A new report from 桔子视频 assesses the competition which the Big Four accounting firms are posing to traditional law firms. In this blog, we will explore whether established firms should consider changing their business model in response to the competition, along with some of the related challenges.
In his famous article 鈥溾 from 2005, journalist Alan Deutschman compared the difficulty and importance of change in a business scenario with that of one鈥檚 personal health: 鈥Mastering the ability to change isn鈥檛 just a crucial strategy for business. It鈥檚 a necessity for health. And it鈥檚 possibly the one thing that鈥檚 most worth learning.鈥
When it comes to traditional law firms, the ability to adapt in order to survive as a business has, so far, been most pronounced amongst high street practices. Several historic firms have had to close their doors in the wake of multiple threats, including leaner competitors, the increased propensity of clients to shop around for the best deal, and technology companies selling legal templates online.
Although larger firms have been more insulated from the competitive headwinds, the continued growth of the legal arms of the Big Four is forcing large and mid-size firms to take steps to ensure clients do not jump ship. One of the ways in which established firms can fend off the competition is by changing their business models. A classic example is by converting from the traditional partnership model to an alternative business structure (ABS). Operating as an ABS allows firms to be owned and managed by non-lawyers and companies which are outside the legal profession, thereby making it considerably easier to obtain external investment. Obtaining access to external investment and expertise will likely become even more important as the economic shock from the Coronavirus pandemic kicks in. Furthermore, this can help them to attract new talent for whom the traditional partnership model feels increasingly outdated.
However, not all firms need to change their business model. Nick Smith, acquisitions director at Gateley, believes that many firms operating under a partnership model will be able to compete with the Big Four and other alternative legal service providers (ALSPs): 鈥We鈥檝e never said that the partnership model is defunct as regards to success in law, we fully believe in the next years and decades there will be examples of very successful law firm operations that are still run as partnerships.鈥
Since there are obvious benefits in terms of obtaining outside funding as an alternative business structure, what is holding back some traditional partnership model law firms from making the leap and converting to an ABS? According to Craig Chaplin, a partner at DWF: 鈥Frankly, more law firms don鈥檛 adopt this model because the power of inertia in most law firms is second to none 鈥 Some private practice law firms are resistant to change and the people who would like to see things done in a different way are quite often not the people in charge.鈥 He also notes that many firms require a large majority of partners to agree to such a radical change which makes it more difficult.
New ideas and perspectives can help to shift ingrained thinking within the culture of a firm. One of the ways to overcome resistance to change could be to bring in senior lawyers who have gained experience working in an ALSP - possibly even from the Big Four. Another method may be to fast-track the promotion of some of the more junior members of staff so that they can champion fresh ways of thinking.
Aside from conversion to an ABS, many firms will need to adapt their business model as a result of collaboration or acquisition. Kemp Little, a boutique firm which focussed on the technology sector, was recently purchased by Deloitte Legal. Riverview Law, which had established a reputation as being a cross between a law firm and a technology company, was purchased by EY in 2018.
It is likely that more firms will consider merging or collaborating with the Big Four, technology companies, and various other organisations over the coming years. So whether or not they change their business models in the short term, over time established firms will increasingly be working with companies with different ways of operating
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