The Thomson Reuters Peer Monitor report on the state of the Australian legal market indicates that overall market demand for major law firms has declined by around 10% over the past five years.
The IBIS report indicates a legal market declining in real terms – 1.9% nominal annual growth from 2012 to 2017, and 1.4% pa growth predicted for the next five years.
The Australian legal press is filled daily with messages of doom and gloom.
But what if we’ve got this all wrong? What if we’re being misled by inaccurate reporting, or as some might say, “fake news”?
There are five growth areas that I don’t think are accurately reflected in the market data that is reported:
- Growth of in-house lawyers
- Growth of foreign boutiques
- Growth of law companies
- Growth of legal imports
- Growth of bush lawyering.
By adding this direct and indirect demand to reported data, one might conclude that overall market demand is actually booming. If that is the case, the market is fragmenting even more rapidly than people realise with the large incumbent providers, as a whole, rapidly losing relative market share.

Source: apartmentlist.com
#1 Growth of in-house lawyers
In June 2017, the NSW Law Society published a report that revealed a 59% increase in corporate in-house lawyers and 34% in government lawyers from 2011 to 2016:
The increase of 6,222 employed in-house solicitors roughly equates to 1.4 million of production hours per annum. Even if this data is half right, the numbers are staggering.
ACC analysis indicates that some of this demand has been driven by insourcing, but it has also grown from a general increase in regulatory and risk issues as well as commercial, employment, real estate and operational matters. It is worth recalling that Australia holds the world record for the longest period of recession-free growth for a developed country and the outlook is strong.
#2 Growth of foreign boutiques
The revenues of large foreign firms like Allens-Linklaters, KWM, HSF, Ashurst, K&L Gates and Dentons are captured in the traditional metrics because most have involved a merger or an alliance with a large established domestic firm.
What’s missing from market reports like Peer Monitor are the 21 new foreign boutiques now competing mostly at the top-end of the market. These are firms with 30 or fewer partners with a premium focused offering. Examples include Clyde & Co, Jones Day, Squire Patton Boggs, Pinsent Masons, PwC, KPMG and White & Case. Carlyle Kingswood data suggests there are now over 225 partners working in this segment, roughly accounting for $350 million of annual fees.
#3 Growth of law companies
Australia’s Eric Chin is famous for coining the term NewLaw to describe legal startups. This descriptor is evolving into ‘law companies’, as explained by Mark Cohen in his recent post. Firms in this category include Elevate, Axiom, Lawyers on Demand, LexVoco, Keypoint, Unison, LegalVision, Hive, Helix, Nexus, Pangea 3, LawPath and Bespoke.
Data suggests law companies have grown their share of the outsourced corporate legal market from around 3% to 10% over the past five years.
Again, I wonder how much of this spend is include in official indicators tracking legal demand in Australia? Many of these companies have non-traditional employment arrangements, they engage a number of non-lawyers to deliver legal services, and they combine both local and overseas talent.
#4 Growth of legal imports
The chart below breaks down the $A15.4 Billion worth of Chinese investment in Australia by industry in 2016. Interestingly the figure was only $A2.1 Billion in 2007. One could provide similar statistics for the USA, Japan, UK, Germany, Singapore, etc.
It’s a safe bet to assume that legal advice was necessary on a significant proportion of the transactions that facilitated this investment. I think it’s also a safe bet to say that a lot of this legal advice was not provided by Australian lawyers. In a sense, this is Australian-based demand for legal advice is not accounted for because it’s being provided by offshore advisors, i.e. it is being imported.
#5 Growth of bush lawyering
Australia is becoming more and more regulated. One proxy measure of this is the pages of legislation passed per year. The chart below shows the trend in Canberra. A similar story is evident in all the states.
Developing systems to comply with these regulations and managing breaches usually requires expert legal advice. My guess is that a significant number of organisations don’t seek this advice but just wing it through a combination of ignorance, ignoring and bush-lawyering.
One could argue that this demand for legal services is actually non-demand. However, this is potential revenue lost by a combination of providers perceived to be expensive and consumer disregard.
What if I’m right
There are some pretty profound implications if we’re being misled by inaccurate reporting and the overall market is actually booming.
For established traditional Australian law firms, some of the takeaways are:
-
- There might be more value in collaborating than competing to fight the threat of the newer entrants;
- They should be making much more of the significant growth in foreign investment and government regulation;
- They should be exploring new models to service those with atypical legal needs;
- They might want to hedge their bets by investing in law companies and/or newer growth segments; and
- Market fragmentation usually means less tolerance for mediocrity. There will be more winners and losers and a greater premium for sound strategic leadership and followership.
For industry bodies and professional associations, they need to:
- Measure their industry more accurately and reliably;
- Develop strategies to reduce legal imports; and
- Help transfer latent demand to real demand.
What do you think?
business, business development, client loyalty, executive leadership team, growth, innovation, key account management, marketing, planning, pricing, professional service firms, strategy management
What law and accounting firm clients really care about
In Articles, Commentary on 28 February 2018 at 8:19 amLast week, Bain published a simply brilliant article in the Harvard Business Review exploring what B2B clients really care about. There are so many rich insights and applications for law and accounting firms, including five practical ideas described in this post.
40 Value Drivers
The Bain framework presents 40 ways in which your firm can create value for its clients, categorised into five areas: Table Stakes; Functional Value; Ease of Doing Business Value; Individual Value and Inspirational Value.
Five practical ideas to use in your firm
Idea #1: Have value conversations
Sit down with your client, take out the 40 Value Drivers diagram and ask them to identify the most important value drivers for them personally, their team, their procurement department and their organisation more broadly, and why?
During the conversation explore which value drivers are likely to be more important in two years time.
Get your client to evaluate your firm’s current service offering and relationship and how it compares with key competitors. Use it to explore opportunities to create more value and to test ideas for new offerings. Ask what they’d be prepared to pay more for? Ask what they’d prefer not to have if it meant a lower overall cost?
Idea #2: Re-clarify your value proposition
Your value proposition (VP) is your promise of value to clients. Your VP should be perceived to be superior to clients’ other choices and deliver a sustainable return.
At a firm level, you may wish to explore which of the 40 drivers are core to your firm’s VP or brand promise. Do you go wide and promise lots of things, or go deep and promise one or two things better than anyone else?
Next time you’re pitching for work or writing a tender document, use the framework to get real clarity of your unique selling proposition or USP.
Idea #3: Reassess your firm’s purpose
How does your firm’s current purpose statement measure up in the Inspirational Value category? Does it inspire and truly resonate with stakeholders?
Your firm is a combination of a private enterprise delivering profits to its owners and a social enterprise delivering a broader community benefit. There is an emerging generation of clients and staff that connect much more deeply with a firm purpose that reflects both social and financial outcomes.
In an era where true differentiation based on service and quality is almost impossible, there’s a good chance Inspirational Value will become the battleground of the future.
Idea #4: Foster creative thinking
Running a hackathon, design thinking or ideation workshop? Go through each of the 40 value drivers and explore three or four fresh ideas in each. Deep diving around the client and their needs is always a great place to start.
Idea #5: Update your CRM
Tweak your CRM to make sure you capture insights around what your clients really care about and what drives value for them. Add five new fields to your CRM around the five categories of value creation with drop-down menus of each element and comments.
Your ideas
I’d love to hear your ideas on how to use this brilliant new model.
Source: strikingly.com
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