I’ve been enjoying my new life as a consultant in the legal sector for about 6 months now, and I thought now was a good time to pause and reflect on what I’ve seen out in the market. Fairly obviously, the economy is providing a far more benevolent backdrop to activity in the sector than was the case throughout the recession. There is more transactional work about, and many firms are processing as much residential conveyancing work as capacity will allow.
Firms are talking about improving processes, employing smarter pricing and going for growth. But I don’t see enough law firms thinking radically about what the market needs and how they are best going to satisfy that need. I’m not the first commentator to opine that the small to medium sized full service firm has had its day – though current increases in turnover and profitability for such firms rather obscure that message. It reminds me of David Maister’s observation that it’s quite difficult to walk in to a room full of million-dollar a year attorneys and tell them they’re doing it wrong!
All firms need a razor sharp focus on which clients, in which markets, they are aiming to serve. Once clear on that, the firm should then aim to achieve competitive advantage in that market or markets. That means, for the avoidance of doubt, being able to provide its services at a higher price than its competitors, or being able to produce its services at a lower cost. Few can achieve the position of premium priced market leader over a range of services – though see for example the Magic Circle firms – but it is possible to dominate a smaller market providing a smaller range of services or to produce comparable services at a lower cost than others. An example of the former could be a niche media law firm operating out of Manchester’s Media City, while an example of the latter could be a volume conveyancing firm that has invested heavily in its IT infrastructure and processes to enable it to operate profitably charging prices that would seem unfeasible on the high street.
Winners and losers are emerging. The winners are not always the firms that are now trumpeting their rude financial health, and the losers are not always the firms that aren’t currently enjoying newsworthy growth. The winners are those firms that ‘get it’. The winners are those that know which clients, in which markets, they need to focus on, and do so. Firms that genuinely understand their clients and their markets. Firms that invest in the optimisation of their processes. Firms that understand profitability on a granular level and price accordingly. Firms, in short, that understand they are in business in the 21st century, and understand what it is they need to do to compete as effectively as they possibly can.
I’ve enjoyed working with firms who perhaps didn’t ‘get it’, but hopefully now do. There’s no doubt that some firms, by reason of service lines or geography, had an easier recession than others. Some of those, not perhaps having had the ‘burning platform’ to prompt change which so many experienced, may be starting behind the pack. But if a firm is prepared to look afresh at why it is in business, possibly by means of a facilitated strategy review, and to re-examine its target clients and markets, it could yet become one of the winners.