Law firms must adapt and change or they will fail – Knight Frank

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The legal industry is being transformed by new technologies, disruptive market entrants, new working practices and shifting client demands, with the law firm of the future needing to be more innovative, nimble, lean and digital, according to the latest research from Knight Frank, the global property adviser.

Knight Frank’s Your Future, Now report explores the future of the legal services sector and the operational and real estate implications of this transformation. It has identified five disruptive trends that will radically shape the legal services sector over the next five years, and how these trends are being enforced in the market.

The five disruptive trends that will tremendously affect the legal sector include the implementation of new technological innovations, the competition faced by mid-tier law firms, the introduction of new market entrants, changing organisational structures and the triad of skill, productivity and ongoing innovation overtaking relying on scale in the fight for the future success of law firms.

Richard Proctor, Head of Central London Tenant Representation at Knight Frank, said “Whilst no one law firm is the same, we have identified five distinct trends that are profoundly impacting law firms and their office space requirements.

“These will dramatically impact the shape and size of the legal workforce, which, combined with the culture of tech firms bleeding into the legal sector, will lead to law firms breaking away from a cellular environment and choosing more flexible, collaborative, client-centric and efficient space, resulting in a real flight to quality as they look at buildings that reflect these new values.”

The analysis by Knight Frank has made it clear that the ‘tech effect’ that has been witnessed in other sectors is now influencing the legal sector, which is adopting both technologies and cultures which drive collaboration and co-creation. This adaptation to and adoption of new practices will have a distinct impact on both the sector and on London’s real estate, with 71 per cent of law firms believing that innovation is critical to exploit opportunities and differentiate1.

Lee Elliott, Head of Commercial Research at Knight Frank, said: “It is clear that in order to future-proof themselves, law firms must respond to the technology that is impacting the legal services sector and the opportunities that it presents. They cannot simply stick with the status quo, and investment is required if they are to guarantee their own successful future.

“As disruptive forces take hold, the legal services sector will become more contested and congested.  While those operating in the mid-tier will be evermore challenged, technology will drive the further growth of legal process outsourcing companies and new market entrants.”

The Five Disruptive Trends

1. The strength of response to the disruptive effects of technology will distinguish the future winners and losers in the legal services sector, with incumbents able to get ahead of the curve if they move fast, invest in and fully embrace technology, and view it as an opportunity rather than a threat. There are now 1,479 legal start-ups in comparison to 15 in 2009.

2. The competitive threat to the mid-tier will intensify as top-tier law firms invest more in technology and focus on high-end work, whilst more agile market entrants offer process driven work at a lower cost.

3. The legal services landscape will be reshaped and influenced by new market entrants and process re-engineering following an initially crowded landscape. This will force incumbents to rework business models and processes in order to optimise efficiencies, with legal process outsourcing providers growing by 30 per cent annually.

4. The organisational structure of law firms will change drastically, with the traditional law firm staffing structures set to be replaced by a leaner pool of permanent legal staff working closely with non-traditional and temporary employees, in addition to the introduction of agile working and new diversity initiatives to remain competitive in the war for talent.

5. The legal service firms of the future will flourish on the triumvirate of skill, productivity and ongoing innovation rather than simply scale.