UK law firms have cited macroeconomic volatility as their greatest concern, but this has not impacted growth ambitions, with 100% and 93% of Top 100 firms expecting to increase revenue and profits respectively in the next year (by an average of 9.3% for revenue and 8.2% for profits), according to PwC’s Law Firms’ Survey for 2023.
In a market battling inflation and high running costs, average fee income growth “of between 8.0% and 9.7% is expected across the Top 100 bandings.” However, with average inflation across the year “approximating 10%, in real terms, fee income fell slightly.”
Considering risks, the Top 100 cited macroeconomic volatility as their top concern, with 87% either extremely or somewhat “concerned that this will impact future growth ambitions over the next two years.”
This was reportedly followed “by cyber threats (85% extremely or somewhat concerned), with firms responding through investment into both people and technology.”
The number of dedicated Cyber Security Chiefs/CISOs has “increased alongside rises in cyber security spend: Top 10 (up 21% to £6.1m), Top 26-50 (up 41% to £1.1m) and Top 51-100 (up 67% to £396k) firms. Top 11-25 firms reduced their cyber spend by 16% to £1.1m.”
Inability to recover cost inflation “through pricing ranked third (73%), as inflation has added further pressure to high salaries and other costs in the sector, with a significant number of firms struggling to pass increased costs onto their clients.”
The number one concern “in 2022’s survey, shortage of talent (65%) was the fourth highest concern for firms in 2023, and increased through the bandings: (Top 10: 33%; Top 11-25: 57%; Top 26-50: 69%; and Top 51-100: 82%).”
This point reflects trends “seen more broadly among people-led services businesses, where the war for talent has seen smaller businesses struggle to match the financial packages and career opportunities typically offered by larger organisations.”
Generative AI – opportunities sensed but cautious approaches limit exploration
As the most significant emerging technology, AI is presenting “both a disruptive risk and a competitive opportunity to the legal sector. Most firms see a chance to benefit from the disruption, though few have taken meaningful steps to capitalize on the opportunity so far.”
Of the Top 100, 69% believe GenAI will “have a positive impact on revenues or margins.”
This view is largely “consistent across each banding (Top 10: 66%; Top 11-25: 79%; Top 26-50: 65%; and Top 51-100: 67%). Others, however, fear AI will either lead to a reduction in demand, or limited financial upside with efficiency gains passed on to clients.”
Several new tools specific to legal services which “leverage the capabilities of GenAI have already emerged.”
These include Harvey (a tool for contract analysis, due diligence, litigation, and regulatory compliance built on GPT-4) and ContractPodAI LeAh (contract drafting and reviewing tool).
For more details, check here.