Big strategic and talent decisions awaiting UK law firms

The UK legal profession is seeing the effects of changing client demands, new technology and changes to the expectations of talent. These effects are projected to cause a tipping point by 2020 whereby firms that have not adapted to the new business environment may find themselves permanently closing their door. Meeting major market changes requires creating a clear business strategy that is in line with the firm’s respective capabilities, for which the requisite talent needs to be quickly brought in and rapidly brought up to speed.

The legal landscape in the UK has seen a decade of change following the introduction of new technologies and methods, changes to the labour force as millennials come of age, and policy developments such as the Legal Services Act 2007 which resulted in liberalisation of the UK legal market. The coming decade is too expected to herald a host of market changes as new forms of working, continued automation, the old guard retiring making way of the new, global markets continuing to open as well as increased expectations from customers and new product demands, combine to further transform the sector.

In a new report from Deloitte, titled ‘Developing legal talent: Stepping into the future law firm’, the consulting firm explores the strategic changes ahead for the UK law sector – the top 50 firms have a combined revenue of £13.7 billion – focusing on a number of factors that are set to perturb the market as well as possible (talent) transformation strategies to meet tomorrow’s challenges.

Changing expectations

According to the report (based on statistics from the Solicitors Regulation Authority), the number of practising certificates for solicitors stood at 132,635 at the start of 2016. The industry has of late seen steady growth in the number of solicitors, with a rise of 17% noted between 2010 and 2016. Across private practices headcount growth has been relatively steady over the past decade, up around a fifth, although stagnant over the past year. The projection for the coming five years is that an additional 25,000 extra workers will be needed in the legal activities sector. While legal professionals tend to be relatively productive, contributing an average £71,500 in economic contribution per employee across the UK, the revenue growth per employee has only seen an 0.54% increase since 2008, suggesting, according to the consultancy, that there is a mismatch between skills and market demand hampering revenue growth.

Technology challenges

While changes to the market will increase the number of roles for legal professionals, some roles – such as legal sectaries and legal associate professionals (the largest legal professional graduate destination*) will face considerable pressures from automation, and thereby risk facing elimination. In recent years Robotic Process Automation has seen a range of often repetitive functions automated – the rise of AI is expected to see the robotics cut further into tasks such as discovery and evidence document processing. The result will be a considerable reduction in the need for legal sectaries while the number of legal associate professions will – if the automation takes hold – begin to decrease.

The effect of automation has been relatively polarising – with low skilled jobs being jettisoned while higher skilled analytic type positions have been created. However, as AI improves, high skilled functions may too come under threat – requiring employees to adapt their skill base. The use of data analytics is also creating changes within the industry as the technology allows companies to leverage a range of information, with some using the large volumes of contract information and data available to create value for their business using advanced analytics.

Business strategy

Based on the strategic outlook, threats and opportunities that lay ahead, Deloitte has developed what it believes are four possible strategies that firms can adopt or partially adopt to remain competitive: Status quo – sticking to existing markets/services; making adjustments – exploring adjacent markets/services; radical transformation – exploring new markets/services and refine and refocus – scaling back on some existing markets/services.

The choice for the different scenarios depends on a range of factors related to the firm’s current market position as well as its current strengths and weaknesses. Assessing the firm’s capabilities and market position, in light of the kinds of external changes projected to affect that market segment – including technology, globalisation and client expectations – will determine the business strategy, which in turn defines a range of functional strategies.

“Law firms will need to have a clear strategy for dealing with changes in client demands, technological innovations, the regulatory landscape and policy developments if they want to remain competitive and ensure they attract the best talent,” write the authors.

According to the consulting firm, the three major external forces will combine and blend in the coming years, sparking a ‘tipping’ point in the market, a feat which is set to disrupt the industry. Firms that do not prepare for the tipping point, which the Deloitte places at 2020, will face serious difficulties, which may result in their ejection from the market, or the sustainable parts of their firm cannibalised by a better adapted competitor.

Clear business strategies are paramount for the coming, and in an industry which revolves around the bright minds of lawyers and other talent, sharp hiring and development strategies will be required. Hiring and developing the right talent now, to meet the demands of tomorrow, will be paramount to long term successful strategies, say the authors. “In a competitive environment, the best firms will be able to offer competitive salaries and conditions. In the absence of these, staff will vote with their feet and ultimately, this could result in an implosion of the law firm.”

According to a recent analysis from PwC, 82 of the 100 largest law firms in the UK have seen their fee income increase over the past year.

* As it stands, a large percentage of law graduates (>60%) does not enter the law industry. The role of legal associate professional is within the industry the most popular destination.