About this time every year, Altman Weil releases the results of its survey of law firms. Those who work in large firms need to read the report – tellingly titled Law Firms in Transition – because it’s a good window into what other firms are doing and why, which is critical information both for firm business purposes (in other words, what’s working?) and for competitive purposes. Those not in large firms need to read it because smaller firms have increasing competitive opportunities that may increase yet further thanks to some of the problems outlined in the report.

A handful of summary points caught my attention:

  • Overcapacity of equity and non-equity partners, especially in larger firms, is endemic and a drag on profitability.
  • Non-traditional competitors are actively taking business from law firms and the threat is growing.
  • In 63% of law firms, partners aged 60 or older control at least one quarter of total firm revenue, but only 31% of law firms have a formal succession planning process.

The upshot from the report is that law firms are taking measured steps to change practice (evolutionary, not revolutionary) and that clients aren’t demanding anything more. In other words (and, to be clear, these are my words, not Altman Weil’s), law firms are like one hunter in a group running from a bear: there’s no need to be the best runner, just better than the slowest hunter. This is not a particularly good sign for large firms, but it may be good for smaller firms that are seeking to innovate and offer more client-appealing alternatives to the norm.

The report finds that in-house departments are doing the work that law firms used to do, which indicates that clients are interested in innovative measures to improve efficiency and economy. “In other words, if clients can’t buy it from law firms, they’ll build it themselves.”

Other interesting points raised in the report concern the competitive threat from non-legal vendors and technology solutions that undercut undercutting law firm services; the overcapacity of partners, particularly non-equity partners, the failure of law firms to complete meaningful succession planning for aging Baby Boomer partners; and the effect of strategic choices in lawyer staffing, efficiency in delivering legal services, and pricing. The report is dense and data-heavy, but it’s well worth setting aside some time each day to review a section of the report over a stiff cup of coffee. The firms surveyed range in size from 50 to more than 1000 lawyers, and those who are working in such firms, hope to work in such firms, or plan to compete with such firms can’t afford to miss reading the report.

One thing is for sure: 2016 is shaping up to be another challenging year for lawyers and law firms. How do you plan to address the challenge?