The “Big Four” professional services firms are expanding their legal services offerings globally, and making moves in the U.S. as well. What are their greatest strengths? What, if anything, has been over-hyped about their return to legal services? We recently hosted a panel discussion to discuss these questions – and explore the options available to law firms in this new competitive environment.
Stephen Poor, Labor & Employment Attorney with Seyfarth Shaw, and Janet Stanton, Partner at Adam Smith, Esq., considered the early implications, dove into ways to help law firms gain new strategic and competitive advantages, and added their insight to the trove of analysis we have built on the topic at Legal Innovation Central.
Is the threat real?
Are the Big Four threatening the business of U.S. law firms, or is this really just an issue in overseas markets – particularly where alternative business models have been approved? This is a fundamental issue for legal services intelligence programs, and the original gating question for law firm strategists considering whether or not to take action.
Despite the current regulatory barriers that serve to protect U.S. law firms from most head-to-head challenges brought forth by the Big Four, there is a strong consensus that the risks are substantial – and that they will continue to grow over time.
“No one should lose sleep for tomorrow, but next year, the year after, two years from now, absolutely.”
– Stephen Poor, Labor & Employment Attorney with Seyfarth Shaw
This may be most evident overseas today, but that does not mean there is no impact. We are in a global economy, and most of the top 200 U.S. firms have international operations and clients. The Big Four collectively employ over 8,500 lawyers, which makes them a significant player. Even within the U.S., the accounting firms are pushing at the boundaries. PwC’s acquisition of GE’s tax practice and its establishment of a law firm in D.C. are just the most recent examples of this.
Over time, even the barriers that currently afford some protection for U.S. law firms are likely to erode. Janet Stanton, an experienced industry expert and strategist, notes that “guild-based” protections tend to fall, eventually. In the meantime, the Big Four are learning and gaining greater depth and expertise in the legal services market, so when they eventually do launch in the US, they will be able to grow fast.
“U.S. represents half of global legal demand, and I doubt they’re going to ignore us. I really think this is a tsunami coming.”
– Janet Stanton, Partner at Adam Smith, Esq.
What should firms be most concerned about – i.e., what are the Big Four doing so well?
Perhaps the greatest weapon the Big Four can bring to bear in the contest for legal services market share are the resources they devote to entrench themselves within their client’s businesses, and the discipline to analyze opportunities. These professional services giants have thousands of individuals embedded in corporations around the world, gaining a first-hand perspective on client priorities and their industries. Starting with relationships at the most senior level – often within the C-suite – the Big Four are well-positioned to sell their services, whether its auditing or legal services, in the most client-centric way.
Another advantage the Big Four have is their willingness to do different types of work, and approach business tasks differently and holistically. This includes business process optimization and breaking larger tasks down through project management. It also means a different approach to budgeting, providing clients with predictability and different types of pricing. The Big Four have been doing this for a long time, and law firms are still very much playing catch-up.
The Big Four have also made inroads into the U.S. legal services market through their offerings in legal technology, giving them a head start over the majority of large law firms. Until recently, the legal industry was reluctant to embrace technology in a meaningful way, and even today most law firms are not investing enough in technology – or the research and development of how to make best use of technology – to improve their services. Some of this resistance to technology is cultural, and some is financial short-termism – but client expectations in this area are growing, and hesitation to invest for the future could allow the gap to widen, ceding further ground to the Big Four.
“It goes to a belief that computers can’t do what people can do and it comes from a fundamental lack of understanding as to what tech can and cannot do.”
– Stephen Poor, Labor & Employment Attorney with Seyfarth Shaw
Further, the Big Four’s willingness to explore new technology goes beyond finding ways to increase productivity and lower costs. Efficiency and costs are key drivers, but legaltech also allows the Big Four to experiment with more transformative changes – changes that will alter the way legal services are delivered. Experience in other sectors has demonstrated that these technology-driven changes can generate substantial disruption on their own, compounding the risk for law firms that fail to take action in this area.
Are there elements I can safely ignore for the present – i.e., what aspects of the threat are more hype than substance?
At least for the near-term, the Big Four are barred from making a wholesale push into legal services by the current regulatory framework. This includes Sarbanes-Oxley, which still places some limitations on how they can offer integrated services.
The Big Four also lack the brand strength – in legal services – that major U.S. law firms have. Law firms have tremendous brand equity in their particular markets, and while they need to adjust their business models and think more strategically, these firms have built a foundation of strong relationships, and that’s important.
In addition, law firms currently hold an advantage in human capital and legal “brain power,” though the Big Four are making a push to catch up in this area through recruitment and poaching of talent. For the immediate future, however, the deepest well of legal expertise remains housed within Big Law.
“The top advantage that law firms have now is sheer brainpower. You know, IQ, gray matter. I will say, however, that I don’t think that’s a permanent advantage.”
– Janet Stanton, Partner at Adam Smith, Esq.
What should law firms do to address the challenge from the Big Four?
Law firms can begin to incorporate some of these different ways of thinking about the delivery of legal services, whether it’s through technology or different staffing models or different pricing models. This means looking at the combination of technology and people, and beginning to think about how you can start using a variety of techniques.
It also means doubling-down on building a more client-centric approach when going to market, which involves changing the perspective of most firms from one of an “outsider” to thinking about legal questions from an “inside” view. The investment required here is less about dollars and more about taking the time to spend a day with a client – off the clock – to learn more about their business.
On a more tactical level, firms can explore ways to leverage their current advantages over the Big Four in order to shore up their foundation to compete against them in the future. This could include taking the fight to the adversary, in a manner of speaking, but extending a firm’s service offerings beyond legal. While building new capabilities inside the firm can pose significant challenges, there may be opportunities for partnership with best-in-breed entities. The partnership model may also be a viable one for firms to consider when it comes to “New Law” providers, alternative legal services providers, legaltech and legal process outsourcers.
Maintaining a competitive edge
The message we heard from our expert panel was clear: the Big Four are making a play in legal services, and they are sparking or accelerating further market disruption through their investments in legaltech and new business processes. Law firms are not powerless, however, and there are actions they can take to maintain a competitive edge if they evolve their strategy – guided by the right knowledge and insight.
This article was originally published on ShiftCentral, now part of LAC Group.
Mario Thériault
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