The Top 7 Trends that Disrupted the Legal Industry in 2016

In 2016, disruption in the Australian legal services industry became a normal state of affairs. Against a background of declining client demand, law firm growth and revenues, traditional business models and methodologies once underpinning the provision of legal services are under immense pressure to change.

The legal market has been impacted by several trends that will likely continue their influence into 2017 and beyond. Below are some of the dominant few that were identified in the 2016 Australia: State of the Legal Market, published by Melbourne Law School and Thomson Reuters Peer Monitor®.

1. Blockchain technology and smart contracts

Blockchain – the emerging, peer-to-peer distributed ledger technology – promises a trusted way to track asset ownership while eliminating the need for intermediaries. While it has dominated discussion in the financial services space in 2016, blockchain technology is becoming increasingly relevant to other legal disciplines such as intellectual property, real property, legal administration and identity verification.

Smart contracts – understood to mean complex programs stored and executed on a blockchain, as well as a way of using blockchain technology to complement existing legal contracts – was also another hot topic in 2016.

While the technology is nascent, it’s arguable that less-agile firms may struggle to keep pace with their clients’ advisory needs if they don’t start learning about the applications of both blockchain technology and smart contracts now.

2. The re-emergence of MDPs

Once driven into retreat by the Enron scandal of 2001, the Big Four accounting firms have re-emerged as multidisciplinary practices (MDPs), and are growing their legal departments and service offerings.

PwC, for example, has signalled its intention to be a top 20 global legal service provider within the next five years, aiming to build expertise in key areas complementing the rest of its offering. KPMG, EY and Deloitte are also making moves to expand their legal capabilities worldwide.

While legislation currently prevents these MDPs from actually practising law in the USA, they can promote and sell legal services to clients in the UK and Australia. Although it’s still unclear how the Australian legal market will be affected by this new competition, law firms need to adapt and learn how to survive in a world where MDPs are differentiating themselves with a holistic offering and breadth of market experience.

3. Growth of NewLaw

The NewLaw business model not only proliferated in 2016, it also impacted the way in which more traditionally structured large law firms do business.

Many of the most interesting recent developments in the NewLaw space involved BigLaw firms recalibrating aspects of their business model or expanding their offerings by collaborating with NewLaw entrants.

Notable examples include Norton Rose Fulbright and LawPath joining forces to offer standard fixed-price services (fully sold and delivered online), and Gilbert + Tobin making an equity investment in LegalVision, a web-based legal document and advisory business.

4. Shift of work to in-house counsel

The number of commercial lawyers working in-house is estimated to have grown from 10 per cent of all practising commercial lawyers to 35 per cent over the past 15 years. In-house teams are generally expected to ‘do more with less’, which has materially impacted the amount and quality of work that is briefed out.

With many in-house teams currently focused on process redesign, legal project management and harnessing technology to improve productivity, the shift of work in-house has been a contributing factor to the volatility of the wider legal services market.

5. Growth in cloud computing and the mobile lawyer

A mainstay of virtual law firms and many NewLaw practices, cloud computing and flexible work practices continue to see growth within the legal industry.

Enhancing intra-firm mobility has seen significant investment, with one notable example – Corrs Chambers Westgarth – redesigning its offices to allow its solicitors to work, print and collaborate at any workstation, meeting room or cafe table in the office.

Open-plan or shared-office configurations were a hit in 2016 due to drivers such as lower per-head occupancy costs and the facilitation of greater collaboration.

6. Growth of boutique, specialist and focus firms

Large law firms – generally characterised by a full-service offering and traditional pyramid-shaped structure – are facing competition from boutique or specialist firms focusing on niche industry sectors.

Notable examples include Thoroughbred Legal, a boutique firm offering a tailored legal advisory service to the thoroughbred horse industry, and Sinclair + May, a firm catering to businesses in the wellness and hospitality industries.

7. Lateral partner movements

Given the maturity of the Australian legal market, lateral partner hires were one way of driving revenue growth for some law firms. Despite the acknowledged cultural risks of lateral hiring, the practice and pace continued strongly in 2016, with whole teams – including partners, associates and support staff – willing to change firms on the right terms.

So what can we expect in 2017?

These top trends of 2016 indicate that change appears to be the only constant in the Australian market.

With the persisting growth of MDPs, disruptive technologies and NewLaw models, the available share of total legal spend going to traditional law firm partnerships is expected to contract 40 per cent by 2021.

As we move into 2017, it’s clear that firms wanting to outperform chaotic market conditions must evolve. In what looks to be a very different environment for legal professionals moving forward, only progressive practices able to balance technical abilities with intra-firm stability, client affinity and agility (in the sense of being adaptive to new commercial and technological challenges) are likely to outshine the competition.

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