"Brace for change" says LawNet guest blogger Barry Wilkinson.

The introduction of alternative business structures, or ABS as it’s commonly known, will represent a challenging shift in the competitive market for small to medium law firms.   We know that change is coming, but how far reaching will it be and what we can we do to meet the challenge?

Financial and business management guru Barry Wilkinson of Wilkinson Read & Partners, a regular face on the LawNet circuit, looks at how firms can take the initiative to retain the edge in this changing market place.

The Legal market will consolidate over the next three years.  ABS accentuated by PII market, cuts in public funding and the new Gold Standard for conveyancers, plus broader market forces including globalisation, low cost competition and technological change, will make the competitive landscape more testing.  Less a squeeze, more like a gastric band.

There will be winners and losers.  At a recent workshop we held with LawNet member firms we talked with delegates about what they saw as the key attributes of the likely winners.  Their feedback is a useful barometer of where firms feel they stand and how to position themselves for the future.

There was quickly a realisation within the group that most firms will go through one or more mergers in the next three years, and the reality of dealing with competition with a totally unfamiliar agenda, certainly caused some discomfort.

This helped to focus minds on how to develop an agenda for independence based on the premise that if mergers are inevitable, you need to ensure you are the stronger party.

Whilst deregulated markets always expand, it is rarely a case of more of the same. New, less personal, more technological ways of delivering the service will appear, driving down costs of processing transactions.  Many non clients currently fearful of the cost of dealing with a traditional solicitor will happily buy legal support from a call centre or over the web.  Those firms which are already ahead in technology will prosper from the drive for lower cost transactions by getting more clients.

For the remainder, including mid to smaller independents and high street firms, the major issues will be client selection, client retention and active management - running the firm in ways that create enough surplus cash to fund the investment needed to remain competitive, whilst meeting partner income aspirations.

The existing client base of Middle England will include a substantial part of the population who want personal service from a trusted advisor.  The same people who make good private clients, also own or manage SME businesses. The trick is to identify these clients, and look after them so well that they never leave, and hopefully lead to more positive referrals.

A stunning service that secures loyalty means being much more than good technical lawyers.  Successful solicitors understand that whilst you can commoditise a transaction, you can't commoditise a relationship!  But relationships need nurturing, which takes time, money and organisation.

One of the uncomfortable truths in the market to come is that client acquisition costs increase as competition increases. Whilst firms in the recent workshop were happy at their client service. many were less convinced about their ability to get new clients.

The need for a strong sense of purpose, and a common direction was well understood in the group we talked to – again, most firms we canvassed scored well - but this needs to be supplemented by active management of people and performance at all levels.

There must be clear objectives and performance measures which support client services, not just billing and cash extraction.  All of this in an environment where more resources may be needed but can only be afforded by taking a completely different view of the cost structure and cash generation.

If firms are seen as fixed cost operations, then getting more from less can only happen by doing things differently.  Most firms we talked to gave themselves their lowest marks for their ability to manage their cost structure and make resources available for investment in people and technology.  But feedback showed that many of the techniques for doing so were very well received and likely to be implemented.

The democratic decision making and income extraction model of the typical law firm will eventually lose out to more focussed and decisive capital growth models.  They always do, it’s a fact of life.  But this allows for far more creativity in reward and remuneration packages, including options which particularly appeal to those who want to see an upside whilst limiting their risk.

Law firms, especially those like LawNet members in the middle ground face a harsher and more uncertain business environment.

But those who have seen the future, understand the attributes of winners and see their competitors failing to plan are far more confident now.

If you would like a copy of the 20 key attributes of the likely winners in the future legal services market please contact Zoe Cawthorne by clicking here