The Coming 21st Century Bi-Modal Market Structure

I've reviewed the merits of the Pillsbury-Winthrop/Shaw Pittman merger before, but now I want to ask a different question:  What if anything does this portend for the merger/consolidation trend in general?

If you believe Hildebrandt's annual merger-activity data, at least the total number of deals has been on a continuous upswing for the past few years.  But as a question of market structure, does that imply there is less and less room for mid-sized firms?  Are we headed for a bipolar world of global one-stop shops and local or practice-specific boutiques, with few solid firms of the 100—400 lawyer scale?

At the very least, it's become clear that to be a national player in the US, you need strength in New York City, California, and D.C.  Pillsbury needed Shaw-Pittman's D.C. throw-weight and, unless Shaw-Pittman resigned itself to being a perpetual regional player, it needed Pillsbury's NYC and Bay Area presence.  You can read a piece speculating on the fate of the remaining "mid-sized" D.C. firms courtesy of Legal Times, where Mary Cranston, current and future chair of Pillsbury, has this to say:

Still, Cranston sees little choice but to aggressively expand: Either a firm grows, or it's unable to provide a broad array of services to top clients, she says. By merging, Pillsbury Winthrop is looking to Shaw Pittman's regulatory practices -- nuclear energy, the Federal Trade Commission and banking -- to boost its business with its corporate clients. And it hopes that Shaw Pittman's outsourcing practice will complement its West Coast corporate needs.

When you're thinking of providing absolutely full-client service, you almost always need a regulatory piece ... and D.C. is where most of the regulatory expertise resides," Cranston says. "So it's one of the few markets that brings a different mix of services to the firm."

I read her to mean that it's time to stipulate that NYC, California, and D.C. are "special cases," where a firm with national ambitions simply must be.

If so, have we left any room for medium-sized firms based elsewhere in the country to be stand-outs?

Increasingly, the evidence argues that there is no such room.  Consider this (arguably self-serving) essay by a marketing consultant in Legal Week.  Starting from the premise, with which I agree, that the legal marketplace is becoming ever more competitive, with firms' primary growth strategy having to be one of contending for a larger share of a slow-growing pie, he argues that a distinctive brand image is prerequisite to success.  Indeed, he argues that development and nurturing of that image is more important than anything else the firm is doing: 

"The starting point to greater marketing effectiveness is to ensure that the firm’s marketing programmes reflect the firm’s overall market segment-resource strategy in terms of the defined positioning and performance objectives, the specific market segment priorities, and which of the firm’s practice-industry-geographic strengths are to be most powerfully leveraged for enhanced position and profitability."

More pertinent for our purposes, he argues that there will be no room for "second best" in key market segments: "the richest market segments will always attract the most determined competitors."

Even granting his occasionally hyperbolic rhetoric, he draws a Marketing 101 roadmap:

• know your firm's core distinction;
• understand how that draws particular clients to you;
• be consistent in your message;
• articulate your "brand" in a way that is: (a) credible; (b) ownable; and (c) distinct.

This means there will be very few winners left standing.  So, is there no room for the 100—400 lawyer firm? 

In our brave new world, without a compelling regional or practice-specific expertise, I'm increasingly skeptical there is such room.  Choose critical mass or local excellence. 

But under no circumstances don't choose.

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PS: I should note that this type of industry structure (with firms either big and global or boutique and niche) is a fairly common phenomenon across the economy. It more or less describes industries as diverse as:

• Agriculture
• Retail Banking
• Apparel retailing
• Advertising
• Cable TV channels
• Investment Banking
• etc.

Published by Bruce at February 14, 2005 4:07 PM
Published to Cultural Considerations | Finance | Globalization | Leadership | M&A | Marketing | Strategy