

However, it is possible to categorise the strategies available to law firms on a spectrum ranging from revenue growth to margin management. Figure 1 shows six of the many options. At the one end firms seek growth through globalisation, looking at new geographic markets or launching new legal services offerings to expand and diversify, reaching out to more clients. At the other end firms focus on process mapping and matter management to enhancing profitability or choose to exit unprofitable work types.

6 strategies

Each strategy is valid if the circumstances are right. Each strategy raises questions: What steps are necessary to implement the strategy? What areas should be prioritised? How will a firm create the necessary cultural change? How will success be measured?

Where does marketing and business development fit in?

Marketing and business development professionals within law firms should play a central role in helping to define, communicate and implement the right strategies for their firm. This requires dialogue with both colleagues internally and clients externally. Who is better placed to help their firms understand clients’ changing needs and behaviours or build a differentiated client experience and superior account
management than marketing professionals?

In a world of many revolutions law firms cannot succeed by standing still. If they do they will be at the mercy of the market and the underlying trends of depressed profitability and more demanding clients. And while there are reasons to be optimistic about the future, it will be far from easy to meet the challenges on the horizon without a clear view of how your firm’s clients are innovating how they do business and what they require from legal advisers.

[This article originally appeared in PSMG magazine. PDF version]

Create clarity not complexity

Most professionals believe themselves to be great problem solvers. However, our extensive research highlights that professional advisers need to be careful that they are adding clarity rather than complexity to their clients’ issues. We have identified four pitfalls for advisers to avoid:

1. An obsession with risk

The ability to spot potential risks is ingrained in the professional psyche. However, professionals are often accused of focusing on hypothetical risks at the expense of the opportunities that could
arise from accepting some degree of uncertainty. Cloud computing is an obvious example: the data protection and IP risks are great, but so too is the opportunity it brings to conduct business more efficiently across all parts of the world.

Fee-earners can also spend too much time and money focusing on irrelevant risks. Recent research by IACCM (International Association for Contract and Commercial Management) reveals that during the contracting process, lawyers spend too much time drafting warranties and indemnities, whereas the biggest cause of contract disputes – defining the scope – is often overlooked or left to others to resolve.

Why should this be? Historically there has been no clear feedback loop between advisers and the actual outcome of their advice: what risk actually occurred and
what the impact of these were. This means that precedents and templates remain unaltered. However, innovations in legal risk management, which map the seriousness of a risk against its likelihood
to occur, are helping make fundamental improvements on this front.

Building practical solutions is an emotional process that requires advisers to educate their

2. Not involving clients in solution building

Clients become frustrated when their advisers show up to deliver fully-developed solutions on tablets of stone. This is one of the main sources of dissatisfaction with professional advice, as one general
counsel we spoke to recently suggests: “It annoys me when there is no two-way interaction, when there might be several options available and my advisers only come up with the one that they prefer and
don’t involve me in the decision-making process.”

Most clients of professional services tell us they expect to be presented with a range of options, and to be guided through these to decide on a course of action. Building practical solutions is an emotional process that requires advisers to educate their clients, arming them with the information they need to  make informed decisions without overburdening them. By developing a collaborative, open relationship it becomes easier to discuss solutions with a client.

3. Overlooking the unintended consequences of advice

As we saw with the debate surrounding the tax affairs of Starbucks, the unanticipated side-effects of advice – in this case, reputational damage – can be harmful to a business. It is incredibly frustrating for clients when the damaging consequences of a piece of advice are overlooked even if the advice itself is technically sound.

We recently spoke to one pensions trustee who didn’t believe her adviser had thought through the commercial impact of his solution: “Their proposed changes to our pensions scheme would have saved
the company money, but it would also have been impossible to implement and would have resulted in our staff going on strike!” Failing to consider advice within its widest commercial context makes it
more difficult to be considered as a trusted adviser.

4. Delivering solutions that are difficult to implement

No matter how technically brilliant a piece of advice is, if it is too complex for a client to grasp or too expensive to implement then it won’t succeed in fulfilling the client’s objectives. This problem is
most likely to occur when advisers don’t consider themselves to be part of the implementation process. They depart satisfied with their leg of the race complete, while the client struggles alone or has to bring in a new team for implementation.

To successfully build practical solutions, advisers have to work to ensure their clients fully understand the proposed solution, and that it dovetails effectively with requirements during the implementation stage. During M&A transactions, for example, it is not uncommon to have two separate advisory teams – the acquisition team and the integration team – with little communication between them. To deliver a successful outcome for the client, a commercial adviser will think through the full implementation process for their proposed solution and conduct a detailed handover with the integration team and the client.

[This article originally appeared in professional marketing magazine. For further details go to In the next issue: The final habit, Habit 7 – Communicate for impact. ]

2015: The year of the re-energised marketing function?

2015 is already well under way: pundits have made their predictions for the year ahead, marketing leaders have discussed their priorities for the next 12 months with colleagues, and by now everybody is
frantically back to the grind trying to turn these plans into a reality. But it is worth pausing for breath to consider whether your firm’s plans and priorities are sufficiently aligned with wider developments in professional services marketing. The 67 responses to this year’s annual PM Forum/MPF and Meridian West marketing benchmark suggest that the marketing community is turning its attention to improving the client experience with renewed vigour.

This time last year I suggested that innovation would be as equally important to marketers as efficiency for the 12 months ahead. 2014 was characterised by professional firms of all hues launching new service lines, experimenting with new business models and joined-up propositions. This trend is likely to continue into 2015, and as it does the importance of fostering greater collaboration with internal and external networks will dramatically come to the fore.

Respect where it’s due

More so than in any previous year, the marketing directors and managers who responded to this year’s benchmark paint a picture of marketing functions that are well-regarded by fee-earners and colleagues in other support functions. More than seven in ten (72%) say that the marketing team has sufficient authority to perform its role successfully. 60% say that the role of marketing is sufficiently understood by fee-earning staff.

However, there is still a significant minority who disagree with these statements, which suggests there is more work to be done to achieve complete buy-in to marketing initiatives within some firms.
Although 72% of senior markets say they are always involved in decisions about targeting new clients and sectors, just 55% are always involved in developing new products and service lines.

Reaping the fruits of growth

2014 saw the profitability of many professional firms exceed pre-2008 levels for the first time. As a result firms now have more income to invest in strategic initiatives. This is reflected in the anticipated
outlook for marketing budgets and headcount this year, at 2.7% and 2.9% respectively
on average. These levels are on par with 2014 and far exceed 2013.
Yet with increased budgets comes increased pressure to demonstrate value. Almost half (46%) of marketers believe it is difficult to demonstrate the ROI of the time and money spent on marketing. This
is troubling: an inability to showcase the value of its activity leaves the marketing function vulnerable to having budget increases frozen or slashed in future years. Colleagues will expect increased resources for marketing to translate into tangible, measurable outcomes.

Plans and priorities for 2015: the client experience

When asked about their specific plans for the coming year, marketers’ responses are multiple and various. Typical responses referenced the desire to become more strategic, to help deliver a differentiated brand and most frequently, to focus on improving the client experience.
Here is one example from the Head of Marketing at a law firm: “Our priority is kick-starting our five year strategy for 2020 by helping the firm to deliver exceptional client service standards and more targeted business development.”

More than four out of five marketers (82%) say they plan to obtain more feedback from clients in 2015 than they did in 2014, and more than three-quarters (76%) say they plan to make more improvements to client service. Indeed when asked about the activity highest up their agenda for 2015, 43% of respondents cite either improvements to client service or obtaining feedback from clients.
Why should the focus be so heavily weighted in favour of the client experience? Perhaps after several years spent competing on price, marketers have woken up to the possibilities of competing based on innovations in service delivery. But more so than this, it is impossible to take strategic decisions about the firm without sufficient data about what clients want and need, and even harder to make the case for internal change.

Putting the plans into action

Focusing on the client experience is one way to re energise the marketing function. It provides a clear goal to rally around, which can also be easily measured to track improvements in  performance. However, doing this successfully is not without its challenges. Marketers will need to concentrate on the following three areas to put their plans into action effectively:

  • Collaboration: The client service agenda can be led by marketing, but it needs to be owned by all
    areas with the firm. This means working together more efficiently to design and roll-out client-centric initiatives. 69% of marketers say that greater collaboration between marketing and other functional areas is required in their firm. On a positive note, two-thirds (68%) have a plan in
    place to collaborate with HR colleagues, and 57% have a plan in place to collaborate with strategy colleagues over the year ahead.
  • The right skills: Although marketers say lack of time is the greatest barrier to achieving their objectives, the need to enhance skills may be a more obvious barrier to innovating the client
    experience, and one that is potentially more easily overcome through coaching and training. 80% of senior marketers say they would like to improve their strategic planning skills, and 56%
    would like to improve their influencing skills. When asked about their team’s skills, 82% think more project management skills are required and 78% believe enhancing commerciality would
    be beneficial.
  • Proximity to clients: Surprisingly, a third (32%) of senior marketers say they do not have regular interaction with clients in carrying out their role. It is difficult to accurately take the pulse
    of client needs and expectations when client contact is kept to a minimum. To be instrumental in improving the client experience requires much greater freedom to capture direct feedback
    from clients. Without this, you risk basing your plans on speculation or unverified assertions from fee earners.
Planning for the long-term: 2020 and beyond

For the first time, our benchmarking survey asked marketers about their long-term plans as well
as their aspirations for the year ahead. The results make compelling reading: marketers have ambitious goals to make a greater impact on the overall strategic direction of their firm. 55% believe that the role of marketers within professional firms will be very different in 2020 than it is now, and two thirds (66%) think professional firms will invest more in marketing as a proportion of revenue than they currently do.

So what will change? It is a three phase journey. First, 41% say many of the tasks and processes carried out by marketers will be automated. This means much of the day-to-day admin and process can be eliminated or reduced which will free up more time to focus on aspects that really add value to the firm. Second, this change in focus will enhance the status of marketing professionals: 56% believe that marketers will be seen as suitable for CEO roles in professional firms. Third, and as a consequence, clients will reap the benefits of this shift: 84% think the voice of the client will have a stronger presence at the management top table, and so strategic decisions will be more client-focused.

Head in the clouds or finger on the pulse?

Is this portrait of professional services marketing in 2020 realistic? Only time will truly tell, but it appears the desire to move towards a better-integrated, more strategic role is present among a majority
of those currently occupying senior marketing positions. As one Head of Marketing rather bullishly puts it: “Marketers are often some of the most strategic-minded and skilled people within their organisation but rarely get the credit for being so, and rarely put themselves forward to give strategic input.” Assuming this to be true, it seems marketers still have a way to travel before they arrive where they want to be in five years.

What can be done to accelerate this shift? Marketers are clear that aside from new technology, the factors that will have the most fundamental impact on professional services marketing are changing
client demands and obtaining a stronger voice of the client within the firm. With this in mind, concentrating on the client experience during 2015 seems a sensible place to start.

By Alastair Beddow, Associate Director at Meridian West. This article originally appeared in professional marketing magazine. For further details go to