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Big firms “recognise the threat” of market disruptors, but not many are responding to it

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Snell: new market entrants are bringing disruption to the market and fuelling the need to innovate

Most of the top 100 law firms now recognise ‘the need to respond to the digital age’ in the face of market disruptors, but less than a quarter have actually done so, accountants PwC have found.

They said the future would become “increasingly difficult” for those firms that could not marry the need to invest to respond to the changing market, with the traditional ‘full distribution’ partnership model.

PwC’s annual top 100 benchmarking survey reported continued investment in “business improvement programmes to improve profitability, enhance support services and reduce costs”, with firms highlighting ‘improving the use of IT’ as their number one support services priority.

It continued: “There is an increasing appetite for firms to use or offer alternative delivery models for legal services. Nearly a quarter of our survey respondents are employing alternative models for legal staffing, preparation of documents, and litigation support.

“Larger firms are bulking up their project management capabilities as clients continue to demand better value and efficiency from their legal advisers, and the trend towards moving work to lower cost locations is accelerating.

“New entrants to the market are bringing disruption and fuelling the need for firms to continually adapt and innovate; 80% of firms now recognise ‘the need to respond to the digital age’ as a critical component of the overall strategy, but only 23% have so far made changes to how they operate.”

Even more firms (82%) acknowledged that digital technologies – including social, mobile, analytics, and cloud – will provide alternative channels to interact with clients and improve the client experience. But, PwC said, “most firms have yet to enable their websites or mobile applications to provide that level of interaction. We expect to see more in terms of digitally enabled business models, customer interaction channels and disruptive technologies in the coming years”.

Overall it described a sector “that is continuing to evolve, with the pace of change beginning to pick up as global economies improve”.

David Snell, partner and leader of PwC’s Law Firm Advisory Group, said: “As history often shows, change rarely takes place gradually, and the legal sector is no exception. Alongside economic improvement we see rapid technological change, innovation in business models and changing client buying patterns.

“The agile firms are not only responding to these factors, but beginning to anticipate the next likely developments. They are not alone. At the same time, new market entrants are bringing disruption to the market and fuelling the need to innovate.

“All of this will no doubt require significant investment and firms will need to consider how best to fund this, against the backdrop of a traditional ‘full distribution’ partnership model. For those who don’t (or can’t) respond to this change, the future will become increasingly difficult.”

PwC also expressed concerns about the top 100’s risk management, with 62% reporting a cyber security incident in 2015, up from 45% in 2014.

“The greatest vulnerability is through targeting the workforce, with the majority of all breaches in our experience being due to staff falling victim to phishing attacks (fake e-mails or websites). A number of law firms have increased their focus on raising the awareness of the threat to staff and partners. “However, 47% of law firms surveyed do not subsequently test whether that awareness has been fully understood and has resulted in behavioural changes.”

A large number of firms also appeared less than full confident about their IT disaster recovery capabilities.

One other, very different, risk identified was the impending launch of gender pay reporting. Women still only account for 17% of full equity partners in the top 10 firms, and 16% in the 11-25 band. The overall trend made it likely that this reporting “will reflect poorly on law firms”.

Other highlights from the survey included: