Market Resilience: Mark West, Knowledge and Research Specialist at Auxilio, Explores Strategies for Adapting to the Evolving UK Legal Landscape in 2024
In a time marked by unprecedented challenges, the UK legal sector has exhibited resilience and adaptability. The past three years have witnessed the industry overcoming hurdles such as Brexit, the global pandemic, and the cascading effects of energy price fluctuations leading to a comprehensive cost-of-living crisis. Renowned Knowledge and Research Specialist Mark West, representing Auxilio, delves into the UK legal landscape, providing insights into how Law firms can respond to market conditions in 2024 and outlining the priority areas that require strategic focus.
Navigating the complex economic cycles, legislative shifts, and evolving client expectations, Mark provides a thought-provoking exploration of the forces shaping the industry's trajectory. This article dissects key factors, from the unique demand patterns within specific practice areas to the transformative impact of Environmental, Social, and Corporate Governance (ESG) considerations. Through an expert lens, Mark addresses the imperatives of client-centricity, the shift in flexible working models, and the fundamental changes in competition and client expectations, all within the backdrop of a dynamic legal landscape.
Mark casts light on the challenges and opportunities that define the UK legal sector's narrative in 2024 and beyond and discusses a strategic roadmap for legal leaders, urging them to embrace change, foster innovation, and position their firms for sustained success in an ever-evolving legal landscape.
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The UK legal sector has shown remarkable determination and resilience over the last three years, often managing to out-perform market expectations, during a period when it has had to respond to multiple challenges, including: Brexit; a global pandemic; and the knock-on impact of energy price rises leading to a full cost-of-living crisis.
Some of this resilience comes from the fact the legal sector has a slightly unique pattern of demand, with certain practice areas - like Bankruptcy and Insolvency or Employment - often working counter to the regular economic cycle, with activity levels sometimes increasing during a downturn. Equally, the demand for legal services or expertise is often influenced not solely by economic conditions, but by the level and volume of new legislation and regulation emerging, although the former impacts in very real terms on budgets and client expectations around value for money. Finally, as reflected in the LexisNexis GLP Index, there will always be specific pockets of expertise that remain in high demand, especially in rapidly emerging areas, for example: Data and Cybersecurity, Clean Energy or Environmental, Social and Corporate Governance (ESG).
However, when looking forward through 2024 and beyond, it is important to consider whether any of the events highlighted have triggered a more permanent shift in the landscape?
First and foremost, leaders need to avoid thinking that the last two to three years are in some way unique, and that moving forward, things will be less chaotic and more predictable. Global is local. With the ongoing impact of geopolitical conflicts, post-Brexit economic adjustments, and an increasingly urgent set of environmental problems to address, law firms need to remain agile, and critically, monitor and track the impact of external events so they can add value effectively for clients and anticipate and address future market needs. The exact mix of events or external triggers will be different moving forward, but they will continue to have a disruptive impact.
Secondly, in relation to ESG, the sector needs to look far beyond its role in providing advice or legal services. Client, and indeed, staff expectations, go much deeper, and are focused on the commitments, actions, and culture that firms demonstrate themselves. This is already a key factor for clients in choosing where to obtain advice, and indeed, for legal staff, in selecting where they would like to work. Moving forward, law firms, like their corporate counterparts, face some very real decisions around where and how they want to work, which may mean sacrificing short-term profits or commercial gains for the benefit of longer-term sustained success. Legislation in this area often starts with a focus on larger organisations, for example, with the requirement for ESG disclosures from businesses meeting certain employment or turnover thresholds, that was introduced under the Companies Act. However, all firms in the legal sector, irrespective of size, need to recognise that they are often part of the wider supply chain that is measured and tracked. Undoubtedly, if firms want to remain ahead of the curve, then they need to look beyond basic legislative compliance and be driven more by client and staff expectations, and a wider commitment in their vision to a sustainable planet.
Thirdly, in addition to evaluating prospective employers on their ESG credentials, the pandemic has permanently changed expectations for staff and individuals around flexible working models. This is a significant factor for firms to get right, and demonstrates the critical importance of engaging staff and not being afraid to innovate or fine-tune new working models, especially when many surveys over the last two years continue to cite recruitment and obtaining the right talent as being their biggest barrier to growth (Thomson Reuters - State of UK Legal Market 2023; MHA 2022)
Although not a short-term solution, firms that embrace the full range of career pathways and recognise the value of legal apprenticeships and other qualification routes will improve how they can meet this challenge moving forward, and at the same time may also improve their ability to develop a more diverse workforce.
Of course, individual firms in the sector need to provide competitive and attractive remuneration packages, but the level of churn and wage inflation seen over the last few years does not work as a sustainable recipe for success, especially when meeting client expectations around value, a preference for fixed fees (capped prices), as well as delivering on continuity of service and personal relationships.
This links us to a fourth area, the fundamental nature of demand and the need to further improve the effectiveness of resource models. Since 2021, we have seen an unprecedented number of demand peaks and troughs, as the legal landscape experiences volatility influenced by factors like the pandemic, global conflicts, consumer confidence, and emergency political interventions, in addition to the more regular stream of anticipated new legislation or regulation. This disruptive demand pattern is here to stay, and will continue to impact on the workloads of not only law firms, but also in-house Counsel. Although this presents a major challenge for the sector, it also provides an opportunity for individual firms to exploit. Welcome to the new era of service agility. So, how do firms anticipate and capitalise on these sudden surges or bubbles of opportunity driven by one-off events, decisions or deadlines?
A good starting point is to reframe what we mean by business continuity, and reflect on lessons learnt from the pandemic. Business continuity can no longer be viewed as a planning exercise, or document that outside of an annual audit cycle rarely gets viewed by the wider business. Firms need to take things to the next level, proactively work through different scenarios across service lines, mapping out how they will respond to different surges in volume or demand. This will not only help fortify them against external events or disruptors, but will also best position their chances of resourcing up or making capacity available when time bound demand surges come through. Leaders need to ensure that they have a senior manager or expert responsible for exploring and nurturing alternative resource models, complementing core staff and expertise with partnerships, whether through working with contractors: alternative legal service providers (ALSPs); recruitment agencies; consultants; or alliances with other firms.
For established firms that have evolved or grown over time through core business groups or practice areas based on legal knowledge, this also involves challenging traditional views around where roles sit, and recognising the benefits of being able to move resource and staff expertise between areas. Legal expertise and specialisms take time to develop, and are very much focused on a core area of work, but for many roles the skill set and knowledge about how to complete specific tasks, processes, or use particular legal technology is also transferable.
There is a danger that this overall level of disruption conceals some of the more fundamental changes taking place in the marketplace that were present pre-pandemic, but that continue to evolve at a very real pace. So, let’s explore our fifth area of focus, namely: competition and client expectations.
Competition is intensifying: At the top end of the market, US firms continue to expand their footprint in the UK, whilst global legal revenues for the Big Four were reported at £1.25bn early in 2023. The Alternative Legal Service Providers segment continues to grow by over 10% year on year, whilst private equity investment in Legal Tech is fuelling an ever increasing number of smart and agile digital platforms. These, in turn, are influencing the type of work that in-house teams look to give to law firms. In many areas, there has been a shift in the balance of power. Buyers or consumers of legal services are increasingly smart around how they procure or select services, whilst in a growing number of established practice areas, supply exceeds demand. Client expectations are higher than ever: In addition to faster response times; improved value; and greater transparency on price and efficiency - Thomson Reuters’ State of the UK Legal Market highlighted the premium clients increasingly place on expertise, strength of relationship, and business / commercial knowledge.
This increases more than ever the importance of developing and nurturing a client-centric focus, and investing in and acting upon client insights and feedback. Numerous economic sectors with similar traits have shown that past performance and historic reputation provide few guarantees for firms resting on their laurels in such conditions. This also challenges the legal sector and individual firms to be smarter about what they measure or consider to be a KPI. Firms need to be profitable over the long-term to survive in the same way that people need to eat to live, but the sole focus of living is not eating, so neither should it be making profits. Yes, the sector needs to understand and manage effectively utilisation, billing rates etc (although more conventional businesses would be far more focused on actual cash realised/collected), but more than ever short-term pushes to improve these need to work closely in balance with client satisfaction; net promoter score (advocacy) and client retention, as well as employee engagement and retention. These provide a better indication that your business is sustainable for the long-term.
Our last and final area for attention is automation and legal technology, and in particular, the question, where should firms focus their efforts in order to successfully use technology to tackle current market conditions? To answer this, we need to avoid one of the biggest pitfalls or risks in deploying technology, that is making sure we start, not by focusing on the technology itself, but by defining the problems we are trying to solve (bank of use cases) or areas where we need to see improvement. Automation covers a range of tools that includes robotic process automation (RPA), machine learning, right the way through to generative artificial intelligence (AI). The first of these is ideally suited to dealing with structured, repetitive tasks, improving significantly productivity and the risk of error in data inputs. The key business benefit: improving speed of response and providing valuable cost savings for your business (and clients).
By contrast, machine learning works through identifying patterns and drawing inferences from data (often contained within documents), but critically with input and validation from a subject matter expert. Key business benefits: cutting lead times to complete work; stretches the capacity and volume of work that can be handled concurrently (helping with demand surges); provides new insights and learnings (improving delivery in future or helping client to more-effectively manage change). Generative AI is even more powerful again in that it has demonstrated the ability to learn with minimal or no supervision, providing more transformative benefits for law firms in terms of productivity, speed the ability to support multiple clients.
No firm in the legal sector can play ostrich, hiding with its head in the sand. Automation should be at the heart of a firm's strategy, with a clear roadmap, milestones, and ongoing evolution to align capabilities with service delivery. Cultivating a learning culture is paramount, with innovation fuelled by a trial, test, and learn approach, engaging all staff, and actively listening to clients to ensure the benefits realised deliver what matters most.
The message: if you don’t do it, someone else will, and they will take some of your existing business with it.
In a year that promises both challenges and triumphs, let Auxilio be your guide, helping you transform obstacles into opportunities and chart a course for sustained success in the legal sector.
Auxilio's comprehensive suite of services, including Conveyancing Support, Corporate and Commercial Solutions, and Knowledge and Research Services, are designed to empower law firms in meeting the demands of an ever-changing market.
To explore how Auxilio can tailor solutions to your firm's specific needs and drive growth in 2024, please contact our Business Development Director Adil Hamid, at info@auxiliouk.com or call 02070319905.
