Last week’s COO CFO Forum in New York held its usual excellent educational sessions and opportunities to source ideas with some of the industry’s most forward thinking leaders. The Forum kicked off with a macro look at today’s legal market, and at first, many of the same themes we have been hearing since 2008 were echoed: demand is weak. Specifically, demand, as measured by billable hours, has averaged just 0.5% growth, remaining essentially flat. While growth climbed a bit in 2013-‘14, it’s still far below the average of 4.3% annual growth in the years before the crisis. Here’s a look at the graph:
This weakened demand has only added to the competition among the expanding market of legal services providers and eventually will be most felt among law firms, said Dan DiPietro, Managing Director and Chairman of Citi Private Bank Law Firm Group and Co-Chair of the Forum. This hyper-competition is seen in many facets of the profession — such as realization rates, which have dropped to 84.4% last year compared to 93.2% in 2007, due mostly to heavier levels of discounting to secure business, DiPietro explained.
Ralph Baxter, chairman of Thomson Reuters’ Legal Executive Institute, took a different approach to the weakened demand. The size of the current legal market, he estimated, is approximated $437 billion annually, with more than one-third of that ($160 billion) staying in-house at corporate legal departments. Another sliver of that market, at just $1 billion, is going to newly emerging legal process outsourcing firms. While currently just a small portion of the market, that segment is growing 30% annually.
In essence, Baxter flipped the mantra that demand is weak in the legal market, but that law firms are simply experiencing it as weak due to measuring demand in billable hours. In fact, he posited, demand overall is growing globally—law firms are just getting less of the pie.
Is your firm proactively addressing its operations in order to go to market and compete for a larger part of that pie? Our team addressed some of these issues in our COO CFO roundtable session, “Back office to the future.” If you were not able to attend the COO CFO Forum or unable to attend our discussion, give us a call – we’d be pleased to discuss what some of the most competitive firms are doing to their operations to get that bigger piece of the pie.