It’s time for change as competition stiffens and IoT era evolves - PwC Law Firms' Survey

Oct 16, 2017

  • Muted UK revenue growth with average fee increases of 3%
  • Half of firms saw UK profits fall, with pricing under pressure, staff costs increasing and profit per equity partner remaining flat  
  • Client demands, competition and wage inflation lead to margin pressure

Many UK legal firms are still only embracing commonplace - rather than cutting edge - technologies, according to PwC’s 2017 Law Firms’ Survey.

The latest survey suggests that firms understand the importance of technology to help improve the experience of both clients and employees, with over 70% already investing in client collaboration tools and around 40% offering mobile apps and using automated document production to drive performance improvements.

“At the moment, the focus seems to be on updating or replacing old systems. Firms need to be more agile in embracing emerging technologies such as Artificial Intelligence (AI) which will ultimately help them achieve more effective staffing levels and react faster to changing client demands.

But many firms are not be keeping pace with cutting edge technologies - or more crucially with growing client expectations – with only 11% utilising the opportunities of big data and predictive analytics, while more sophisticated technologies like smart contracts and blockchain are barely featuring.

According to David Snell, partner and leader of PwC’s Law Firms’ Advisory Group, it is time for change:

“Fundamental action is needed to future-proof the shape and operation of the legal sector. Technology will impact all areas, from client service delivery to business support and, importantly, staff recruitment and retention.

“At the moment, the focus seems to be on updating or replacing old systems. Firms need to be more agile in embracing emerging technologies such as Artificial Intelligence (AI) which will ultimately help them achieve more effective staffing levels and react faster to changing client demands.

“It is advances such as these that will help set them apart from their competitors in an increasingly competitive marketplace. ll this will require significant investment and firms need to think carefully as to how this will be funded.”

The three Ps - profitability, performance and people

The landscape in the UK legal sector remains difficult as a result of ongoing economic uncertainty together with growing competition from new entrants and US firms, which are proving strong rivals in terms of attracting talent.

While at least 70% of law firms achieved fee income growth, this was limited to an average increase of around 3%, while half of firms saw UK profits decrease.

Rising staff costs are a key contributor to the decreasing net profit margins of UK law firms as they grapple with increased fee earner numbers over recent years coupled with an ongoing decrease in chargeable hours and resulting spare capacity. These workforce management issues must be tackled if firms are to rebalance their performance and profitability, the survey found.

Recruiting, developing and retaining top talent remains a top priority for boards. In the last year, there has been a continued shift towards performance-related reward for partners, with firms increasingly drawing on a broader basket of measures to assess performance and allocate profit.  

And with mobility and flexibility highly regarded by employees and future recruits, it’s positive to note that over 70% of firms have delivered or embarked on remote and mobile working, albeit work is still to be done to make this a cultural norm.

With greater media and stakeholder focus than ever on issues such as gender balance, it is perhaps surprising that the majority of firms have yet to respond to the new Gender Pay legislation, introduced in April.  While legal firms continue to recruit a greater proportion of female trainees than male, this proportion falls steeply at partner level with the proportion of female partners still below 20%.

David Snell added:

“With clients, investors and future employees increasingly expecting professional advisors to have diverse and balanced teams, it’s vital that firms recognise the potential reputational impact their actions may have and respond accordingly.

“Embracing technology, building an agile and diverse workforce, and determining the right global strategy will be the key differentiators for firms seeking to remain competitive and relevant in the rapidly changing landscape of the UK legal sector.”

Ends.

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