February 15, 2016
By Falguni Desai
Ever since the credit crisis of 2008, law firms have struggled to regain their prestigious positioning. A combination of new legal service providers, increased legal outsourcing, changing corporate counsel buying behavior and stagnant billing rates, has created an uphill battle for firms. Now, digital business models, marketing technologies and data analytics are creating a new imperative to transform and adapt or be left behind.
Law firms, most staunchly of all professional services segments, measure their success using billing rates, revenue per partner and profits per partner. Partner profits and hourly billing metrics are at the heart of the law firm model. While consulting firms and accounting firms have adopted flat fee arrangements as a mainstay of their business, these are still considered exceptions at law firms. While on the one hand, hourly pricing is very transparent, clients are beginning to balk at a pricing model which prizes time over value or results. The hourly model also causes friction between partners at law firms who might compete with each other over handling client matters. Still, every year, law firm rankings are published and performance metrics are sliced by hour and headcount.
This vestigial billing and management model has benefited new legal services players who have designed flat fee and lower rate services. Outsourcing providers and technology driven legal services offering e-discovery, agency work, document review, patent services, legal research and other legal support have arisen to compete and sometimes even form alliances with law firms. The result has been a broader array of choices for corporations and a competitive battlefield among law firms, leading to lowered rates.
It seems that law firms “let the crisis go to waste.” They missed the growing role of technology and digital business models. During the downturn, while other legal service providers created new service models and implemented technology solutions, law firms resorted to layoffs and then rehired during the recovery. In 2012, they awoke to a competitive field where a new breed of competitors had off-shored their teams, replaced certain human processes with technology and had a head start on marketing through social media channels powered by data analytics.
For example, law firm adoption of even basic enterprise technology such as CRM systems remains in a questionable state. According to a 2015 survey conducted by Ackert Advisory, 70% of all law firms have a CRM system, but usage of these systems is dismal. The survey found that only 7.3% of firms have strong usage of CRM systems which is defined by a majority of partners contributing data and updates. In other sectors, CRM is considered a standard marketing platform which plays an integral role in growth and client relations.
Marketing processes and staffing also seem to be incomplete or lacking the proper emphasis. In a 2015 Greentarget and Zeughauser Group survey across over 200 in house counsel and top law firm marketers, LinkedIn and Twitter based content was ranked fifth among other content channels. In the same survey, 66% of law firm marketers did not have plans or weren’t sure about plans for creating innovative content vehicles to share their expert knowledge. Furthermore, 60% did not have anyone assigned to oversee their content marketing strategy.
Firms certainly recognize that digital business models and new technologies are important elements in their success. It’s the implementation and action that is lacking. In a 2015 PWC survey, 80% of law firms acknowledged the importance of a digital strategy, but only 23% have one in place.
Digital transformation is an imperative for firms that want to create relevance and build their brand in a globally connected and digitized landscape. Law school graduates and associate level employees already understand and use social media, so firms who take a leading stance on digital strategies are bound to be seen as prime employers. As well, the growing batch of tech startups in metro hubs globally will also look to law firms who understand their business models and demonstrate a fluency in the latest technology and digital trends.
Firms that are at the early stages of considering a digital transformation strategy should look at three key areas. First, they should revamp their internal tools and systems to create connectivity, derive useful data and insights on clients and understand who in their firm is driving growth and how. Second, firms should implement processes, invest in marketing tools and hire marketers to create content and share it across various social media and online channels. And finally, firms who are bold enough, need to evaluate which of their services can be digitized to lower costs or enhanced through technology to provide improved client experiences. Bringing on an interim digital officer or consultancy can help these projects stay on track.
Digital transformation at law firms requires visionary and open minded leadership who is willing to invest for the long haul. As with all innovation and change, the head in the sand approach doesn’t work in the long run.