Commonwealth Bank Legal Market Pulse Report Conducted by Beaton Research + Consulting June Quarter 2014
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
3
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Commonwealth Bank Legal Market Pulse ReportConducted by Beaton Research + Consulting June Quarter 2014
1
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Contents
Confidence improves as revenues begin to grow 2
Economic Update 3
Overall Business Conditions Perception of business conditions for Australian law firms from now to 2 years’ time 4
Perceived performance of Australian economy 4
Perception of business conditions in specific areas 5
Revenue predictionsChanges in revenue over the next 6 months by location 6
Changes in revenue over the next 6 months by practice area 6
Changes in revenue over next 6 months by practice area cont. 7
Realised ratesExpected changes in realised rates over the next 6 and 12 months 8
Expense and profitability predictionsChanges in expenses over the next 6 months 9
Changes in staffing over the next 6 months 10
Change in operating margins over the next 6 months (segmented by tier) 10
Business process efficienciesOutsourcing back office functions in the last 12 months 11
Outsourcing office functions to a lower cost location in the last 12 months 11
Are clients’ putting more pressure for law firms to use LPO? 12
Effect of growth in LPOs on operating margin over the next 12 months 12
Provision of non-legal servicesProvision of non-legal services 13
Non-legal services - percentage of revenue 13
Potential revenue from non-legal services 14
Competition from non-traditional (alternative business model) law firmsCompetition from non-traditional (alternative business model) law firms 15
Frequency of competition from non-traditional (alternative business model) law firms 15
Proportion of firms that would encounter competition from alternative business model firms over the next 12 months 16
Impact of alternative business model firms over the next 12 months 16
Entry of international law firms 17
Are the entry of international law firms about to stop? 17
Impact of Federal Budget on firms 18
Impact of privatisation of AGS on firms’ revenue 18
2
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Marc Totaro National Manager, Professional Services Commonwealth Bank
Welcome to the final Commonwealth Bank Legal Market Pulse report for the 2014 financial year, conducted by the specialists at Beaton Research + Consulting. This quarter’s report shows the profession ending the year in good shape, despite the ongoing challenges of a highly competitive business environment.
Over the last quarter, confidence has continued to rise among legal firms around Australia, as the non-mining economy gains momentum and business conditions strengthen. While our measure of current conditions is still in negative territory, it continues to improve, rising five
percentage points since the March quarter.
At the same time, longer term expectations have moderated. While a substantial majority of Managing Partners still expect conditions to become positive within two years, that number has edged lower, suggesting that many foresee tough conditions will continue for some time to come.
Nonetheless, there are some encouraging signs. After falling back at the start of 2014, revenue expectations rose in the June quarter across Australia, the UK and Europe, with only Asia edging lower. The Sydney market in particular looks strong, while an upsurge in infrastructure spending and government outsourcing has seen revenue expectations from Canberra-based work improve substantially. Firms now expect revenues to increase in 13 out of 15 practice areas, with Construction, Engineering and Infrastructure practice groups particularly likely to benefit from higher demand. Only Taxation and Banking and Finance have lost ground.
There are also signs that the profession’s focus on efficiency and expense management is beginning to bear fruit, with top-tier firms in particular anticipating an uptick in operating margins over the next six months. Nonetheless, we can expect firms to continue pursuing efficiency measures in the months ahead, in part driven by clients. 2014 has seen growing pressure from clients to contain costs by using legal process outsourcing, especially in the top-tier firms. Meanwhile, the last quarter also saw a jump in the proportion of top-tier firms face growing competition from non-traditional law firms, another sign that the competitive landscape continues to evolve.
I trust you will find this edition of the Commonwealth Bank Legal Market Pulse report informative and useful for your firm’s planning and benchmarking. We look forward to continuing to monitor the legal industry’s sentiment and performance, and sharing these insights with you.
Please contact me if you would like any further information or if you would like to receive further research insights on mid and top-tier firms.
Marc Totaro Email: marc.totaro@cba.com.au Phone number: +61 2 9303 1940
Confidence improves as revenues begin to grow
3
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Diana Mousina Associate Director Economics
As we enter the 2015 financial year, Australian policymakers continue to grapple with the task of successfully engineering a transition from mining to non-mining led growth. While that transition is far from over, the non-mining economy has begun to gather momentum. A surge in residential construction and exports has helped to support growth, even as mining investment falls.
As a result, economy-wide growth in calendar 2014 is likely to return to long-term trend levels — a positive outcome for businesses navigating an economy in a state of flux.The latest findings from the Commonwealth Bank Legal Market Pulse Report (conducted by Beaton Research + Consulting) reflect this general improvement across the economy, with business conditions improving for another quarter. Businesses continue to be more positive about the longer-term outlook, reflecting rising economic momentum over the medium-term. Nevertheless, firms report that the process of sales and revenue generation remains tight. While an improvement in economic growth
should help to drive higher demand, the uncertainties of an economy in transition will continue to be felt over the months ahead.
In this quarter’s report, many Australian law firms also indicated that they are looking to increase numbers of partners, senior associates and lawyers. That may still be a challenge in a relatively tight labour market. Employment has held up better than expected in 2014. While employment growth is low, the unemployment rate looks to have peaked at a relatively low level of 6.0% in February. Commonwealth Bank expects employment growth to remain soft and the unemployment rate to trend around 5.8%–5.9% over 2014. That should help to support consumer spending growth, with job security fears falling as the unemployment rate hovers in a tight range.
Overall, the outlook for the new financial year is positive. The Reserve Bank has had a neutral policy bias since February, with the desired growth transition underway and the mining capital expenditure pothole less threatening than previously expected. Despite the recent lift in the Aussie dollar, the currency is well below peak levels and will provide stimulus to growth, although a lower currency will also increase imported inflation. We see inflation moving towards the top end of the Reserve Bank’s target band towards the end of the year. In our view, these factors will see the Reserve Bank starting to normalise monetary policy in November, with a 0.25% interest rate hike.
Economic Update
4
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Overall Business Conditions
Perception of business conditions for Australian law firms from now to 2 years’ time
Perceptions of business conditions continue on an upward projection, although the short-term outlook remains negative. There is some softening in the long term this wave, which could be related to the Federal budget announcement.
Net %
(po
sitiv
e - n
egat
ive)
-28 -23
9 10
50 45
80
60
40
20
0
20
40
60
80
100
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
At the moment Likely to be in 12 months' time Likely to be in 2 years' time
Perceived performance of Australian economy
The majority of firms believe that the economy will perform positively over the next 12 months, this is especially true among top-tier firms. Interestingly, 1 in 4 mid-tier firms expect that the economy will perform negatively over the next 12 months.
Very negative Net % (positive – negative)Negative Neutral Positive Very positive
42 57 38
19 25
39 43 38 19.4
42.9
12.5
100
80
60
40
20
20
40
60
80
100
100
80
60
40
20
0
20
40
60
80
100
Total Top tier Mid tier
% %
5
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Perception of business conditions in specific areas
Firms are still finding it challenging across most business areas.
Net
% (
posi
tive
- neg
ativ
e)
28 35
-3
3
-16 -19 -16 -23
-47
-32
-66 -61 -63 -65 -69 -68
-88
-74
100
80
60
40
20
0
20
40
60
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
Accessing capital Keeping quality staff
Finding quality staff Keeping expenses under control
Collecting invoices Keeping staff fully utilised
Competing with other firms
Winning new business
Negotiating price with clients
6
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Revenue predictions
Changes in revenue over the next 6 months by location
Revenue expectations have improved this quarter across all locations measured except for Asia.
62
76
38
75 75 71
36 38
10
38
20
35
13
29
-29
-13
40
20
0
20
40
60
80
100
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
Sydney UK / Europe Asia Melbourne Canberra Brisbane Perth Adelaide
Net
%
(incr
easi
ng -
decr
easi
ng)
Changes in revenue over the next 6 months by practice area
Forecast in revenue across construction, engineering and major infrastructure and IT, telecoms and media have improved the most across all business areas.
Net
%
(incr
easi
ng -
decr
easi
ng)
64 67
38
63
42
52
36 43
29
43
19
41 35
41
26
39
0
20
40
60
80
100
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
Employment, workplace and
OH&S
Construction, engineering and
major infrastructure
M&A and corporate advisory
Insurance Government IT, telecoms and media
Insolvency and restructuring
Litigation and dispute resolution
7
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Changes in revenue over next 6 months by practice area cont.
Revenue expectations in taxation have decreased significantly this wave.
Net
%
(incr
easi
ng -
decr
easi
ng)
24
33 29 31
15
28 30 25
21 23
52
19
5
13
0
20
40
60
80
100
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
Intellectual property Property, environment and planning
Other general commercial work
Banking and finance Competition, consumer law and trade practices
Taxation Energy and resources
8
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Realised rates
Expected changes in realised rates over the next 6 and 12 months
Firms are expecting realised rates to increase slightly in the next 6 months, and to double that increase in the next 12 months.
0.9 0.7 1.0
1.4
0
5
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 In the next 6 months (as compared to the last 6 months) In the next 12 months (as compared to the last 6 months)
Mea
n %
9
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Expense and profitability predictions
Changes in expenses over the next 6 months
IT hardware and software and marketing and business development areas continue to have the highest forecasted increase in expense among firms. Firms also expect telecommunications expenses to decrease over the next 6 months.
Net
%
(incr
easi
ng -
decr
easi
ng)
44 39
31 35
0
10
19
10
-9 -3 -3
-6 -3
-26
40
20
0
20
40
60
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
IT hardware and software
Marketing and business
development
Occupancy Staff training and development
Professional indemnity insurance
Library and knowledge
management
Telecommunications
10
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Changes in staffing over the next 6 months
Firms are looking to increase partner numbers and senior associates and lawyers over the next six months, and to decrease junior lawyers and admin staff numbers.
Net %
(in
crea
sing
- de
crea
sing
)
6
23
13
50
28
39 44
39
-16 -10
-3
-32
9 10
40
20
0
20
40
60
Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14 Q3 FY14 Q4 FY14
Equity partner numbers
Fixed share / salary partner numbers
Senior Associates / senior lawyers
(4th year+)
Junior lawyer numbers (Graduates – 3rd year)
Shared service staff numbers
Secretarial and admin staff numbers
Paralegals
Change in operating margins over the next 6 months (segmented by tier)
A higher proportion of top-tier firms expect an increase in operating margins compared to mid-tier firms.
Net %
(in
crea
sing
- de
crea
sing
)
0
33
0
67
0
25
0
20
40
60
80
Q3 FY14 Q4 FY14
Your firm's forecast for operating margins for the next 6 months
Total Top-tier Mid-tier
11
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Business process efficiencies
Outsourcing back office functions in the last 12 months
Almost 1 in 4 firms have outsourced back office functions in the last 12 months.
83
17
57
43
77
23
0 20 40 60 80 100
No
Yes
%
Total
Top-tier
Mid-tier
Outsourcing office functions to a lower cost location in the last 12 months
1 in 5 firms have moved office functions to lower cost locations in the last 12 months, with top-tier firms more likely to do so.
88
12
57
43
81
19
0 20 40 60 80 100
No
Yes
%
Total
Top-tier
Mid-tier
12
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Are clients’ putting more pressure for law firms to use LPO?
Almost 1 in 2 law firms believe that there is growing pressure from their clients to use LPO. This is more evident among top-tier firms.
48 71
42
32
29
33
19 25
0
20
40
60
80
100
Total Top-tier Mid-tier
%
Disagree/Strongly Disagree
Neutral
Agree/Strongly Agree
Effect of growth in LPOs on operating margin over the next 12 months
Majority of firms do not believe the growth in LPOs will affect their operating margin over the next 12 months.
6 14 4
10 14
8
84 71 88
0
20
40
60
80
100
Total Top-tier Mid-tier
%
None
Decrease
Increase
“Thus far we are not using LPO’s, but we are investigating possibly using LPO’s. But we’ve given no commitment to use at this stage, nor have we predicted any change to margin via use of LPO’s” CEO/Managing Partner of a single state mid-tier firm
13
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Provision of non-legal service
Provision of non-legal services
Approximately 1 in 2 law firms are now diversifying their offering as they move into non-legal services, this is more prevalent among top-tier firms.
55
45
43
57
58
42
0 20 40 60 80
No
Yes
%
Mid-tier
Top-tier
Total
Non-legal services - percentage of revenue
At present non-legal services only account for 1-2% of revenue.
14 20 7
10 14
50 0
50 50
50
14 20
1.5
1.3
1.7
0
0.5
1
1.5
2
2.5
0
20
40
60
80
100
Total Top-tier Mid-tier
Mea
n %
%
10% or more
7.5%-less than 10%
5%-less than 7.5%
2.5%-less than 5%
1%-less than 2.5%
0.5%-less than 1%
0.25%-less than 0.5%
Less than 0.25%
Mean
14
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Potential revenue from non-legal services
Firms expect revenue from non-legal services to increase, especially over the next 2 years.
Increase Increase significantly Decrease Decrease significantly Remain the same Net % (increase – decrease)
57 29
43
71 42.9
71.4
100
80
60
40
20
20
40
60
80
100
80
60
40
20
0
20
40
60
80 Likely to be in 12 months' time Likely to be in 2 years' time
% %
15
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Competition from non-traditional (alternative business model) law firms
Competition from non-traditional (alternative business model) law firms
Top-tier firms encountered greater competition from non-traditional law firms when compared to mid-tier firms.
16
45
39
0
29
71
21
50
29
0 20 40 60 80
Don't know
No
Yes
%
Mid-tier
Top-tier
Total
Frequency of competition from non-traditional (alternative business model) law firms
Advent Balance and Bespoke Law are the main non-traditional firms which compete most frequently with law firms.
45 56 56 63
36 33
44 25
18 11 13
0
20
40
60
80
100
AdventBalance Bespoke Law Plexus Other
%
Somewhat frequently
Rarely
Never / Almost never
16
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Proportion of firms that would encounter competition from alternative business model firms over the next 12 months
Majority of firms expect 25-30% of firms will encounter competition from alternative business model firms over the next 12 months.
%
77
16 6
0
10
20
30
40
50
60
70
80
90
25-30% 31-35% 36-40%
Impact of alternative business model firms over the next 12 months
The majority of firms do not perceive alternative business model firms to have a great impact on their firm over the next 12 months. That being said, 1 in 3 top-tier firms see alternative business model firms as a threat.
-16 -29
-13
77 71 79
6 8
40
20
0
20
40
60
80
100 Total Top-tier Mid-tier
%
Very negative Negative Neutral Positive Very positive
“These firms will have a market-changing influence over time - but momentum is yet to build. Off-setting that, client sophistication will lead to these new models only applying to select parts of the client’s overall needs. So, short-term impact is minimal but increasing over time” COO / General Manager of a national mid-tier firm
17
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Entry of international law firms
The majority of firms do not expect the entry of international law firms to have a great effect on their firm. That being said, top-tier firms are more likely to expect a negative impact whereas mid-tier firms see it as an opportunity.
-10 -29
-4
58 57 58
29 14
33 3
4
40
20
0
20
40
60
80
100 Total Top-tier Mid-tier
%
Very negative Negative Neutral Positive Very positive
“Creates competitive tensions and restricts ability of those firms to refer work to each other. The remaining national firms will benefit from those conflicts” COO / General Manager of a national mid-tier firm
Are the entry of international law firms about to stop?
A larger proportion of firms expect international law firms to have a greater presence in the future. This is more evident among top-tier firms.
29 38
26
14
29
45
86
33
0
20
40
60
80
100
Total Top-tier Mid-tier
%
Disagree/Strongly Disagree
Neutral
Agree/Strongly Agree
18
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
Impact of Federal Budget on firms
The majority of firms do not expect the Federal Budget to have a tangible impact on their firm. Mid-tier firms are less satisfied with the budget when compared to top-tier firms.
-26 -14
-29
55 57 54
19 29
17
40
20
0
20
40
60
80
100 Total Top-tier Mid-tier
%
Very negative Negative Neutral Positive Very positive
Impact of privatisation of AGS on firms’ revenue
The majority of firms indicate that the privatisation of AGS will have a positive impact on their revenue.
52
10
71 46
13
39 29
42
0
20
40
60
80
100
Total Top-tier Mid-tier
%
None
Decrease
Increase
Don’t know
19
COMMONWEALTH BANK LEGAL MARKET PULSE – JUNE QUARTER 2014
For further information
For further insights or information, please contact:
Marc Totaro, National Manager Professional Services
Mobile: 0477 739 315 Direct dial: +61 2 9303 1940 Email: marc.totaro@cba.com.au Web: commbank.com.au/legalmarketpulse
For media inquiries, please contact:
Kate Powditch, Public Relations Advisor
Direct dial: +61 2 93031353 Email: kathryn.powditch@cba.com.au
Things to know before you Can: This report has been prepared by Beaton Research + Consulting and is commissioned by Commonwealth Bank. The confidential on-line survey used to prepare this report was undertaken by Beaton Research + Consulting in May to June 2014. The report is based on the views of 31 law firms across Australia. The report compares results from surveys undertaken in May/June 2014 (Quarter 4) to surveys in February 2014 (Quarter 3). Additional market and industry information has been provided by the Commonwealth Bank’s Economics team. This report may be referred to or copied into internal presentations and reports but not published in any communication that will be distributed or accessed externally. When the material is referred to or used, we would welcome due accreditation to the Commonwealth Bank and to Beaton Research + Consulting.
This report is published solely for information purposes. As this report has been prepared without considering your objectives, financial situation or needs, you should before acting on the information in this report, consider its appropriateness to your circumstances and if necessary seek the appropriate professional advice. The information in this report is based on the views of large and mid-sized law firms across Australia and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this report. Commonwealth Bank of Australia ABN 48 123 123 124.
Related Documents
