In an era marked by rapid transformation and evolving client expectations, the findings from PwC’s 27th Annual Global CEO Survey (PwC-27th-Annual-Global-CEO-Survey) serve as a further wake-up call for law firms and their management. Although the legal industry isn’t explicitly highlighted in the report, the implications are clear and consequential.
- 45% of CEO respondents are still not confident that their companies will survive more than a decade on their current path. This is up from 39% in the previous year, indicating growing concerns about the need for transformative change. This presents an opportunity for law firms to assist and guide the transformations. It also serves as an early warning to law firms that corporate clients are likely to be transforming. This may well impact the way in which these clients engage with their law firms and procure their legal services. The way in which corporate clients operated and behaved in the past may no longer be indicative of the way they will operate and behave in the future, highlighting why law firms cannot adopt only a backwards-looking logic to their strategic planning for the future.
- CEOs perceive enormous inefficiencies across a range of their companies’ routine activities, ranging from decision-making meetings to emails. A conservative estimate of the cost of that inefficiency would be a self-imposed US$10 trillion tax on productivity. The idea and extent of such inefficiencies is not new and should not be new to law firms. In their 2017 book, “Time, Talent, Energy”, Michael Mankins and Eric Garton quote research showing that corporate bureaucracy costs the US economy more than $3 trillion each year. They find that “(the) average company loses more than 20 percent of its productive power to organisational drag – all the practices, procedures and structures that waste time and limit output (…) because of organisational drag, most companies have a productivity deficit. They produce far less than they could or should”. Law firms are not immune to this organisational drag. Indeed, we believe that the structure, internal hierarchies, lack of effective adoption of displacing technologies (note: not “IT”) within law firms and the underlying commercial model of the billable hour, suggest that a loss of 20% of productivity underestimates the challenge, or looked at differently, opportunity for law firms.
- Law firms should pay particular attention to the way in which CEOs are proposing to reduce the inefficiencies. PWC reports that about 60% of CEOs expect Generative AI efficiency benefits, by helping relieve some routine burdens. If the legal sector corporate client base intends adopting Generative AI at the scale mentioned and expects to see the benefits mentioned, then we can expect more of these clients to apply the same logic to their suppliers, including law firms – expecting them to apply the technology, reduce their cost of supply and transform the way their services are delivered.
Proactive and clear strategic thinking and is needed now, to avoid the risk of an enforced knee-jerk reaction. Even better, done right, a law firm can both meet the evolving requirements of its clients while, at the same time, reducing its own organisational drag.
At a time in which the legal sector has become accustomed to largely static demand levels, and financial performance driven largely, if not exclusively, by annual rate increases, these opportunities provide a new path to success for the law firms that are prepared to change.