Small firms perceive online legal service providers as biggest threat

Online legal service providers pose the biggest commercial threat to small law firms, a report has shown. 

The Thomson Reuters ‘UK small and medium-sized law firm market’ 2021 survey revealed that although 45 per cent of small firms see large firms as a threat, more than half (53 per cent) perceive online providers as the biggest threat. 

Those were not the only threats: a third (32 per cent) also perceived ‘DIY’service providers, ie those offering a range of standard documents – and sometimes advice – as a threat.

Firms also reported that client expectations had not changed during the pandemic and most were optimistic about growth. 

Samantha Steer, Thomson Reuters’ director of market development (law firms), said: “Whilst the lockdown has opened the eyes of many law firms to the efficiencies they can generate from legal tech, smaller law firms are more conscious of the threat that online competitors pose.”

Legaltech and growth

Most small firms said they were daunted by legal tech with increasing complexity being an issue, while 71 per cent viewed information management and increasing amounts of data as a challenge.

Two thirds of small firms and 81 per cent of medium-sized firms anticipated further tech investment would improve efficiencies. Just over half (53 per cent) of small firms and 43 per cent of mid-sized firms expected tech to help them deliver on client expectations.

Medium-sized firms were more likely to prioritise tech and security infrastructure (36 per cent) compared to smaller counterparts (18 per cent). Surprising perhaps, given the necessary shift to remote working and given that many firms will introduce a hybrid work model post-pandemic. 

Steer commented: “Greater investment in technology will not only lead to improved efficiency, but clients will benefit from having greater transparency and responsiveness from lawyers. 

“The most successful small and medium-sized firms will be those that make full use of technology to gain access to additional clients and develop new offerings.”

She added: “Whilst there are challenges for small and medium-sized law firms in keeping on top of technology changes in the sector, they also have very healthy expectations of how technology can benefit them by improving efficiencies.” 

Neil Lloyd, managing director of FBC Manby Bowdler LLP (FBCMB), said the firm had invested during lockdown: “Throughout 2020 we’ve continued to invest in front-facing technology in order that we further enhance our clients experience of dealing with us.” 

This is important because managing client expectations remains vital – 80 per cent of the firms surveyed said clients are “demanding more for less” and the pandemic had not eased expectations, with figures up from 77.7 per cent last year.

The other key operational challenge of 2021 was, for most firms (80 per cent), the impact of covid-19 on service delivery and working practices.

Court delays contributed to cash flow disruption; and controlling costs and general growth were cited as the most important objectives for firms. 

Lloyd agreed: “Cash is king and a firm’s credit control has never been more important. Having real-time management information on debts outstanding really helped [FBCMB] focus our efforts.” 

Some firms may well be approaching investment with caution. Steer commented: “Disruption to cash flow in the early months of the pandemic has, understandably, caused many firms to take stock of costs and consider implementing measures to control outgoings in the short term.” 

Firms appeared optimistic about growth and expected employment, litigation and dispute resolution, private client, commercial transactions and residential property to be in demand practice areas in 2021.