Legal services downturn: survival or progress?

Whale back flip

Graeme Johnston / 20 October 2023

In periods of reduced demand for transactional and financing work, the playbook for major law firms typically includes two main strategies

  • reducing cost (mainly staffing) and ‘managing the equity’ (reducing partner numbers, or the share of some partners) 
  • targeting more of the kind of legal work that arises from financial stress (such as restructurings and insolvencies) or tends to be less affected by it (such as litigation and investigations) 

In the five years or so after the 2008 crisis, that time-honoured playbook largely worked as usual, and the increase in regulation, and regulatory action, positively helped those firms capable of pursuing the second strategy.

But a subcurrent in those years was that some major London law firms also made an effort to do work more cost-effectively, in two main ways:

  • wage arbitrage – doing some work in less expensive places than London – either lower-value matters or data-heavy elements (e.g. disclosure, due diligence, verification, ‘repapering’, contract management)
  • process improvement and more sophisticated use of tech for those data-heavy elements of work, taking inspiration from the early ALSP efforts of the 2000s, but proposing a joined-up offering and single point of responsibility to contrast with the interfacing and responsibility-shifting costs and risks of unbundling

Since then, there have been various incremental changes as well:

  • ongoing focuses on time entry, utilisation, leverage, margin, lock-up and other financial drivers
  • process improvement and cost reduction in business services, including matter administration processes such as matter intake, billing and archiving
  • in some firms, more people being engaged on a project or fixed-term basis rather than as permanent staff

But what we haven’t seen, in my view, over the last ten years, is anything really transformative.

  • Most lawyers in most large law firms, most of the time, appear to handle matters, and manage their process and cost/pricing, in ways which are highly reliant on email and documents rather than work collaboration tools.
  • Video calls and chat systems (e.g. MS Teams) have removed some communication friction (with some ‘noise’ trade-offs) but don’t get at the fundamentals.
  • LPM teams remain quite small in most firms and are largely focused on coordinating really large team efforts: so far as I can tell, they haven’t radically improved the way that most lawyers do most of their work most of the time

As companies seek to reduce budgets, and power shifts more to the buy-side (as evidenced by, for example, more reverse auctions in which high-end firms are participating), there is an obvious risk for large law firms of

  • Being unable to do certain kinds of transactional work profitably
  • Having a choice to make between doing it unprofitably or ceding that ground to others (who will in due course seek to move upmarket)

The only really good way I can see of addressing that problem is to look at how to do the work

  • More profitably for a lower price
  • In ways that offer the client some additional value – a major opportunity there being to offer greater convenience as measured by time-saving in communication about what’s going on: this has a significant cost for clients, not just for law firms

Both of these things require attention to process, in the sense of the way you work

  • Expressing work in a more articulate, structured, easily digested way, rather than the easy-in-the-short-term but ultimately indigestible approach of just using emails and documents
  • Thereby communicating better within your team, with your clients, with their other advisers and – strategically – laying a better data foundation for looking at how to improve how you do things with risk, cost, pricing and profitability in mind

There are other benefits of better process (in that sense) as well, such as learning and work allocation, but I’m choosing not to emphasise them as

  • firms have traditionally talked a lot about them but not really acted accordingly
  • it therefore seems more realistic to see them as things that firms regard as nice-to-haves rather than must-haves (judging by action rather than words)

But winning work, generating more revenue and better profitability, on the other hand, are must-haves in a down market.

Final thoughts

Some other things to reflect on.

The first is that, so much has been done to reduce support staffing and to address the less complex side of work since 2008 that the next level of financial improvement (as opposed to just survival) really has to come from the core work.

The second is that, once the legal sector makes improvements which actually work in one under-pressure context (currently, transactional work), these tend to become the new normal and 

  • remain so in that particular context (e.g. having moved to a more process-driven approach to heavy due diligence, who wants to go back?)
  • spread to other contexts as people see that the new approaches do work, and that they enable them to progress their firm by offering a more attractive proposition to clients, and to deliver it more profitably

We’ve seen that with some of the things mentioned above, that came out of the 2008 crisis. We’ll likely see it this time round as well.

The third is that there are some short and long term advantages of moving ahead of the rest of the market on this sort of thing. The history of the years after 2008 shows this if you look at the various firms carefully.

The fourth is whether you think some application of technology to law (e.g. generative AI) is going to massively disrupt things, largely on its own. I would suggest that it’s unlikely to go that far, but that there will be a certain continuing pressure which again increases the importance of looking more seriously at process.

So the big question is whether to start taking process more seriously now, bearing in mind that better pricing and profitability are increasingly dependent on better process in more transparent markets. 

Juralio is software which isn’t going to solve this for you. But it can help you unlock it realistically, by making it easy and intuitive to address process in a fluid, realistic way suited to complex legal work. 

If you’re a law firm, or indeed a corporate legal department, we’re happy to talk you through how.


Acrobatic whale picture credit: Todd Cravens on Unsplash





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