Market competition causes law firms to rethink strategy

New entrants to the legal marketplace mean law firms must differentiate themselves to meet the demands of an ever-changing landscape, according to the latest research.

A survey of 95 firms conducted by Smith & Williamson - the accountancy, investment management, and tax group - revealed that 70 per cent of respondent firms think competitive pressure has increased over the last year.

While an improving economy saw 99 per cent of firms express record levels of confidence in business outlook compared to previous years - 96 per cent in 2014 and 98 per cent in 2006 - Smith & Williamson's Giles Murphy has urged firms to differentiate themselves from competitors.

'Law firms - and the broader professional practices sector - are being squeezed on all sides by the arrival of new business models and new entrants to the market,' said the head of professional practices. 'In particular, all firms face a massive threat from new uses of technology to gain and interact with clients.'

Murphy continued: 'Firms need to develop a "clear differentiator" to stand out from the crowd, thereby demonstrating the value they deliver and to help them resist downward pressure from clients on fees. If firms are simply enjoying improved performance from an improvement in the economy, they shouldn't be surprised if they quickly slip into reverse when the economy takes a downturn.'

In addition, Smith & Williamson found that 94 per cent of firms believe changes to fee structures could have a significant impact in the future.

'Traditional time billing is losing favour with clients who are demanding better value and expect advisers to share risk and provide greater certainty on fees,' added Murphy. 'As a result, fixed fees, value billing, volume discounts and contingent fee arrangements are steadily gaining ground and this trend will only increase.'

Meanwhile, 84 per cent of respondents predicted changes in reward and remuneration of staff in light of recruiting difficulties. Some 72 per cent of firms are seeking to increase lateral hires in the coming year.

The results of the survey also revealed that 51 per cent of firms are planning to increase the range of services they offer within the next twelve months, while 65 per cent are intending to grow their marketing spend, and 79 per cent are proposing to increase their investment in IT.

Erring on the side of caution, Murphy said: 'While the majority are trying to up their game, any firm lacking an appetite for change or without strategic vision and drive to differentiate themselves in today's fast-changing market could suffer the consequences.

'With the economy currently relatively benign, now is the time to face any tough strategic decisions and to invest appropriately to build the business.'

Matthew Rogers is an editorial assistant at Solicitors Journal matthew.rogers@solicitorsjournal.co.uk