Fall 2016 issue of Horizons
Expectations of Market Demand
These challenges facing law firms are real and are threatening business models that are more than a century old. A major advantage that law firms have compared to businesses in other industries is the vast amount of industry-wide surveys and benchmarking data available. The data show that, while the industry as a whole is aware of the threats posed to its current business model, firms are not responding effectively enough in order to maintain previous levels of profitability. Many studies have suggested that law firm partners have become too reliant on the basic economic model that has served them well over the years, as opposed to adjusting their strategy to keep pace with changes in client demand. The Demand For Legal Services As discussed in Altman Weil’s 2016 Law Firms in Transition Survey , law firm leaders were asked the following question: Do you expect market demand for your law firm’s services to return to pre-recession levels? The survey results illustrate the belief that many leaders have, which is the decline in demand is a major trend and the return of pre-recession levels will likely take more time. Growth has been erratic for some time and as indicated by a recent Thomson Reuters Peer Monitor study, the rate of growth for law firms is largely flat.
Do you expect market demand for your law firm’s services to return to pre-recession levels?
PERCENT OF RESPONDENTS
0% 20% 40% 60% 80% 100%
DEMAND HAS RETURNED
DEMAND HAS NOT YET RETURNED
25.1% NOT IN THE FORESEEABLE FUTURE
23.4% WILL RETURN IN THE NEXT 3 TO 5 YEARS 8.4% WILL RETURN IN 2016 4.1%
WILL RETURN IN 2017
Source: Altman Weil’s 2016 Law Firms in Transition Survey
Overcapacity of staff causes lower profit margins for firms.
Of the firms surveyed:
∙ 61.0% of smaller firms agreed that there’s a profitability concern due to overcapacity, while 74.0% of larger firms reported the same ∙ When asked “Does your firm currently have any under-performing lawyers?” 96.0% of firms answered “yes”
Overcapacity In addition to decreasing or stagnant
demand, overcapacity at law firms is another challenge the industry is facing. Many firms are reporting that they are not utilizing their lawyers effectively and more than half of those participating in the Altman Weil 2016 Firms in Transition Survey reported partners are not busy on a consistent basis.
At larger firms, the number of partners who don’t have enough work is even higher.
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