If law firms are to survive the radical transformation making waves through the legal industry, they must evolve their business models in line with changing expectations, technology and service delivery trends.
But should firms consider greater specialisation or generalisation to make it through? Take a look at some of the pros and cons of both paths, and how your firm can maintain competitiveness now and in the future.
The past five to 10 years have wrought unparalleled change and flux on the traditionally stable and unchanging legal industry. For the first time, firms have had to apply innovation and creativity to their business models, resulting in marked advancements in the way that legal services are packaged, priced and delivered.
Whether we like it or not, these changes are now permanent features, and will continue to shape the market in coming years. If firms are to succeed, they must spot opportunities on the horizon and formulate a clear strategy to adapt.
One of the key decisions firms are facing is whether to try to increase profitability by expanding the services they offer or by narrowing down their specialisations.
While general-practice firms have traditionally ruled the market, the recent focus on downsizing, streamlining and cost cutting during and following the economic downturn appears to have inspired a pronounced trend toward niche practices.
As global mergers entered the scene and assumed the role of market heavyweights, small to medium-sized firms regarded any extension into additional service offerings as a costly and risky move. Many responded to the need to distinguish themselves from competitors by heading in the opposite direction – embracing simplification to provide a specialist legal service.
These firms are finding that marketing themselves as experts in a particular practice area places them at a premium vantage to pick up clients within their niche and helps them reduce running costs by consolidating resources.
However, while the Thomson Reuters’ The Future of Law whitepaper suggests more than half of senior practitioners surveyed believe Australia will see more niche firms in the next 30 years, a significantly smaller proportion believe their own practice will become more specialised.
This suggests that although firms are recognising the trend around them – and think it is likely to continue – many are still hesitant to dive into a niche market themselves.
Expand for demand
A lot of this hesitation could be down to a continuing confidence for many firms in their ability to be profitable as a general practice.
Diversification is proving advantageous for leading firms in other industries, enhancing their ability to weather market conditions, withstand cyclic downturns and maintain steady profits.
Offering a broad portfolio of services creates more opportunities to generate revenue, while expanding the scope of work from which your law firm derives profits can make it more resilient to unexpected downturns in a particular practice area.
A wider range of practice areas also increases the chance for cross-sell and upsell opportunities, which can increase customer retention and satisfaction as you meet more of their legal needs. Despite not having a clearly defined clientele and an ‘expertise’ with which to distinguish themselves, this means general-practice models may afford some profit security.
Future proof your business plan
Amongst the uncertainly, it is concerning but not unexpected that research shows almost 40 per cent of firms are not confident their current model is future proofed, and another 43 per cent aren’t certain.
Whether firms choose to diversify their portfolio, establish a niche firm or stick with their present offering, their profitability in years to come will depend largely on the ability to adopt a solid business plan now.
Future proofing requires sustainability and adaptability. Whether you decide to specialise or diversify, taking hold of your firm’s future by making and following a strategic plan will place you in good stead to cement your client base, enhance your growth and adapt to continual market shifts in coming years.
To read more about how your peers are adapting to the future of the legal profession, download Thomson Reuters’ The Future of Law whitepaper.