A major Australasian study has revealed that although increased pricing pressure is the number one concern for firms, less than a quarter are actively doing something about it… The good news is NZ leads the pack
A major study into the impact of the changing legal landscape has revealed where law firms here and in Australia are flourishing and where there is still much work to be done.
The 2014 Australasian Legal Practice Management Association (ALPMA)/LexisNexis Impact of the Changing Legal Landscape on Australasian Law Firms report surveyed 122 law firms of all sizes in order to gain an understanding about what changes are impacting them, how they have responded, what plans they are making for the next 12 months, and how prepared the legal industry is to thrive and prosper in the "new normal".
The report focused on a group key-change driving factors in the industry, including emerging technology, increasing price/pressure/customer demands for better value; and flat or shrinking demand and ageing of those in the profession.
There is good news: At least 70% of firms have initiatives in progress or at planning stage for making changes in response to these factors. New initiatives are also evident in all areas with more than one third of firms planning to introduce of new ways of working and new business models.
But the number one area of concern for law firms is also the area in which they are yet to fully embrace change.
Despite reporting increased price pressure from customers as the number one factor impacting law firms, only 18% of firms indicate they have a significant or major focus on changing their pricing strategy.
This increases to 25% for larger firms.
In saying that, 44% of people do have some focus or investment on pricing strategy, but the going is certainly slow, says ALPMA president and financial controller of the Legal Lantern Group Andrew Barnes.
“It’s a brave step to throw away timesheets and most firms are not yet at the point where they feel they must do so,” he says.
He told NZ Lawyer that each firm has its own reasons for acting or not acting, with some being more conservative than others and part of the problem being generational.
Although things are moving slowly forward, there certainly seems to be a bit of a resistance to change when it comes to fee arrangements, Barnes says.
“There’s another thing too that law firms are renowned for: They don’t like to be the first necessarily. If someone next door does it they might think, ‘gee I’ll have a go too’…but changing their model slowly is better than not changing at all.”
The results show that larger firms seem to be doing more about changing their pricing strategy because of a number of factors, he says.
Firstly, larger firms are more likely to have a non-lawyer management influence that brings in expertise from other industries that changed their pricing models long ago.
The bigger the firm and the more likely they are to have a project team to look into strategy, Barnes says, and adds that larger firms also have more of a connection with in-house counsel.
“To keep these relationships going they need to listen to the in-house counsel who are increasingly very strong on [pricing alternatives].”
But an encouraging observation that came out during the course of the research was that New Zealand is ahead of the game in Australasia.
“Without giving away names I’ve heard people talk about how advanced firms in New Zealand are in regards to these challenges,” says Australian-based Barnes. “They’ve spoken glowingly about how progressive firms there are.”
Mark Weenink, Managing Partner at Minter Ellison Rudd Watts, told NZ Lawyer that because New Zealand is a smaller market we are able to respond to client needs more quickly.
But he says in terms of pricing he thinks some of the more traditional large firms here are still catching up with best practice from overseas. It is improving year on year, however.
“New Zealand has a very competitive legal market, especially amongst the top tier firms – those that don’t listen to clients and meet their requirements lose business,” Weenink says. “High end clients tend to invest in sophisticated in-house counsel functions who can add enormous value to their organisations, these teams can also put pressure on external counsel pricing.”
Minter Ellisons has been focusing on pricing alternatives for a number of years, he says.
“Our approach was particularly well received during the GFC when GCs (and other functions) were forced to think more carefully about delivering more for less…our clients and younger partnership have embraced the opportunity and we think in part that has had a part to play in our success over the last few years.”
Hugh Caughley, the CEO of DLA Phillips Fox, agrees that larger law firms have embraced more innovative pricing strategies because they deal with a bigger commercial and corporate client base which usually has in-house lawyers on their staff that are savvy with industry practices.
At DLA Phillips Fox, alternative fee arrangements have been a focus for quite some time, he told NZ Lawyer.
“Most of our clients seek estimates prior to our doing any work. Further, partners must approve all bills in order to ensure the client is receiving good value. Hourly rates have been stable or declining for some years in an over-lawyered environment. The recent All of Government legal services tender created a new environment for those law firms seeking to provide legal services with Government ministries, departments and entities.”
A trend towards alternative fee arrangements, especially in New Zealand, is only set to continue, says Caughley.
Firms and businesses here are generally very innovate and progressive in order to survive and prosper in a small market.
“We tend to forget that up until recently the New Zealand legal market had been static and therefore there was an increased drive towards increased competitiveness to succeed in a zero growth market.”
