The Commbank Legal Market Pulse has some interesting reading for Australian accountants, especially in the compliance area.
Australia’s leading law firms are moving into, and responding to, a rapidly changing market. The changes are brought about by intensifying competitive pressures, with subdued revenue growth, margin compression, and increasingly demanding clients. This is compounded by continual price negotiations, the increasingly competitive nature of their industry and difficulty in winning new work. One could almost use the exact same wording for Australian Accounting compliance!
Those law firms who seem to be doing well are breaking out of the traditional law firm model, through taking control of their own destiny, responding pro-actively to new challenges, and by exploring alternative business and pricing models. Some of the older firms are partnering with NewLaw firms, and using outsourcing providers to offer greater value to clients across a range of services. Again, you could probably use the same mindset with traditional Australian accounting compliance firms!
One of the challenges has been to keep staff fully utilized, with a number of firms reducing headcount or changing their staffing mix in response to altered market conditions. 65% of survey participants predicted that law firms will increase their use of Outsourcing, while 57% said clients will also turn to outsourcing providers in greater numbers. Law firms and their clients have continued to seek opportunities to reduce costs and achieve greater efficiency by outsourcing both back-room operations and lower value legal work.
The outsourcing and automation of lower value, high volume work has created attractive opportunities for firms to focus on their areas of greatest expertise, where they can maximise their competitive advantage.”
In case the phrase “NewLaw” isn’t obvious, there are plenty of papers about to explain. NewLaw is “any strategy, structure, model, process, or way of delivering legal services that represents a significantly different approach to the creation or provision of legal services than what the legal profession traditionally has employed”. Large firms have responded to NewLaw by borrowing from the NewLaw playbook, either adopting elements of their business models or collaborating with them, and thus transforming them from competitors into allies.
Certainly there is plenty of innovation in the legal area. In September 2017, NewLaw firm, Lexvoco unveiled its new app MyDay, which has been designed to capture and provide visual and interactive reports that help in-house legal teams understand how they can improve and make data-driven decisions”. And the initiative stems from a phrase Australian accountants would find familiar “If you can’t measure it, you can’t improve it”.
Back to the Commbank report, which at 21 pages is worth a read, and on page 7 an interesting comment that one mid tier legal firm has been “Taking back work from accountants, particularly in the compliance sphere”.
Is it goodbye to the six minute count? Lawyers are reporting that much of the impetus for alternative pricing models is coming from clients. The majority of firms said they currently rely on hourly rates for more than 60% of their revenue. Yet a majority also indicated that they expect that proportion to fall substantially over the next two years.
Much as Australian accountants are experiencing, legal firms are learning to navigate the new normal.