Are alternative providers set to reshape the legal services market?

Competition from alternative business model providers to change the way Australian law firms do business.

Competition from alternative business model providers is set to change the way Australia's largest law firms do business.

The rise of non-traditional, alternative business model providers (ABMs) is shaking up the legal services landscape as we know it, according to the June 2014 Commonwealth Bank Legal Market Pulse report.

The report reveals that Australia’s top and mid-tier law firms are increasingly concerned about competition from ABMs, with more than two thirds (71 per cent) of firms saying they have competed with ABMs for work over the past year. This is up from 50 per cent just three months earlier.

Senior leaders of Australia’s top-tier law firms also expressed concern about the rapid growth of ABMs, with almost one third (29 per cent) predicting ABMs will have a negative impact on their business in the year ahead.

However, it’s not all bad news for traditional firms. The changing legal marketplace creates the opportunity for law firms to work in partnership with these burgeoning alternative businesses to become more cost efficient, productive and innovative through collaboration.

“While their overall market share is still tiny, alternative providers are growing at around 30 per cent year on year — 10 times the rate of traditional law firms,” says Dr George Beaton, Executive Chairman of Beaton Research + Consulting. “This extraordinary growth means they have the potential to significantly disrupt the market in the future.”

“Perhaps even more importantly, these providers are teaching clients a new way of buying and managing legal services. This is forcing traditional firms to rethink the way they do business, with a greater emphasis on fixed fees and alternative fee arrangements,” he says.

As a result, a growing proportion of law firms are harnessing Legal Project Management methodologies to keep expenses under control and more accurately predict the costs of each service, allowing them to offer fixed fee arrangements with reduced risk. This renewed emphasis on process efficiencies and cost controls can yield significant benefits both for clients and for the firm themselves.

As one senior practitioner said in the Legal Market Pulse survey, “ABMs are challenging us to think and do things differently, better and more efficiently — and the net result is that we can compete better.”

From competitors to collaborators

Dr Beaton believes that traditional firms can also benefit more directly from the rise of ABMs, by treating them as potential partners, rather than competitors. The June quarter Legal Market Pulse Report shows that 71 per cent of top-tier firms are already under pressure from their clients to make greater use of legal process outsourcing, making collaborative relationships with lower-cost providers an increasingly attractive proposition.

“Outsourcing arrangements with alternative providers could be a good fit for many in the top-tier,” says Beaton. “The right partnership could help them maintain or even grow overall margins while refocusing their own resources on higher value-added areas where their specialist expertise can make a real difference.”

“That potentially has benefits for everyone — lower costs for the client, a reliable stream of work for the alternative provider, and a better return on investment for the firm itself.”

Find out more

The Legal Market Pulse research findings are based on a wide-ranging survey of 31 leading law firms and conducted on our behalf by Beaton Research + Consulting.

Download your copy of the Commonwealth Bank Legal Market Pulse Report. For more information or further insights on mid and top-tier firms contact Marc Totaro, National Manager, Professional Services on 02 9303 1940 or marc.totaro@cba.com.au