Most firms not brave enough to throw away timesheets yet

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A major study into the impact of the changing legal landscape has revealed where law firms here and in Australia are flourishing and where there is still much work to be done.

The 2014 Australasian Legal Practice Management Association (ALPMA)/LexisNexis Impact of the Changing Legal Landscape on Australasian Law Firms report surveyed 122 law firms of all sizes in order to gain an understanding about what changes are impacting them, how they have responded, what plans they are making for the next 12 months, and how prepared the legal industry is to thrive and prosper in the "new normal".

The report focused on a group key-change driving factors in the industry, including emerging technology, increasing price/pressure/customer demands for better value; and flat or shrinking demand and ageing of those in the profession.

There is good news:  At least 70% of firms have initiatives in progress or at planning stage for making changes in response to these factors. New initiatives are also evident in all areas with more than one third of firms planning to introduce of new ways of working and new business models.

But the number one area of concern for law firms is also the area in which they are yet to fully embrace change.

Despite reporting increased price pressure from customers as the number one factor impacting law firms, only 18% of firms indicate they have a significant or major focus on changing their pricing strategy.
 
This increases to 25% for larger firms.
 
In saying that, 44% of people do have some focus or investment on pricing strategy, but the going is certainly slow, says ALPMA president and financial controller of the Legal Lantern Group Andrew Barnes.
 
“It’s a brave step to throw away timesheets and most firms are not yet at the point where they feel they must do so,” he says.
 
He told Australasian Lawyer that each firm has its own reasons for acting or not acting, with some being more conservative than others and part of the problem being generational.

Although things are moving slowly forward, there certainly seems to be a bit of a resistance to change when it comes to fee arrangements, Barnes says.

“There’s another thing too that law firms are renowned for: They don’t like to be the first necessarily. If someone next door does it they might think, ‘gee I’ll have a go too’…but changing their model slowly is better than not changing at all.”

The results show that larger firms seem to be doing more about changing their pricing strategy because of a number of factors, he says.

Firstly, larger firms are more likely to have a non-lawyer management influence that brings in expertise from other industries that changed their pricing models long ago.

The bigger the firm and the more likely they are to have a project team to look into strategy, Barnes says, and adds that larger firms also have more of a connection with in-house counsel.

“To keep these relationships going they need to listen to the in-house counsel who are increasingly very strong on [pricing alternatives].”

Warren Kalinko, CEO of Keypoint Law, agrees.

His firm works under a unique model in the Australian market that sees its lawyers have complete control to set their own fee structures with clients in order to be able to respond in a tailored way to the client’s needs.

He told Australasian Lawyer that more sophisticated clients are shaping the change towards alternative fee arrangements.

“One of the key forces driving change is the rise and rise of in-house legal teams – who are sophisticated buyers of legal services.  Increasingly, these teams will only brief out to law firms where absolutely necessary, and when they do, they invariably want to deal with partner-level lawyers only,” he says. “They also want pricing to be carefully tailored to each assignment.  These factors combine to pose real challenges to firms, particularly those which rely on the traditional leverage model, and who dictate pricing centrally.”

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