MID-TIER FIRMS need to drop areas of practice that no longer give them a competitive edge in a market that is likely to see a “shake out” in coming months, according to commentators.
As branding becomes essential to the success of firms not in the mega-league, those mid-tier firms need to ensure that each of the practice areas they cover is appropriate to their long term strategy, Mike Watson, managing director at consultancy firm Flexion told Lawyers Weekly.
“[Firms in] the mid tier typically operate as a collection of practice [areas] — so they’ve had their tax practices and corporate practices and insurance practices. And they have run each of those practices to the beat of their own drum. This has meant it has been very difficult to develop a sense of brand,” he said.
Formerly a CEO of a mid-tier Australian firm, Watson said he has found many firms of this ilk are now facing problems in determining where to position themselves in the market.While some firms, such as Gilbert+Tobin, have been able to develop a recognisable brand, he said, others have “tended to be very operational in their thinking and they struggle to really get their head around the strategy side of how to move their business forward,” he said.
“It is quite confusing for both the clients and the recruitment market, who don’t know what the firms stand for. This is the difficulty that the mid tiers are finding — in trying to differentiate themselves in what is a reasonably crowded market for law firms in that mid tier.
“Strategy is as much about saying what you are not good at doing as what you are good at doing. As their practices have evolved, they find it very difficult to give up the areas of law that they no longer have a competitive advantage in,” Watson said.
“They are really struggling to get their partners together and have a sensible discussion about [this] and how they are going to invest in sustainable business for the future. They are finding that each of the little areas of business does not want to give ground. They each believe they are important and that there is some competitive advantage in what they do.”
There is little point merging with other firms and looking at consolidation activity, Watson argued. “This is a futile exercise because from a law firm’s point of view, scale for scale’s sake doesn’t add any cost benefit. There can be a bigger is better mentality: ‘If we expand or take on a small firm then the clients will be more attracted to us’. Some have gone through that exercise.” But these firms have found little benefit to their bottom line, he said.
“They need to know who they are and what they are good at doing. If that means expanding into a new territory to service their clients then they should do that — but only do it in a strategic way.”
To attract the new generation of lawyers, these large firms need to have a “compelling story” for the market about where they are going and what they want to be “famous for”, Watson said.
“I cannot overemphasise the power of the brand for legal firms as they head out into the marketplace. Generation X and Y are looking for an organisation that they can relate to, that has the overt behaviours and values that they identify with. It is very clear from a branding point of view that some of the mid tiers have that down pat and that some are struggling with it.”
Clients will also be lured by the firm’s self-definition, he suggested. There will not be “shake out” in the sense of merger activity and “people falling off the pack”, but from clients realigning their providers, based on their changing strategic needs, said Watson.
“[Clients] are looking for deep industry knowledge and a lot of commercial empathy — firms that can demonstrate they understand their business and can look at it as a whole business rather than an individual legal issue they are dealing with,” he said.
Deborah Zurnamer, senior consultant at legal recruiter BSI People, also identified a “shake-up” in the market. She said a shortage of good quality talent and the movement of senior practitioners within both the top and mid tier means firms have to stand out from their competitors.
Zurnamer said that in this competitive marketplace, in which every firm is looking for the top quality candidates, “mid-tier firms need to establish a real point of difference”.
“I think that it’s crucial in terms of a marketing edge for them. I think [mid-tier firms] must be clear about what they are trying to achieve — what differentiates them from other firms. There has to be an energy force around the firm that is being driven by management. This really affects market perception in regards to specialty candidates who will then be drawn to a firm that has that edge about it, or the buzz about it,” she said.
Consultant Sue-Ella Prodonovich told Lawyers Weekly late last year that some firms have attracted key practitioners to some key areas. “Certain firms, including Gilbert+Tobin, Henry Davis York and Arnold Bloch Leibler, are top tier in the areas in which they choose to practise.