KEEPING up with advances in technology is the number one strategic priority for Scottish law firm leaders, who also feel that consolidation, Brexit, changing client demands and generational change pose a threat to their businesses.

According to the latest Law Firm Leaders survey from accountancy firm BDO, over 90 per cent of Scottish participants said that technology will be a major factor in their firm’s success in the next five years.

However, with one Scottish managing partner taking part in the survey noting that “many law firms are not in the position to invest in technology”, BDO’s Scotland head Martin Gill said that bridging the funding gap would become critical in the near future.

“Our research shows that technology is expected to have the greatest impact on law firms over the next five years,” Mr Gill said.

“Technology has had a significant impact on all business and the professional services sector is not immune to this.

“Law firms have adapted through the years to use technology to facilitate better client delivery and this will continue to be the main driver going forward.

“One of the main challenges of technology today is how to fund the investment in order to keep as up to date as your competitors.

“A key decision is whether you want to be a leader in this field or a fast follower. Then the follow on question is how you bridge the funding gap.”

Law firm mergers have been a mark of the Scottish profession in recent years, with names such as Anderson Fyfe, Biggart Baillie, Dundas & Wilson, McGrigors and Paull & Williamsons all being subsumed by other brands.

Managing partners expect this to continue, with consolidation highlighted as the second most important factor that will impact on firms, with 62 per cent of survey participants expecting it to continue to be a feature of the market.

This is a significantly higher proportion than the 28 per cent seen in the rest of the UK, where firms began merging with each other sooner after the financial crisis than they did in Scotland.

That said, fewer Scottish respondents felt that the pace of change in the sector was significant than in the rest of the UK.

“The legal sector in Scotland has gone through significant change in recent years,” Mr Gill said.

“There has been a great deal of consolidation and a number of long-established, independent firms have disappeared altogether.

“Interestingly, while Scottish law firm leaders all believe that the pace of change in the legal industry is accelerating, less than half (46 per cent) described this change as significant, compared with 80 per cent of law firm leaders in the rest of the UK.”

While technology was seen as a potential threat if firms were not able to embrace it, it was also seen as one of the key factors that will enable firms to remain agile and adaptable to change. Others were culture, leadership, people and skills.

One respondent said that “strong management with authority to make decisions quickly without everything having to be approved by a committee or a large group of partners” would be crucial to firms’ success.

Another said that “listening to and working with millennials to anticipate their needs” was vital. Mr Gill noted that only one person from all 63 UK respondents highlighted the need to take the next generation of lawyers’ needs into account.

Clients’ needs were, unsurprisingly, seen as more important, with just under a third (31 per cent) of Scottish respondents saying it would be more important for their firm’s success to listen and respond to client demands than to market trends.

Despite firms being in agreement that the way the sector operates is changing, Mr Gill noted that many “continue to provide legal services in the same way they have done for decades”.

While he acknowledged that some firms have adapted by “adopting more corporate structures, diversifying their service offering, innovating with technology, and experimenting with new ways to provide better value and efficiency”, Mr Gill noted that others still have some way to go.

“The ability to be nimble to change direction is critically important and changing too late could spell disaster in terms of loss of competitive advantage,” he said.

BDO will examine the impact of technology on the sector in more detail in another report that will be released later this year. Further reports will examine firm structures and changing client relationships.