In the provision of legal services to businesses, pricing pressures and the increasing sophistication of clients are arguably the key drivers of innovation. In the business-to-business arena, the in-house legal teams of large companies are also proving themselves adept at not only managing the use of external legal advisers but also in providing a wide suite of legal and related services across the organisation.

In the retail legal services market of the future, the most successful operators will undoubtedly be those that establish a lifelong relationship with their customers. For most retail users of legal services, the lifelong spectrum might encompass property purchase, divorce, personal injury, a dispute with a neighbour, a will and subsequently probate work. The context of this work is distressed purchases, where the client obtains legal services as a result of difficult or desperate circumstances. The most successful legal service providers in this area will be those that can supply non-distress ancillary services and products, becoming the organisation of choice for as many of their customers' service needs as possible.

Innovation within the legal sector encompasses structure, funding, service delivery, management and people. Each of these must be addressed separately but integrated into the overall development of the firm. Great innovations in one area may be completely undermined if they are not supported by equivalent developments elsewhere in the firm.

Of course, the fundamental approach of a legal service provider must be underpinned by a clear purpose and a sound, well-communicated strategy. With those in place, the business model can be developed. For organisations with diverse offerings and multiple service lines, there may be the additional challenge of developing multiple business models and managing them appropriately.

Finally, the right structure should also be identified and implemented. Again, different parts of the same professional services business might require different business structures for reasons as diverse as regulation, stakeholder identification, risk management and branding.

Law firms tend to innovate in three ways that focus on products and services, on service delivery and, finally, on structure and strategy.

In contrast, in-house legal teams may find more potential areas for innovation in meeting the needs of their group clients. These are rather different from the choices available to law firms and include not only the role of legal adviser but also strategic adviser, risk adviser, function manager, purchaser and industry thought-leaders. That is not to say, of course, that these areas are not available to law firms. Indeed, as law firms' service offerings to corporate clients diversify outside the reserved areas, we are seeing greater innovation by law firms offering business clients that lack in-house teams the kind of service choices that groups with in-house legal teams may have at their disposal.

While the method of innovation may differ between law firms and in-house teams, the motivation is very similar. This includes improving value through addressing the buying needs of clients and what they expect, and by providing services that clients are not paying for and that they do not expect. In this way, exceeding client expectations can be an important point of differentiation from peers, and helps to reduce the trend towards competing solely on price. Innovation also enhances clients' loyalty, helps to establish a firm's unique identity, and may produce a "wow factor" both within the firm and among clients and suppliers.

However, it is worth making an important point about the "wow factor". To be successful, not every element of an innovation has to be a game-changer. For some organisations, spotting every single opportunity to make a small step, and carefully selecting those small steps that will be taken, can be equally, if not more, powerful than isolated pyrotechnics. On a related point, innovation alone may not deliver the greatest success. Innovation coupled with collaboration within the firm and between the firm and its clients may be far more effective.

While work within the reserved areas remains vital, non-reserved services, innovative service delivery and collaborative working arrangements are crucial when developing the successful legal business of the future. This, in turn, means that it is likely that a fundamental review of what legal activities are regulated will reshape the market. The increasing complexity of law firm structures will challenge the regulatory framework while law firms and alternative business structures (ABSs) will adopt marketing strategies that are much more reminiscent of retail operations.

Consolidation in the market, which is already proceeding apace, will develop along two different lines. First, it will develop in line with the demand from big brands to have white-labelled legal offerings (that is, a range of bought-in pre-packaged services promoted under the company's branding). Second, it will develop in the upper and mid-tier firms, as a response to the fundamental changes in their business offerings being brought to market by some of the very largest firms.

People are most law firms' greatest asset. But unless they have the ability and willingness to change and innovate, they may also be a firm's greatest liability. We see considerable innovation in respect of the human element of legal services. Face-to-face advice will always have its place, but it will be much more closely integrated with other delivery methods and will become less frequent.

One of the big questions for the next decade will be what it means to be a partner in a firm. The idea of partnership bestowing ownership rights will die out in most parts of the legal sector. Who a lawyer is will change significantly as a range of roles develops within legal businesses that do not involve directly providing legal advice. Non-lawyer owners in particular, will look at what a person brings to the business in terms of his skills, not just his qualifications. Skills such as project and process management will be critical to the future success of firms.

Successful firms have always tried to identify and meet their clients' needs, putting clients at the centre of their business models. If innovation is seen as a non-optional continuing process, then it should be no surprise that it will be clients that decide how they receive their legal advice, not their lawyers.

The development of alternative fee arrangements in general, and the fixed fee approach in particular, seems unstoppable. All of this will require considerable innovation in the processes used by firms to perform and deliver their services to clients. However, most firms will do their best to avoid competing solely on the basis of price. Innovation in the development of other distinguishing features, such as the style of delivery, value-added elements of the service and the cultural values of the firm, will all be important in this. With PwC's legal arm being recognised for its standout performance as a legal industry pioneer in the Financial Times report "Innovative Lawyers 2014", and with KMPG having recently registered its entire practice as an ABS with the Solicitors Regulation Authority, multi-disciplinary practices present a growing challenge to traditional law firms.

At the same time, by offering multi-disciplinary services, lawyers have the ability to reclaim their former role as trusted business advisers, offering a wraparound advisory service to clients. This encapsulates all that we are seeing: the potential for innovation offers those in the legal sector transformative opportunities for success. Firms should be looking at their approach to innovation across their entire practices, and developing business models that integrate their chosen innovations for the benefit of the firm, its people and its clients.

Innovation, like breathing, is not optional if a firm wishes to prosper in a highly competitive legal services marketplace.