Carousel:
No
Editors Pick:
No
0
Emerging and mid-level firms are struggling to compete in an increasingly competitive market, analyses Mahesh Nandeeshaiah
Issue:
Vol 159 no 31 11-08-15
Latest Issue:
Vol 158 no 02 14-01-14
Search field:
Stuck in the middle market Emerging and mid-level firms are struggling to compete in an increasingly competitive market, analyses Mahesh Nandeeshaiah
Market competition is at an all-time high in the legal sector, yet recent changes in the industry have all but cemented the dominance of big firms. Emerging and mid-level firms are struggling to compete in an increasingly repressed market. Mid-sized firms have seen their margins shrink from between 30-40 per cent to just above 20 per cent since 2010, and their profit per equity partner is considerably lower too.
A PwC survey of UK law firms has drawn attention to this issue. Its findings revealed that the top ten law firms saw their profits rise slightly in 2014, while mid-sized firms performed poorly in comparison. So how can mid-sized law firms fight for survival and claw back profits from market leaders?
New challenges
Although the legal sector is a highly dense, oversaturated market, the hierarchy has changed very little in recent years. However, smaller businesses are beginning
to embrace new ways of challenging existing structures. New enterprises have sprung up in the form of mass-market online providers, such as LegalZoom, DirectLaw, and Rocket Lawyer, while new players in the market borne out of Alternative Business Structure licensing, like Admiral Law and BT Law, are also picking up clients and attracting interest.
Dominant City firms will always be able to keep competition at bay by focussing on bigger deals that deliver better margins. Smaller firms
can turn their attention to less complex mid-market deals,
and in the process discover a significant portion of that market is now up for grabs provided they offer an affordable service and can demonstrate a strong understanding of their clients markets. In the past, mid-size firms
were often overlooked in favour of larger firms that seemed to have a wealth of information at their fingertips. However, the information age has brought with it the demise of information inequality . Consequently, mid-size firms may find that a new range of business is now accessible - but how can they ensure they re the ones
winning it?
Invest with the times
To make the most of this opportunity, law firms can learn
a lot from other segments of the professional services industry. The consulting market, for example, has become particularly adept at moulding market forces to their advantage, in part due to the disaggregation of the value chain, cloud services, and Big Data. In fact, market intelligence firm IDC s 2014 survey of global consultancies revealed 73 per cent of these firms are migrating to the cloud for most of their processes. Interestingly, over 60 per cent of these businesses had fewer than 500 employees, mirroring the headcount of mid-sized law firms.
Management consultancy
firm McKinsey, along with its tech-based platform McKinsey Solutions, has pioneered the transformation of the consulting world. However, smaller firms are also pursuing strategies that are focused on technological innovation; it s not just major players like McKinsey, Accenture, or Deloitte. Investments like these help to make smaller firms more agile and enable them to follow a more flexible business model.While it s likely that some
of the larger firms will try to
build their own proprietary platforms to retain their market dominance, readily available new technologies like cloud-based software-as-a-service (SaaS) platforms can help level the playing field for mid-sized firms. The upfront investment required for cloud-based solutions tends to be much smaller, yet the benefits are immense, as they
can help firms strengthen their knowledge of their clients markets and communicate insights more effectively.
Knowledge is power
As a result, even though mid-size firms may struggle to compete with the financial muscle of the big firms (some of whom invest a few million dollars on customer relationship management platforms), all is not lost. High-end technology is not always an option for smaller firms, but this doesn t need to be a problem; it is not essential for every firm to invest in such high-powered data analytics.
A study by Harvard Business Review, titled You may not need big data after all , argues that some firms may be better off making use of information that is readily available. Many law firms - small to medium-sized firms in particular - might be better
off using tools that provide incredible research power
with much lower overheads, to gain the business intelligence they need to compete with
larger firms.
After all, a key USP for smaller firms is the personal service they provide. With a strategy that is focused around knowing clients better and reacting faster to their needs, these firms can vie with their larger peers for a greater market share.
The winds of change will no doubt continue to affect many mid-size firms, but they need not feel swept away. With change comes opportunity, and if firms find new ways of maximisiing the benefits that this new era of information equality can deliver, they will be in a strong position to succeed. SJ
Mahesh Nandeeshaiah is vice president at Insight Bee
read more