Eversheds average member remuneration drops 10% to £386,000, as staff costs increase 16% to £174m LegalBusiness.co.uk
It’s the sort of headline we’ve seen a lot of recently. Firms across the globe are consistently reporting a drop in profit margins as competition over fees, and increasing staff costs eat into their bottom line. As Forbes analysed the 2016 UK legal services market:
“In 2016 75% of the Top 100 law firms in the U.K. reported revenue growth, down from 82% in 2015, according to PwC’s 25th annual Law Firms Survey, out today. Overall financial performance in the sector has been flat due to increased headcount and salary costs against a drop in chargeable hours and hourly rates.” Forbes
And it is the UK, in particular, that has been feeling the squeeze in the market. US firms reported profit increases of 3% on average last year, against the UK’s flat growth. Increasingly, the UK is seeing competition from the US and other EU firms on home soil, and thus far the home advantage has not been evident. But what is the difference then between British lawyers and their overseas counterparts?
It’s all in the tech
It would be fair to say that technology has not been completely embraced by the legal world, but this is changing (and fast). Firms who have a strong digital technology strategy are showing the ability to edge ahead of the competition and start pushing the same profit margin growth rates as their overseas cousins.
And the effects can be seen where the British are following suit (or even leading the way in some cases!) Linklaters, consistently one of the UK’s Magic Circle highest grossing firms, has made the push towards increasing efficiency through technology stating:
“The work is less about using big armies of lawyers and more about taking advantage of legal technologies and other innovations to be more efficient,” FT
After all, the market itself is becoming more and more competitive, and there are only so many new fee structures or mergers one can dream up before growth will plateau. The new trend in legal services has to come from re examining the way clients, cases and employees work fundamentally. We at Clocktimizer regularly see the benefit of the budget and client partnership insights our software delivers. After all, how accurately can anyone report on a project’s interdepartmental billing without the help of technology to keep track of all those timesheets and expenses? More importantly, before they get out of hand!
But it goes further than this. Lawyers are learning from the DevOps style of product development [read the fantastic Phoenix Project for a layman’s look at DevOps] and moving away from the days of the ‘Five Year Plan’. A/B testing of new products is clearly an innovative way of ensuring what legal services will sink and what will swim, without hedging your firm’s entire strategy on it. It also brings some much needed agility into the market. Not to mention the Artificial Intelligence slowly working its way in to automate processes. MarginMatrix, produced by Deloitte and A&O has reduced some documents’ drafting time from three hours to just three minutes. Linklaters’ Verifi program can check thousands of entries in regulatory registers overnight, saving hours of manual work.
Needless to say, technology is here to stay. But more importantly, it’s here to make a difference. Those that learn to harness it, either to improve existing processes or to create new ones, are going to be ahead of the curve for years to come. Those that don’t, risk getting left behind.