A partner at Beaton Capital has spoken of a modern-day turning point of momentous proportions that heralds an era of life cycle maturity and the start of decline for many firms
He spoke to Australasian Lawyer on the back of his newly released paper, Life Cycle Maturity and the Professions, which looks at what the future holds for a number of professions.
Of those analysed, the future for law is the grimmest, he says.
This is because the majority of professions, which include accounting and consulting engineering, have been through shake ups already.
“Law was the last profession where it was a sellers’ market – now it is very much a buyers’ market, and the bulk of them didn’t see it happening,” Riddell says. “[All law firms] are affected, there’s no doubt about it, but the ones that have got specialisations are probably more protected. The more generalist you become, the harder it is to differentiate.”
Major problem areas include heavy price discounting to stay competitive even though base costs remain the same, and inefficiency.
“Unless they restructure their cost base they will halve their profits within the next 10 years. It’s massive,” Riddell says.
And even more worrying is that accounting firms, who have more recently been trying to take a slice of the legal pie, have already been through this part of the cycle and have restructured accordingly.
“They’re coming back in with very clever market strategies as opposed to being generalist. They will be a formidable competition going forward in the next five years in selected markets,” he says.
Australia is about five years behind the UK in the cycle, predicts Riddell, and word on the street there is that as much as one third of law firms are in trouble.
This doesn’t necessarily mean that Down Under is heading in exactly the same direction, although it’s almost definitely in for far more future mergers, acquisitions and firms dying.
“I don’t think you can predict it because there’s more resilience in the market than people realise, but we are seeing the start of a shake up,” he says.
However, there are some things that the legal sector should and can do to improve the statistics.
A major part of this will come from improving efficiencies.
Because many clients see law firms as being highly inefficient, demonstrating competency in this area will put any firm ahead of the pack, says Riddell.
Market segmentation is also another vital area to focus on, and includes firms being sure-footed in what they want to be seen as and known for. Part of this will stem from understanding demand drivers.
While historically legal services were supply-led, it’s now demand-led, he says.
“And on the cost side it’s a recognition that in terms of the cost base there’s more that they can do there.”
Firms should be thinking about downgrading to a smaller office footprint, and seriously considering which staff should be employed and which should be contracted.
“The day of the lawyer having his own office is over,” says Riddell.