Law Firm Business Leaders Report: A Cautiously Optimistic Outlook
Among the 2020 lessons learned in the legal space are the importance of operating a law firm like a business – understanding and anticipating the realities of the market and reacting quickly – and the need for skilled business professionals to effectively manage law firms. The 2020 Law Firm Business Leaders Report from Thomson Reuters examines law firm business leaders’ roles, their outlook on the market, and strategic changes they are considering in the near term and for the future.
Overall, law firm leaders’ outlook on the market is positive. Next year, 83 percent anticipate flat-to-moderate growth in demand for services, and only 16 percent expect contraction. The three-year outlook is even brighter, with 59 percent expecting moderate growth in demand.
The report emphasizes that while economic concerns, understandably, top the list of threats to profitability, “[t]he top threat noted by business professionals comes from within: underperforming lawyers.” Compared to last year, the number of respondents who identified underperformers as a high risk to their firms’ profitability jumped by nine percentage points.
Less concerning to law firm leaders are competition from alternative legal service providers and work being taken in-house. Only nine percent of respondents identified ALSPs as a high risk to profitability, and just 12 percent cited work being taken in-house as a concern for profitability.
Controlling costs remains a key concern for law firms, yet relatively few firms either outsource currently or are considering it, preferring to keep most types of legal tasks in-house. Reducing expenses was the most popular step firms have taken in response to the pandemic, with 91 percent indicating they stopped or significantly reduced discretionary spending.
The impact of the pandemic on law firm strategy also includes use of technology, with 47 percent indicating they improved performance by increasing their use of technology to cut costs. That number jumps substantially when considering firms’ overall technology strategy and investments. Largely unaffected by the pandemic, 94 percent of respondents said that greater use of technology was a key step they either “definitely” or “probably” would take to improve firm performance.
The most widely used legal technology was legal research (83 percent), yet big gains are expected over the next year with the following technologies: legal project management, CRM, document automation, matter management analytics and financial management information systems.
The report reveals a mixed message in terms of law firms’ support for change. While 73 percent of law firm business leaders said they at least partially agree with the statement that they’re empowered to drive change within their firms, 31 percent work with partners who are hesitant to commit to changes in their firms’ legal service delivery models. In other words, business leaders’ struggle – balancing innovation with solid financial management to position their firm for ongoing success – continues.