Minding the Gap

Dominance of a marketplace is the most valuable strategic position a law firm can hold.  But the ongoing recession has been corrosive to the competitive situation of many of the most dominant firms in their key markets.  Achieving a dominant position is difficult but it turns out that maintaining dominance may be even tougher.

Dominance means a competitor is one of the two or three firms that take up the largest and most attractive shares of a marketplace.  A dominant law firm is typically among the largest in the marketplace, has a strong reputation and name recognition, serves major clients on high profile matters and has lawyers who are marquee players.  The marketplace may be a specific practice or involve representing clients in a specific industry, but is most frequently related to a geographic area.

Traditionally, when a firm achieves a position of dominance, it is difficult to unseat them.  Clients and potential clients recognition of the factors that create dominance are typically firmly fixed in their minds and, over time, the gap between dominant and non-dominant firms widens.  But the recession has affected the invulnerability of businesses recognized to be in dominant positions.  With regard to law firms, three occurrences have impacted their market control.

The first is the highly publicized collapses of dominant institutions.  General Motors was an icon of dominance.   But the government takeover of General Motors and the constantly publicized risk of the failure of dominant companies that were “too big to fail” called into question the basic underpinnings of firms considered to be in dominant positions.

The second factor, at least in the legal industry, was the role of the news media.  With past major law firm failures (Brobeck, Arter Hadden, Altheimer Gray), their passing went with relatively little notice by the mainstream media.  But the Wall Street Journal, and by extension, the other national papers of record, seemingly became obsessed with the demise of Howrey and Dewey Leboeuf making the passing of dominant law firms a page one vigil.  Clients and competitors alike repeatedly saw that institutional law firms in dominant positions were assailable.

Finally, the newfound empowerment of clients and the cost cutting demands of corporate boards abated some of the risk involved in using non-dominant law firms.  The adage that no one was ever fired for buying IBM got turned on its head to the point where general counsels were almost afraid to advocate the hiring of “name brand” law firms.

The result of this is a churn in the competitive structures of most law firm marketplaces.  For firms seeking to achieve a dominant position, there are, perhaps, the greatest opportunities since World War II to close the gap between themselves and the market leaders.  But while this represents a threat for those market leaders, it also provides dominant firms opportunities to expand their positions of dominance into additional industries, areas of practice and marketplaces.  In fact, there has probably never been a time when growth and competitive strategy was as important to law firms.

Dominance Strategies

The strategies employed by dominant firms are likely to be completely different than those used by firms attempting to achieve dominance.  Were I managing an “up and coming” firm, I would put my firm’s energy into three strategies:

1. Focus on differences.  At the moment, the general counsel of larger companies are being pressured to use innovation to cut legal costs.  By identifying the differences between your firms and that of the dominant competitors, and demonstrating how those work to the clients advantage, a firm can present themselves as an innovative alternative.  For example, if a primary difference is the number of lawyers your firm has, pointing out that your firm has purposely focused its ability to serve clients on using lower cost non-lawyer workers and increased dependence on technology – both of which lower legal bills.
2. Sell price.  Dominant law firms are able to set the price for services in the marketplace which has lead to their reluctance to enter into conversations about price with clients.  Firm aspiring to dominance in changing marketplaces should openly address price and focus on how their case management and alternative fee arrangements lowers the overall client cost of legal services.  Please note, this is a substantially different argument than saying your firm is the cheapest.
3. Create the image of “functional quality”.  Dominant firms win by presenting the image of reducing client risk.  Provide clients with the opportunity of participating in risk analysis discussions so they can appreciate the price paid vs. the value of the quality argument presented by dominant law firms.

While the economy gives some new advantage to dominance challenging firms, the cards continue to be stacked in favor of dominant players.  Their strategy for maintaining dominance is pretty simple:

1. More of the same.  To lose a dominant position, clients must believe that a firm has lost some of the characteristics that made it dominant.  The best way to avoid that is to focus on the quality of client relationships, the service provided and successful outcomes.
2. Raid the competition.  The best defense is a strong offense.  Be constantly on the lookout to hire the brightest and best from your up and coming competitors.  Use your reputation, platform and client base as a competitive advantage of bringing in laterals.
3. Strengthen industry ties.  The easiest route for competitors to create a dominant position is through industry knowledge and relationships.  Reemphasize industry groups, particularly with those industries most affected by the recession.

The degree to which the competitive marketplace will rejigger itself to accommodate an economy recovery will be interesting to observe.  Even more interesting will be the success of the strategies firms implement in creating or maintaining dominance.