Moneyball and the law: The Competition

“If we act like the New York Yankees in this room, we are going to lose to the Yankees out on the field.”

– Billy Beane, Oakland A’s General Manager

Like baseball, the law firm competitive landscape is not an even playing field. Large firms continue to consolidate. The richest firms are getting richer. They are able to attract the best lawyers and win the highest volume of premium work. Where does that leave everyone else?

It depends on what you want.

Traditionally, the U.S. legal market was divided into two segments “Big Law” (often defined as the AmLaw 200 in the annual rankings by The American Lawyer magazine) and everyone else. The market, however, is quickly bifurcating into sub-groups based on global economic trends.

Although these groups will evolve, Legal Vertical Strategies segments the current market into five tiers:

Tier 1: U.S. firms LVS believes ultimately will be a part of a Global 25 based of the most profitable law firms. Currently, this tier includes 18 U.S. firms.

Tier 2: The remainder of the AmLaw 200 firms based on revenue.

Tier 3: Regional firms with muti-city offices.

Tier 4: Single office/city law firms

Tier 5: Solo practitioner

What do you want from your legal practice?

Big Law has a number of competitive advantages because of  geographic reach, ability to staff cross-practice/geographic/ industry teams, ability to compensate talent, and market themselves at a national and global level. That means Tier 1 and Tier 2 firms will win the largest share of premium work and will continue to offer the highest compensation opportunities. It is also having a significant impact on law firm loyalty, culture and the concept of professional partnership. Large firms tend to have a greater pack mentality. Innovation tends to be slower and decisions often hinge on what their counterparts are doing.

Smaller firms will miss out on opportunities with multinational clients and large public companies. They may have trouble retaining quality talent due to lower compensation models. However, they also have competitive advantages as it relates to their ability to create niche practices, cultivate stronger client relationships, integrate technologies to differentiate themselves and build stronger firm cultures and attorney teams.

To be sure, there is no one size fits all definitions within these tiers. But Tier 3 and lower firms cannot compete for legal services in the same way that Tier 1 and Tier 2 firms do. A realistic assessment of a firm’s competitive position, therefore, can help firms define and clarify their long-term objectives.

Posted on April 19, 2012 in Uncategorized

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