Georgetown Law and Peer Monitor Release 2015 Report on the State of the Legal Market
January 9, 2015 —
The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Peer Monitor today issued their "2015 Report on the State of the Legal Market." Among the findings: by most indicators, law firm financial performance was modestly better in 2014 than in 2013, and revenue growth across the market was stronger than in the previous year. At the same time, the report found that challenges remain and that productivity growth in particular continues to be a serious issue, as does the ongoing decline of law firm realization rates.
The report, which is jointly issued by the two organizations on an annual basis, reviews the performance of U.S. law firms in 2014 and considers the changed market realities that drive the need for firms to take a longer range and more strategic view of their market positions going forward.
According to the report, the financial performance of law firms over the past year reflects several fundamental changes in market dynamics that have become increasingly evident since 2008. These changes include a shift in the buying habits of business clients, a persistent softness in the market for litigation services, the increasing presence of new non-traditional competitors in the legal services sector and a growing market segmentation that is rapidly separating high performing firms from the majority.
The authors found that these shifting market dynamics underscore the critical importance of law firms taking a strategic and long-range view of how their clients, practices, markets and competitors are changing, and then adjusting their own strategies to address the new market realities. The report notes, however, that most firms seem to lack any sense of urgency in addressing these changes.
After reviewing some of the factors that may contribute to the evident resistance in many firms to embrace the changes that the market demands, the report suggests the possibility that such resistance may be at least partially attributable to the way law firm performance is currently measured. "The traditional way of measuring law firm performance has been to focus on 'inputs' – tracking metrics like numbers of billable hours, fee growth, or utilization – and assuming that those reflect the value of the services that a firm provides,” said James W. Jones, a senior fellow at the Center for the Study of the Legal Profession and one of the report's authors. “But the assumption that value equals the sum of all of our inputs is, on any rational basis, absurd. Surely, value from the client point of view involves many factors beyond the amount of time that a firm's lawyers invest in a matter."
“Thoroughly understanding market dynamics is essential if firms are to successfully navigate the rapidly changing competitive landscape,” said Mike Abbott, vice president, Client Management & Global Thought Leadership, Thomson Reuters. “Competition is no longer strictly firm-to-firm, but instead pits law firms against a multitude of outside competitors seeking to gain share. As such, firms need to re-evaluate their existing models for the delivery of legal services and seek fresh, innovative approaches to energize their competitive standing.”
The “2015 Report on the State of the Legal Market” can be downloaded at http://www.law.georgetown.edu/academics/centers-institutes/legal-profession/upload/FINAL-Report-1-7-15.pdf.
The Center for the Study of the Legal Profession at Georgetown Law conducts research into trends and developments in law practice, and provides education on leadership and the legal profession to both students and practicing lawyers. Thomson Reuters Peer Monitor is a benchmarking program that provides any-time access to critical firm assessment information and allows comparisons against selected peers, with details for practice performance.