Non-traditional law firms are a growing threat to top-tiers, research shows

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Top-tier law firms are encountering increasing competition from non-traditional law firms and a third of them see such firms as a threat, according to new research.

These results appeared in the June quarter edition of the Commonwealth Bank of Australia’s (CBA) Legal Market Pulse report, which was completed in association with Beaton Research + Consulting.

The report revealed that those at the top encountered far greater competition from non-traditional firms when compared to mid-tiers, with 71% of the total number of firms who said they faced competition being top-tiers.

CBA’s national manager of professional services Marc Totaro told Australasian Lawyer that it seems these firms in particular are having their client base approached by alternative business model firms.

“More and more non-traditional law firms are targeting a lot of the work that has been done at the lower level by top-tiers,” he says.

But, he adds that it’s not just those at the top experiencing more competition: “The trend has been quarter on quarter an increasing number of both mid-tier and top-tier firms saying they are facing more competition…it’s definitely a trend we expect to continue.”

The report shows that the majority of those surveyed expect that 25-30% of firms will encounter competition from these alternatives over the next 12 months.

Totaro says it’s the top-tiers that are proving to be most proactive in response to these threats by off-shoring work to alleviate potential impacts on profitability.

“In the past perhaps the mid-tiers haven’t had the scale to offshore…I think now they’ll need to think about whether they can do this in their own right – do they have the staff level offshore – or band together,” he says.

“From talking to a number of the mid-tier managing partners, they’re saying, ‘how can we gain the benefits of offshoring if we don’t have the scale of the top-tier firms?’. They are really exploring what options there are – and that may be something we look at in the next survey.”

Totaro also expects an increased take-up of flexible fee arrangements to be one of the major changes in reaction to this increased competition by non-traditionals.

Traditional firms need to be more creative in the way they bill their clients and how they respond to competitive pressures, he says.
 
The COO of a national mid-tier interviewed for the survey agrees that the increased competition will change the market, but doesn’t believe it will happen overnight.

“These firms will have a market-changing influence over time – but momentum is yet to build. Off-setting that, client sophistication will lead to these new models only to select parts of the clients over all needs. So short term impact is minimal but increasing over time.”

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