I am often reminded of the so-called Chinese curse ‘may you live in interesting times’ when I step back from the day-to-day to consider the competitive challenges facing law firms in the UK.

Alongside the longest & deepest recession of our lifetimes, we will soon see the introduction of licensed Alternative Business Structures (ABSs), thereby increasing competition from new market entrants, many of them national ‘brands’.

We are told that the Solicitors Regulation Authority (SRA) is in ‘serious talks’ with about 15 would-be ABSs. The Co-op has declared that it has bought in Family Law capability (begging the question how that is to be delivered).

Russell Jones & Walker it has it’s sights on domination of the personal legal services market, leveraging its Claims Direct brand. DLA Piper, no less, have bought a stake in LawVest, a proto-ABS, with a view to entering the commoditised sector.

Already four new legal brands are up and running, seeking to attract law firm members by the dozen or in one case, by the hundreds. Quality Solicitors, face2face, HighStreetLawyer, and Lawyers2you all offer law firms an alternative to going it alone – the comfort of a ready-made brand, the promise of marketing resources undreamt of, and the ability to fight toe to toe with ‘the big boys’.

Meanwhile, firms like Irwin Mitchell and Bevan Brittan are pursuing efficiencies by outsourcing swathes of support staff to business process outsourcing providers. Clients, facing the same market conditions, continue to want more for less, and want us to develop alternative fee arrangements, introduce value billing, and so on.

On top of that, we have a new regulatory environment to grapple with following the launch of the SRA’s ‘outcomes focussed regulation’. I’m not the only one to have used the phrase ‘a perfect storm’ to describe these many, varied and simultaneous challenges.

Unsurprisingly, there is talk of there being too many lawyers and too many law firms. The long-awaited consolidation of the legal services market seems at last to be under way. Some suggest that the market will be dominated by no more than ten major players. This could well turn out to be right, but does an increasingly complex and more tightly regulated world suggest to you an increase in, or a choking of, demand for legal services?

And while online providers and new entrants will no doubt take a significant slice of market share, there is evidence from the USA and Australasia that their visibility and activity actually increases the size of the cake. It’s not that hard to imagine someone seeing a Quality Solicitors stand in their local WH Smith on a Saturday and being prompted by that to contact his or her own solicitor on the Monday.

So where does all of this leave us? With so many financial pressures and so many new or potential threats to market share, how can UK law firms look forward with confidence to the future?

Planning ahead

How best to compete in tomorrow’s world is a question that will produce a different answer for each firm. But it does seem to me that there are three factors that tomorrow’s successful law firms will have in common:

First, they will be rigorously focused on their strategy. Starting with an honest appraisal of where they are now (their resources and intellectual capital), these firms will know which clients, in which markets, they want to serve (where they can compete most advantageously) and will focus on them to the exclusion of all else.

Second, they will be committed to constant reviewing and improving of their legal processes. Project management used to be unique to large and complex transactional or litigation services. It will be a key tool in the skill set of Partners. The pressure on fee rates isn’t going away and nor will the challenge to the billable hour. Like every other business, law firms will have to find new and better ways to increase productivity and to manage and supervise work to deliver it faster, better and cheaper – above all to meet the needs of clients.

Third, they will be well led and well managed. It’s arguable of course that a law firm CEO would say that, wouldn’t he, but it seems obvious to me that the quality and efficacy of a firm’s leadership and management will be one of the key differentiators going forward. Indeed, it’s hard to see firms excelling in the first and second areas without high-quality leadership.

One of the many challenges for those leaders will be in ensuring that all of the partners and staff are as committed to the firm’s strategic focus and drive to increase efficiencies as the leadership itself is. But when the entire crew is rowing in the same direction, you have half a chance, whatever the weather forecast.

This article, written by Nigel Haddon, was published in Managing Partner Magazine – December 2011/January 2012 Issue.