The Strategy-led Law Firm:
Business Models that Work
Nicholas Bruch and John Cussons
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In association with
The Strategy-led Law Firm: Business Models that Work
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The Strategy-led Law Firm:
Business Models that Work
Nicholas Bruch and John Cussons
Published by
In association with
Contents
Executive summary.............................................................................................................VII
About the authors...............................................................................................................XI
Acknowledgements...........................................................................................................XIII
Part One: The global legal service market in 2012
Chapter 1: Globalisation of the legal market....................................................................... 3
Globalisation gains pace........................................................................................................ 3
The second phase of globalisation.......................................................................................... 4
The impact of globalisation.................................................................................................... 5
Increased operational complexity............................................................................................ 5
Chapter 2: Scale building – Why size matters...................................................................... 9
Demand side forces for scale building................................................................................... 10
The effects of scale building – Increased barriers to entry........................................................ 11
The effects of scale building – Increased operational complexity.............................................. 12
The effects of scale building – New strategic options.............................................................. 12
The effects of scale building – Increasing importance of growth............................................... 13
Mergers as a means of scale building................................................................................... 15
Chapter 3: Segmentation of the legal market.................................................................... 17
Different forms of segmentation............................................................................................ 17
Increasing demand for specialist services............................................................................... 18
Chapter 4: Differences in global legal markets.................................................................. 21
United States....................................................................................................................... 21
Europe................................................................................................................................ 23
Asia Pacific.......................................................................................................................... 25
Australia............................................................................................................................. 27
The Middle East................................................................................................................... 27
Latin America...................................................................................................................... 28
Africa.................................................................................................................................. 29
III
Contents
Part Two: Business models that work – Analysis of successful strategies
Chapter 5: The increasing importance of strategy.............................................................. 33
The increasing scope of strategic planning............................................................................. 33
Chapter 6: The Global Elite – Transaction-oriented strategy............................................... 37
The Global Elite strategy – Transaction-focused...................................................................... 38
The Global Elite strategy – The supportive structures............................................................... 38
The Global Elite strategy – Profitability management............................................................... 41
The second tier of the transactions market – Wall Street firms.................................................. 41
Chapter 7: International business law firms....................................................................... 43
The IBL strategy................................................................................................................... 44
The IBL strategy – Supportive structures.................................................................................. 45
The IBL strategy – Success on all fronts.................................................................................. 46
Chapter 8: Regional firms................................................................................................. 49
Regional firms in the US market............................................................................................ 49
Strategies for regional firms in large markets.......................................................................... 51
Strategies for regional firms in smaller markets....................................................................... 53
Chapter 9: Specialist firms................................................................................................ 55
Similarities among specialist firms......................................................................................... 55
Practice area specialists........................................................................................................ 57
Case study 1: Finnegan, Henderson, Farabow, Garrett & Dunner LLP...................................... 57
Industry or client-focused specialists...................................................................................... 58
Case Study 2: Watson, Farley & Williams LLP......................................................................... 58
Strategic considerations and risks.......................................................................................... 59
Part Three: Key factors to consider when developing a successful strategy
Chapter 10: The common thread...................................................................................... 63
Targeting a specific market position....................................................................................... 63
Structuring the firm for success.............................................................................................. 65
Defining the competition...................................................................................................... 69
Strategic commitment........................................................................................................... 70
Process to achieve buy-in..................................................................................................... 71
Chapter 11: Implementation............................................................................................. 75
Business planning................................................................................................................ 76
Returning to the strategic planning process............................................................................ 77
Mergers as a case study for implementation........................................................................... 79
IV
The Strategy-led Law Firm: Business Models that Work
Part Four: Future challenges – Threats to the existing market structure
Chapter 12: Possible future scenarios to consider.............................................................. 81
Encroachment from below.................................................................................................... 82
The case of DLA Piper.......................................................................................................... 83
Encroachment from above.................................................................................................... 84
Alternative business models.................................................................................................. 87
Three different trends in alternative business models............................................................... 88
The potential impact of equity investment............................................................................... 89
Changes in a firm’s client base............................................................................................. 90
Index................................................................................................................................ 93
V
Executive summary
It is difficult to overstate the breadth of
change that has swept through the global
legal services market over the past two
decades. Perhaps the most fundamental
change is the fact there is a global legal
services market at all. Only two decades
ago, the legal industry was primarily local
with few firms having offices or lawyers
outside of their home market. In 1985,
86 per cent of top 100 US firms were
considered regional – with over 50 per
cent of total lawyers in their home state
or surrounding states. Even the largest
firms had little presence outside of their
home markets, with 21 of the top 25 US
firms (84 per cent) considered regional.
This implies that the legal market was not
simply domestic, but was, for all intents and
purposes, local. These market conditions,
which were largely similar in the UK and
continental Europe, created a relatively weak
competitive environment throughout the
1980s and early 1990s, during which firms
largely competed only with local rivals for
talent and clients.
In contrast, today’s market is highly
globalised with global clients, global talent
pools and, increasingly, global competition.
At the beginning of 2012 the average top
US firm, a group defined as the largest ten
firms by revenue, had 17 foreign offices and
640 foreign lawyers, representing a third of
the firm’s total lawyer base. This stands in
stark contrast to 1985, when the median top
US firm had only one international office,
staffed with seven lawyers, representing only
one per cent of the firm’s total manpower.
Europe has seen similar changes, with top
firms in the UK – Europe’s largest legal
market – boasting over 60 per cent of total
revenue from non-domestic sources. This
figure is up nearly 200 per cent from only
a decade ago. These changes, described
in depth in Chapter 1, have fundamentally
changed the legal services industry and
the business of law firm management.
Domestic firms must now contend with a
larger group of competitors all vying for
market share amongst their client base
and talent pools. International firms face
similar challenges but also must reorganise
themselves structurally and financially due
to the complexities inherent in managing a
global business.
Globalisation is just one of three forces
which have been reshaping the legal services
market over the past two decades. The
second, scale building, has transformed the
industry from small, collegial partnerships
to multi-thousand lawyer firms in only a few
generations. These changes, discussed in
Chapter 2, have had a profound impact
on the way firms organise themselves and
on how they compete with their rivals.
The most obvious change has been
organisational. As firms have grown ever
larger, they have been forced to embrace
new organisational models that give greater
power and autonomy to full-time managers –
fundamentally moving away from the
traditional partnership model under which
many firms were established.
VII
Executive summary
Segmentation, the third force driving the
global legal services market, as discussed in
Chapter 3, has been equally transformative.
Historically, many European and US firms
were a collection of like-minded, but largely
independent partners, creating firms that
lacked a coherent brand and a consistent
service offering. Firms of this type created a
market with relatively weak brands and little
real differentiation between leading firms.
These trends were reinforced by the small,
localised nature of the legal industry through
the 1980s and early 1990s. The difference
between the average top ten US firm by
revenue and the average US firm ranked
40 to 50 in 1985 was only 190 lawyers.
Internationalisation and scale building over
the past two decades has fundamentally
changed this, ballooning the gap 800 per
cent to 1,538 lawyers. Such changes have
created real differences between firms and
helped segment the market into distinct
pools of firms defined by their sizes and
specific capabilities.
To respond to these changes firms have
used an assortment of new and highly
focused strategies, which will be covered
in Chapters 4 to 9. While these strategies
encapsulate a wide range of new business
models – ranging from greater use of
leverage employed by many ‘full service’
firms to the high-cost low-leverage model
used by many niche specialists – they have
two things in common. The most successful
strategies today are focused on a distinct
group of services, targeted at a unique client
base. In the corporate world these strategies
are called ‘pure play’ and are used to
identify companies with a singular focus who
dedicate their investment resources toward a
single line of business or particular group of
clients. In the legal world pure play strategies
have become increasingly common over the
past two decades. As clients have segmented
VIII
their demand for legal services, firms have
responded by becoming more focused.
This focus has forced firms to move away
from the ‘generalist’ strategy that once was
dominant and instead adopt highly-focused
pure play-like strategies. Developing and
implementing pure play strategies a complex
undertaking that firm firms have mastered.
Chapters 10 and 11 discuss how firms can
identify their competitive advantage, choose
a target market, and structure their firm to
succeed in that market.
For law firms, these changes in strategy
have been profound. Many firms have
had to make difficult decisions on which
practice areas to focus and which to
relegate to secondary status. Some firms
have even had to cut non-core practice
areas. In corporations, these choices are
often incredibly difficult. In partnership
situations where ownership is shared and
decision making is still somewhat collective,
these decisions can be traumatic and
often disruptive. The voting power in many
partnerships is such that partners can block
any move to rationalise the service range, no
matter how logical the proposal.
The combined effect of these three
forces – globalisation, scale building,
and segmentation – have raised the level
of competition across the legal services
market and forced firms to compete across
a wider geographic range. Globalisation
has torn down national barriers and forced
previously domestic firms to compete against
each other, and with the ever-growing
international firms. Scale building over the
past two decades has created a new group
of highly competitive mega-firms with a
wide range of capabilities, professional
management teams, and sophisticated
business models. Segmentation has forced
firms to specialise, thereby decreasing their
flexibility and increasing their reliance on
The Strategy-led Law Firm: Business Models that Work
a smaller group of clients and practices.
Combining these three forces reveals a
highly competitive market, defined by large,
globally spread competitors with relatively
sophisticated business models and strategies.
It is important to note that these changes
are not simply relegated to a particular
geography or segment of the market.
Throughout the early 2000s, there was a
widely held belief among smaller firms,
particularly in secondary markets, that
globalisation only impacted larger firms –
whose focus on large corporate clients
and cross-border work exposed them to
risk in this area. These hopes have proved
partially true: large and medium-sized
firms were more exposed, and slow movers
have indeed become less profitable and
fallen behind their peer group. But small
firms have been affected as well, facing
lower profitability due to client defections
and increasing pressure from larger
international firms.
To respond to these challenges,
firm leaders will need to keep pace with
the increasing level of management
sophistication among their peers and
scenario plan around probable future
events. Chapter 12 discusses how scenario
planning should be done and explores
several possible scenarios that firm leaders
should be considering. Above all, firm
leaders must be flexible to the changing
nature of the legal services industry. Business
models may need to be reevaluated,
remuneration systems and performance
management processes may need to be
reformed, and organisational structures
might require updating. To manage these
kinds of changes in a way that remains
coherent with their firms’ capabilities and
strategic goals, firm leaders will need to
understand how each of the three forces
affect their markets and their service lines.
This report is dedicated to evaluating each
of the three forces in order to understand
their origins and their impact on different
segments of the legal services market. Each
chapter will also analyse the organisational
and financial impacts of these trends and
evaluate the strategies that firms have
employed to remain competitive in different
segments of the market.
IX
About the authors
Lead author – Nicholas Bruch
Nicholas has over five years’ experience advising clients on strategy, international expansion and
operational change. He has worked on projects in the US, Europe, Asia, Latin America and the
Middle East in a wide range of sectors including but not limited to law, accounting, mining, banking,
real estate and international trade. He focuses on long-term strategy, international expansion, market
entries and facilitating internal change strategies.
Nicholas, who recently received his Master in International Business (MIB) from The Fletcher School,
Tufts University, has worked in the legal and professional service sector with small, regional, national
and international firms. Much of his consulting work has focused on ensuring strategy is translated into
achievable plans and on supporting management during implementation. Areas of work include:
„„ Domestic and international strategy – This includes development of both domestic and
international strategic plans and has involved the analysis of present and potential future business
models, country attractiveness and competitive positioning.
„„ Client and practice management – A number of engagements have involved developing client
engagement strategies which allow the firm or specific practice groups to identify their key clients,
develop models for managing client relationships and improve cross selling.
„„ Mergers – This work includes the assessment of likely candidates in target markets, support
during the approach to short listed candidates and during negotiations, as well as post-merger
integration support.
Nicholas can be contacted at: [email protected].
Co-author – John Cussons
John has more than 12 years’ experience as a management consultant and project manager in
sectors including professional services, mining, criminal justice, utilities and government. His clients
span Europe, Australia, South America and South East Asia.
John’s experience in the legal and professional service sector includes working with small
regional and national firms to large international firms. Key to his consulting work is to ensure
strategy is translated into achievable plans and to support management during implementation. His
main areas of focus are:
„„ Domestic and international strategy – This includes development of both domestic and
international strategic plans and has involved the analysis of present and potential future business
models, country attractiveness and competitive positioning. Much of the work has also included
supporting senior management teams to engage with their wider partnerships.
XI
About the authors
„„ Client and practice management – A number of engagements have involved developing client
engagement strategies which allow the firm or specific practice groups to identify their key clients,
develop models for managing client relationships and improve cross selling. An increasing area
of work is also around the pricing of work and the structuring of teams to achieve profitability.
„„ Mergers – This work includes the assessment of likely candidates in target markets, support
during the approach to short listed candidates and during negotiations as well as post merger
integration support.
„„ Partner and staff remuneration and performance management systems – Typical projects involve
significant engagement with partners and staff through interviews and focus groups. Options will
be developed that align with both the strategy and culture of the firm. Draft recommendations are
normally tested with partners and/or staff before final recommendations are made to the board.
John Cussons is the author of Financial Planning and Management for Law Firms, Ark Group
2011 and has enjoyed contributing to various articles including ‘Achieving Profitability’, The
European Lawyer, October 2010; ‘The key to successful law firm management’, Law Journal
Newsletters, October 2010 and ‘Profit Bullseye – How to effectively measure and manage fee-earner
performance’, Managing Partner magazine, June 2011.
John can be contacted at: [email protected].
XII
Acknowledgements
The authors would like to thank those who gave their time and expertise in the development of
this report. In particular, many thanks go to Renuka Baliga, Phillip Brown and Alan Hodgart for their
involvement and input throughout the development of the report.
Note on references
Various sources for law firm statistics have been cited throughout this report and for the sake of
clarity, are referred to by report, study or survey title. Web links are also provided.
XIII