COMMONWEAL EA MARKET PSE REPRT Commonwealth Bank …€¦ · Changes in staffing over the next 6 months 9 ... industry’s performance and outlook, the ... M&A and corporate advisory,

3

COMMONWEALTH BANK LEGAL MARKET PULSE REPORT

Commonwealth Bank Legal Market Pulse reportConducted by Beaton Research + Consulting

1


ContentsConfidence continues to rise as long-term outlook improves 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 the 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 9

Business process outsourcingOutsourcing back office functions in the last 12 months 10

Provision of non-legal servicesProvision of non-legal services 11

Non-legal services percentage of revenue 12

Revenue from non-legal services 12

Adoption of information and communications technologiesAdoption of information and communications technologies in the Australian legal market 13

Level of adoption of information and communications technologies in the Australian legal market 13

Investment returns on usage of information and communications technologies 14

Investment in new information and communication technologies 14

Competition from non-traditional (alternative business model) law firmsCompetition from non-traditional (alt business model) law firms 15

Frequency of competition from non-traditional (alt business model) law firms 16

2


Marc Totaro National Manager, Professional Services Commonwealth Bank

Welcome to the third quarter edition of the Commonwealth Bank Legal Market Pulse report conducted by Beaton Research + Consulting. In addition to monitoring key aspects of the industry’s performance and outlook, the enhanced report now includes visual tools that will help you to navigate the data and better inform critical decision-making within your business.

The March report saw quarter-on-quarter confidence continue to climb amongst legal firms in Australia, Asia, UK and Europe as the outlook for business conditions is expected to improve.

This optimism is buoyed by a brighter economic outlook amongst Managing Partners, an anticipated rise in realised rates along with stable margins over the next six months. That said, business conditions remain tough, particularly in the areas of price negotiation with clients and winning new business.

Securing high calibre talent is a focus amongst some firms, with the report revealing mid-tier businesses are seeking to increase all fee-earning roles with an expected growth in the number of equity and salary partners. Conversely, the top tier firms indicate a decrease in equity and salary partner numbers to increase their leverage ratios.

Despite the positive sentiment over the longer-term horizon, the report reveals that revenue expectations are decreasing across the country in all locations except for Melbourne. Of all practise areas, Taxation is forecasting the largest increase in revenue growth. In addition, expenses are flagged to increase in all areas except occupancy.

With competition heightening and margin pressure remaining, many firms also indicate that diversification is an important driver of future revenues. One in two respondents report that their firm offers related but non-legal services, and this is expected to increase over the next 12 to 24 months.

Interestingly, the competitive landscape also continues to shift, with one in four firms having competed for work with non-traditional (alternative business model) law firms in the past 12 months.

As part of a spotlight on technology, the report also reveals that firms will increase investment in new technologies, with mobility solutions and document automation the most widely adopted across the industry.

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 National Manager, Professional Services Email: [email protected] Phone number: +61 2 9303 1940

Confidence continues to rise as long-term outlook improves.

3


Diana Mousina Associate Director Economics, Commonwealth Bank

In 2014, Australia is faced with the task of successfully transitioning from mining to non-mining led economic growth. Over the past year, a slowdown in mining construction combined with soft activity in the non-mining sector has resulted in below trend growth outcomes.

The latest findings from the Commonwealth Bank Legal Market Pulse Report (conducted by Beaton Research + Consulting) indicate that business conditions are trending upwards across the economy, but they remain shaky. Business sentiment towards the short-term outlook continues to be negative but firms are more optimistic about the medium-long term outlook. Business sentiment will need to continue rising in order to support a lift in business spending over the near term.

After an extended period of disparity between the mining and non-mining states, there has been an evening out in economic conditions across the states. Legal firms across the majority of locations reported a weakening in revenue expectations with the exception of Melbourne. It is anticipated that the New South Wales and Victorian economies should see a rise in activity in the near term, driven by the diversified nature of these economies.

While revenue expectations amongst law firms remain subdued, the income side of the economy is gradually improving which is a positive sign for business profits and sentiment.

The employment market remains weak, with the unemployment rate rising to 6%. However, positive leading indicators point suggest that we may be nearing the peak in the unemployment rate. Mid-tier legal firms expect there to be an increase in fee earning staff roles over the next six months. Commonwealth Bank expect the unemployment rate to peak at 6.25% mid-year and then trend down over 2015.

The arguments for lower interest rates have diminished at the start of 2014. Fiscal settings are moving in an expansionary direction in the short term, the AUD has depreciated considerably and the interest rate sensitive parts of the economy are responding to low interest rates and the drop in the currency. The Reserve Bank of Australia continue to prefer stimulus to come in the form of a lower Australian dollar. We expect interest rates to be kept on hold over the majority of 2014, with the Reserve Bank starting to increase rates at the end of the year.

Economic Update

4


Overall Business Conditions.

Perception of business conditions for Australian law firms from now to 2 years’ time

Business conditions continue on an upward projection, although the short-term outlook remains negative. Perceptions likely to be positive in 12 months.

80

60

40

20

0

20

40

60

80

100

Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14

At the moment Likely to be in 12 months' time Likely to be in 2 years' time

Net

% (

posi

tive

- neg

ativ

e)

-43 -28

13 9

6750

Perceived performance of Australian economy

There is consensus amongst the tiers regarding the broader economy. A net 12.5% of law firms rate the conditions over the next 12 months as positive.

Performance of Australian economy over the next 12 months

Very negativeNet % (positive – negative)

Negative Neutral Positive Very positive

100

80

60

40

20

0

20

40

60

80

100

Total Top tier Mid tier

%

100

80

60

40

20

20

40

60

80

100

%

19 25 173 4

34 38 33

38 4644

12.5 12.5 12.5

5


Perception of business conditions in specific areas

The predominant sentiment across most specific business areas remains negative. Firms find it challenging to: Find and keep quality staff, Collect invoices, Win new business and Negotiate price with clients.

Accessingcapital

Keepingquality staff

Finding qualitystaff

Keepingexpenses

under control

C ollectinginvoices

C ompetingwith otherfirms

Keeping stafffully utilised

Winning newbusiness

Negotiatingprice with

clients

-88

10

28

0

-3

3

-16 -17 -16

-43 -47

-63 -63 -67 -66 -63-69

-80Net

% (

posi

tive

- neg

ativ

e)

100

80

60

40

20

0

20

40

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

6


Revenue predictions.

Changes in revenue over the next 6 months – by location

Revenue expectations have come down this quarter particularly in UK/Europe, Brisbane and Adelaide. Melbourne was the only improver this quarter.

80 75 7162

67

4327

36

63

20 1913 14 10

0

-29

40

20

0

20

40

60

80

100

Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Q2 FY14 Q3

FY14 Asia Sydney UK / Europe Melbourne Brisbane Perth Canberra Adelaide

Net

% (i

ncre

asin

g -

de

crea

sing

)

Changes in revenue over the next 6 months – by practice area

Firms forecast revenues to improve in 6 practice areas. Taxation and OH&S have had the most positive revenue forecasts with Banking and finance showing improvement this quarter. M&A and corporate advisory, Government and Insurance have remained relatively stable.

5464

20

5243 42

3238 38 36

4235

2130

2129

Net

% (i

ncre

asin

g -

decr

easi

ng)

0

20

40

60

80

100

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Q2FY14

Q3FY14

Employment,workplace and

OH&S

Taxation M&A andcorporateadvisory

Construction,engineering and

majorinfrastructure

Insurance Insolvency andrestructuring

Banking andfinance

Property,environment and

planning

7


Changes in revenue over the next 6 months – by practice area cont.

Revenue expectations have decreased in Competition, consumer law and trade practices.

3629

3326 23 24

38

21 19 19 19 159

5

Net

% (i

ncre

asin

g -

decr

easi

ng)

0

20

40

60

80

100

Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14 Q2 FY14 Q3 FY14

Government Litigation anddispute resolution

Intellectualproperty

Competition,consumer law and

trade practices

IT, telecoms andmedia

Other generalcommercial work

Energy andresources

8


Realised rates.

Expected changes in realised rates over the next 6 and 12 months

Firms are expecting realised rates to increase in the next 6 months and continue to increase over the year.

-0.1

0.9 0.61.0

Mea

n %

3

2

Q2 FY14 Q3 FY14 Q2 FY14 Q3 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)

9


Expense and profitability predictions.

Changes in expenses over the next 6 months

IT hardware and software and Marketing and business development continue to be the focus for firms.

Net

% (i

ncre

asin

g -

decr

easi

ng)

3744

30 31

1019

13

0

-20

-3-13

-3

-27

-9

40

20

0

20

40

60


IT hardware andsoftware

Marketing andbusiness

development

Staff training anddevelopment

Occupancy Library andknowledge

management

Telecommunications Professionalindemnityinsurance

Changes in staffing over the next 6 months

Firms continue to increase lawyer numbers with forecasts in a net increasing position. As in FY2013 firms forecast a reduction in their non fee-earning staff.

17

6

23

1320

28

17

44

-17 -16 -13

-3 -3

9

Net

% (i

ncre

asin

g -

decr

easi

ng)

20

0

20

40

60


Equity partnernumbers

Fixed share /salary partner

numbers

Senior Associates /senior lawyers (4th

year+)

Junior lawyernumbers

(Graduates – 3rdyear)

Shared servicestaff numbers

Secretarial andadmin staff

numbers

Paralegals

10


Business process outsourcing.

Outsourcing back office functions – in the last 12 months

22% of firms have outsourced back office functions in the last 12 months.

13

25

63

0

92

8

3

75

22

0 20 40 60 80 100

Don't know

No

Yes

%

Mid tier

Top tier

Total

11


Provision of non-legal services.

Provision of non-legal services

Firms have increased their portfolio of non-legal service. 50% of firms are saying they currently provide non-legal services.

%

38

63

54

46

50

50

Mid tier

Top tier

Total

0 20 40 60 80

No

Yes

12


Non-legal services - percentage of revenue

Despite pressures on traditional legal services, non-legal services still only account for a small percentage of most firms’ revenues. A few mid tiers have stretched their offering to generate 10% or more from these services.

Mea

n %

0

20

40

60

80

100


%

0.0

0.5

1.0

1.5

2.0

2.5

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

1927

13

20

913

1819

60

69

6 9

25 20 27

2.22.4

2.1

Revenue from non-legal services

Firms expect the proportion of revenues from non-legal services to increase over the next 12 and 24 months.

Increase Increase significantly Decrease Decrease significantly Remain the same

-7

20 13 7

80 73 20.0

13.3

100

80

60

40

20

0

20

40 12 months 2 years

%

100

80

60

40

20

20

40

60

80

100

Net

%

Net % (increase – decrease)

13


Adoption of information and communications technologies.

Adoption of information and communications technologies in the Australian legal market

A quarter of firms believe Australia adopts new technologies at a faster pace than law firms in other countries.

16

19

41

25

13

13

50

25

17

21

38

25

0 20 40 60

Don't know

Slower than law firms in othercountries

At the same pace as law firms inother countries

Faster than law firms in othercountries

%

Mid tier

Top tier

Total

Level of adoption of information and communications technologies in the Australian legal market

The top tiers are the early adopters when it comes to implementing new information and communications technologies.

100 88 88

75 75 75

50 63

83

67

46 46 33 29

38 29

88 72

56 53 44 41 41 38

0

20

40

60

80

100

120

Mobility solutions Document

automation Collaboration software (to

perform tasks like annotating

documents)

E Discovery software Web based

CRM software (e.g. Sales

Force)

Enterprise social media

platforms (e.g. Yammer)

Data analytics software Cloud based

computing / storage

%

(Im

plem

entin

g /

Impl

emen

ted)


14


Investment returns on usage of information and communications technologies

57% of firms still find it difficult or too early to tell if investments in new information and communications technologies have generated any investment returns.

57

43

0

57

33

10

57

36

7

0 20 40 60

Don't know (too early to tell)

Yes

No

%

Mid tier

Top tier

Total

Investment in new information and communication technologies

Firms to continue to increase their level of investments in new information and communication technologies although 57% have not been able to quantify the returns of these investments.

%

%

40

20

0

20

40

60

80

1006 months 12 months

100

80

60

40

20

20

40

60

80

100

Increase Increase significantly Decrease Decrease significantly About the same Net % (increase – decrease)

-3

57 67

13

30 17

-3

10

76.7

63.3

15


Competition from non-traditional (alternative business model) law firms.

Competition from non-traditional (alt business model) law firms

25% of firms have competed for work with non-traditional law firms in the past 12 months.

0

50

50

21

17

63

16

25

59

0 20 40 60 80

Don't know

Yes

No

%

Mid tier

Top tier

Total

16


Frequency of competition from non-traditional (alt business model) law firms

Bespoke Law is cited as the non-traditional provider against which law firms have competed most frequently.

0

20

40

60

80

100

Plexus Bespoke Law AdventBalance Other

%

Somewhat frequently Rarely Never /almost never

50 5025 29

3825

63 57

1325

13 14

17


For further information

Regarding banking services for law firms

Marc Totaro, National Manager Professional Services

Mobile: 0477 739 315 Direct dial: +61 2 9303 1940 Email: [email protected] Web: commbank.com.au/legalmarketpulse

Regarding the study or Beaton’s services

Jarek Dobrjanski, Project Manager Professions

Mobile: 0411 322 937 Direct dial: +61 3 9829 0019 Email: [email protected] Web: beatonglobal.com

Regarding media inquiries

Kate Powditch, Public Relations Advisor

Direct dial: +61 2 93031353 Email: [email protected] Web: commbank.com.au/legalmarketpulse

18


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 February 2014. The report is based on the views of 32 law firms across Australia. Additional market and industry information has been provided by the Commonwealth Bank’s Economics team. The report compares results from surveys undertaken in February 2014 (Quarter 3) to surveys in October 2013 (Quarter 2).

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.

Important information: 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.

19


COMMONWEAL EA MARKET PSE REPRT Commonwealth Bank …€¦ · Changes in staffing over the next 6 months 9 ... industry’s performance and outlook, the ... M&A and corporate advisory,

Documents