The time for just talking about new ways of doing things in the law is over as clients “turn their backs on the pricing and delivery models that law firms have traditionally sold them”, a leading banker has warned the profession.
James Tsolakis, head of the legal sector at NatWest, said: “A palpable shift in thinking about the practice of law and serious investment in new technologies and delivery methods are now strategic priorities across the entire sector.”
In his annual review of the legal market , focusing on the bigger end of the market, Mr Tsolakis said that the continued availability of historically cheap debt to fund innovative technologies such as artificial intelligence (AI), and the consequent organisational changes required to generate more profit with less turnover, “certainly provide new opportunities for those with the appetite for risk to invest into a downturn”.
He said: “Although many are reluctant to invest due to the commercial success of this new technology being substantially unproven, the changing demands and expectations of clients mean firms must look to AI and innovation, notwithstanding economic uncertainties including Brexit.
“Brexit is out of all of our hands. Firms should be focusing on strategic decisions that can be controlled and challenging what they are doing and how they are doing it.”
Mr Tsolakis added that the need to enhance technology at all levels of organisations has taken on “fresh impetus” in the light of high-profile cyber-attacks on law firms.
“Experts maintain that there’s still a sense of complacency in the professions which leads to cyber-security protection still being viewed as a discretionary spend.”
It was not, Mr Tsolakis emphasised: “Firms should make it a top priority to put in place sophisticated technical defences and rigorous crisis planning. Without a top-down culture of effective cyber-attack prevention, firms will continue to fall victim and a robust recovery plan is an essential requirement.”
But he ended on a positive note: “The UK legal market – valued at £22bn for the top 100 firms alone – continues to bolster its reputation as one of the country’s most impressive, and durable, business success stories.
“To increase collective revenues by almost 10% in a financial year hit hard by the UK’s Brexit vote, a battered sterling, cooling business markets, global geopolitical unrest and a shock US election result is impressive.
“UK firms are, nonetheless, living with a new political and economic reality, with uncertainty being the defining common thread. While not knowing might, somewhat counterintuitively for a risk-averse industry, be the sanest place to be for UK management teams, the prospect of huge upheavals to the economy as actual Brexit approaches will make continued revenue and profit gains increasingly difficult to attain.
“A laser-like focus on only those strategic decisions that can be controlled should help shut out the distracting economic and political ‘noise’ going on in the background as the countdown to Brexit continues
“After a decade of post-crisis cost-cutting, most firms have reached near peak operational efficiency. And with firms now more effectively protected against currency fluctuations – a big variable in the figures this year – the growth that does come should be through increases in fee-earner numbers, pricing or chargeable hours.
“As one of the most successfully hedged industries in UK plc, the legal sector’s ability to thrive in good times and bad should not be underestimated.”