This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say. Now up is Raj Abhyaker, CEO of LegalForce, on “Making Fat Law Firms Flat through Operational Redesign for the age of the Internet”.
[RF note: LegalForce hosted a reception last night at their retail store in the heart of downtown Palo Alto. It’s a very cool space.]
Background: Raj was a an IP lawyer. When he raised ideas to be more efficient, lawyers with whom he worked were not interested. So he started as a solo in 2005 and, at same time, created a start-up company. In 2008, started a company to collect government trademark data and make it accessible on the web, which Google was not indexing. Trademark site gets a lot of web hits; one of biggest on web. His firm has become the world’s largest trademark filing law firm. Now has 24k clients, adding 500 clients per month. To make law even more accessible, started a retail outlet. Most interesting to Raj is that AmLaw 10o firms are asking him about his technology and methods.
Nine ways to redesgin large law firms into a modern force:
1. Globalize Operations, without sacrificing quality. Move repetitive, detail oriented, recurring tasks to global workforce in lower cost locations. “Redesign the supply chain.”
2. Rethink Associate Compensation. Move from tenure to contribution-based compensation. Reward responsiveness within minutes or hours (implicitly: not at end of year at review time!). ID and reward fiscal and business talent, even in new associates. Firms should develop clien. Legal ‘t service metrics and then evaluate associates based on how well they service clients.
3. Hire JD/MBAs for Management Functions: Partners should elect a president with real power to act; he or she should be JD/MBA, no billing responsibility, and ability to bind direction of firm on own w/o partnership vote.
4. Broadcast Goodwill via the Web: Spread any public event over the web. Use more video. Broadcast educational video widely. Hire a full-time video producer. Let the community use conference space for beneficial events.
5. Invest in Retail Access to Law, Not Lobbies: Create destination retail experiences that enable firm to operate on Main Street Be accesbile retail hours, including nights and weekends. Change the paradigm of what the firm is and how clients access it. Open kiosks at your clients. Large firms have big opportunity here.
6. Make Lawyer Calendar Visible to Clients: Web based access to lawyers; web-based appointment making
7. Legal Dream Teams May Span Firms: Let corporate clients build their own ‘dream team’ across firms
8. Preventive Care at Subscription Rates:
9. Predictive Intelligence. Get smarter about the future and decision making
This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say.
Dan Katz of MSU Law: The Future is Already Here - It’s Just Not Evenly Distributed
Storm brewing in legal. Complicated. though. Simple version:
1. Under-investment: senior partners of law firms have different views of decisions than more junior ones. Juniors may want to invest for long term but seniors want money in pocket now. Incentives are very strong to maximize current income over increasing the future value. (RF: I’ve long thought about the inter-temporal tensions of law firm partnership model.)
2. Dimensions of Competition: What are the differences between closely ranked AmLaw firms? (RF: or even those not so closely bunched in rankings>) If we can’t tell difference in substance, then focus on tech, design, and process. But firms that say they are different… it’s just a bumper sticker slogan. Compare to modern manufacturing, Fortune 500 logistics, or modern Operating Room..
3. Client Sophistication: GC face pressure still from financial crisis to limit legal spend. Legal exceptionalism is over. GC demands no junior lawyers; instead, work with unbundlers such as LPO, insourced services, or managed review companies.
4. Lawyer Regulation: Restrictions on non-lawyer ownership is big limitation on competition and innovation. That’s why UK has changed rules with Alternative Business structures. This rule protects lawyers, not clients. If law firms can’t raise capital and others can, then firms are at a disadvantage.
5. Legal Tech Industry: Bill Henderson asked at Legal Tech NY who are the long list of exhibiting? They are the companies who are raising capital and who are taking work away from BigLaw. How can law firms compete? They have to become the competition
6. Why Can’t a Law Firm become Something Different? Why don’l law firms have R&D departments? Individual partner incentive is to maximize short-term gain versus investing for future. Very hard to overcome. But it’s possible to start over. How can we see new players emerge in face of current regs. We see rise of new entities that combine law firms with related service entities (RF: see my prior blog posts on Clearspire Law). But legacy platform just doesn’t refer to software - it also refers to people. BigLaw lawyers are the installed base! No need to wait for Model Rule 5.4 to change… there are business models now that allow investment in legal market.
Does good design have anything to do with law firms?
Maybe, depending on how you think about design. In the New York Times today, Design Rivals Technology in Importance, we learn that when it comes to consumer technology products, design exceeds technology in importance:
“The worship of design has also taken designers out of the back offices and into top executive jobs. Engineers are still in the mix, to be sure. But they don’t rule the roost in product development, which may also be why tech products are easier to use, more human.”
Keep this in mind and consider the just-released Hildebrandt-Citi 2013 Client Advisory (The Boom Years Are Not Coming Back, Get Used to It in AmLaw Daily, PDF of report, courtesy of WSJ). The report forecasts continuing economic challenges in store for BigLaw and offers excellent advice, including listening to clients and focusing on efficiency.
The reports notes that partners are not “inclined to shift the discussion to their client’s business to learn about strategies, priorities, risk concerns, pressure points and other factors driving their legal spend decisions.” No wonder then that we see limited uptake of cost reduction strategies such as outsourcing or using centralized resources in low cost centers such as in Wheeling and Dayton. Or that “some firms have learned the hard way, mismanagement of AFA engagements (including miscalculations in fee estimates) can prove costly.)
For me, listening to clients and deploying efficient practices are a kind of design. For too long, lawyers sold their services the way computer makers used to sell PCs. Remember when all you heard about was processor speed, how much RAM, hard disk size, and the video chip. Never mind that it always came in a black, gray, or beige, clunky box. Just think of that tech horsepower.
When clients hear about their lawyers’ pedigrees, their long list of matters, their fancy office addresses, and their great victories…. are they thinking “this is great, just what I needed"? Perhaps. But they may also be thinking “ugly beige box”.
Clients likely care more often about how the service is delivered: do lawyers keep in touch, give the client options, make good business decisions, know about their company and industry, and offer cost saving approaches? Just as consumers now assume technology - cars, computers, appliances - will work, clients increasingly assume accomplishing the legal objective is a given. They think more about delivery than about content.
To be sure, some computer users will always care about tech horsepower. High-end gamers and serious quant jocks must. Similarly, clients in very high stakes matters will focus more on the legal outcome - so more on the pedigree and great prior victories. But lets not fool ourselves. Most matters are “bread and butter"; for these, design matters more than innards.
The Hildebrandt-Citi report does not talk about good design per se. But it could just as easily have. Time for firms to think about service delivery design.
To grow and prosper in 2013, large law firms should understand why clients “hire” them.
Note I wrote “hire” and not retain. Mary Abraham’s recent post Milkshakes and Purple Cows summarizes a Clayton Christensen talk in which he discusses why consumers “hire” a product. That is, what is the real reason a someone buys a product?
He says that “to motivate a customer to buy your product, you first need to understand the job for which that customer is likely to ‘hire’ your product.” Christensen explains the research that found why people really “hire” milkshakes. The answer is not as obvious as you might think. Mary relates the findings: “(1) to allay hunger and provide entertainment during a boring morning commute and (2) to help parents placate children with a seemingly nutritious treat.” Understanding the real job for which consumers hire a product allowed a fast food chain to take steps to increase sales.
Apply this thinking to the corporate legal market to consider why clients might hire outside counsel:
- Address tough legal problems
- Augment a thin team with additional standing resources
- Supply highly specialized legal expertise absent in-house
- Deploy a big army of lawyers for a one-time event
- Solve a problem at a lower cost than the law department can
- Signal an adversary, by retaining a particular firm, that the company is committed to winning this dispute
- Relieve inhouse counsel from effort or worry
- Reduce the total cost of legal services for the company
- Insulate the law department from the fall-out of a bad legal outcome
Cost pressures notwithstanding, many clients probably still hire firms so they don’t have worry about the problem or to insulate against a bad outcome.
Firms that can identify clients that hire for a different job - for example, lower cost, faster turnaround, better communication, or more intimate industry knowledge - can adjust their service delivery to win that work.
How do you figure out the real hiring reason? Christensen stood in a fast food joint for 18 hours watching customers buy milkshakes. But only after researchers interviewed milkshake purchasers in the parking lot and asked them about why they bought one did he understand the real reason and gain actionable insight.
We cannot replicate that field work in the legal market, but firms can send teams to clients. A team means more than just partners. Including experts in pricing, technology, finance, and marketing likely will increase the chances of identifying the client’s real hiring needs. At least for some clients, I suspect the real need includes more technology than firms use or deliver today.
A firm that excelled at figuring out the real job might become a “purple cow.” Mary explains this is a reference to Seth Godin, who notes that people see cows all the time and think nothing of them. If, however, the cow is purple, they notice. The point is that real differences stand out. Perhaps in 2013 some firms will learn how to become purple, how the service they provide consists of more than just law practice.
The recently released FT report on US Innovative Lawyers 2012 points to two ways large law firms can compete for business.
Innovation in law practice is one. About this the FT observes that
“[m]ost of the top US law firms have similar strategies – to focus on retaining premium work and to avoid commoditisation. To achieve this, they need continually to prove that they are ideal for handling complex, high-value matters.”
It seems obvious that few firms can carve out the “premium” position.
Innovation in service delivery and client value is a second way, what the FT calls the ‘business of law’. In my view, this will determine who wins the vast middle ground of “bread and butter” legal work that lies between premium and commodity.
The Business of Law awards go to many familiar innovators, for example, Axiom’s Managed Service business, Littler’s CaseSmart, Crowell’s project management, and Seyfarth’s Lean. For my tech-focused readers, I have bad news: searching the PDF of all award articles for ‘technology’ and ’software’ yields nothing new or surprising.
The FT US managing director offers what I consider an explanation for limited action on the thin Business of Law front. He writes
“while the US legal profession is, moving into the 21st century in how it communicates with clients, the report suggests that, in terms of process innovation, US firms lag behind those in the UK. While there are the beginnings of change, relatively few top firms have tackled seriously their hourly fee models, despite the increasingly vociferous demands of clients.”
Firms need not choose one way over the other. To out-innovate in law practice, however, they must win the talent battle. Ensconced incumbents have the advantage here. To out-innovate on service delivery and value, in contrast, requires only imagination and will. Yet that could be a big constraint, as the closing words of the introductory article suggest:
“The question for the US legal profession is whether the financial crisis is a turning point similar to that facing Sears, the department store, in the 1980s when it failed to read the implications of discount retailing for its core business.
All the chairmen of the top firms talk about change and the need to ‘not fight the last war’. And yet at the same time they cannot, they say, see their firms being all that different in five years’ time.”
The market remains wide open for firms with imagination and the will to win a bigger share of bread and butter work. And I expect technology and software will play a big role, in spite of its conspicuous absence from this report.
Two just-released surveys hint at the opportunity US law firms have to gain competitive advantage.
The Big Squeeze - Our latest Law Department Metrics Benchmarking Survey shows that legal departments are working harder, with less, in December Corporate Counsel magazine reports that
“Cost, results, and understanding of the business were the top three criteria that legal departments used to assess outside counsel performance, but 71 percent of respondents said they had no formal review policies in place” [emphasis added]
The “5th Annual Law Department Operations Survey", an insert to the December Inside Counsel magazine reports that 67% of firms have a “formalized metrics/reporting program” but only 61% “makes effective use of the information it provides”. So that means only about one-third effectively use metrics.
Nonetheless, US general counsels are under tremendous pressure to control cost. That they have not yet formalized management systems creates an opportunity for creative law firms. Outside counsel that can clearly differentiate their service delivery will gain share of wallet versus their competitors. Firms can stand out, for example, by demonstrating a deep knowledge of the client’s company or industry, providing and sticking to budgets, deploying client-facing technology that really helps inside counsel, or offering more value through creative and lower cost matter staffing.
Clients notice and appreciate service delivery whether or not they formally evaluate firms or institute rigorous metrics. And once they do, then firms will have to take these steps anyway or risk losing the business. Now is the time to start.
Press reports today say Fulbright will merge with Norton Rose. Last week came the news that SNR Denton will merge with Salans (Europe) and Fraser Milner (Canada). What will this mean for client experience and service delivery?
We now see the rise of ever larger, multinational law firms. Many say that these “global platforms” offer clients numerous benefits. That may be so but in my observation, law firm mergers are complicated and distracting. Integrating cultures, practices, business operations, and finances takes times, often years.
So we need to ask how these mega-mergers benefit clients, especially in the short term. I hear clients demanding, first and foremost, better value and greater efficiency. If the global platform law firms can deliver this, it will take time.
Firms not joining up with a mega platform may therefore have a short-term opportunity to gain share. Without the distraction of a merger, firms can improve client experience with better service delivery: project management, pricing, alternative resourcing, knowledge management, client-facing and practice-supporting technology, and business intelligence, to name a few necessary programmatic improvements.
Firms also need to reduce overhead, which means assessing real support needs and streamlining business support services. (For example, yesterday the UK legal press reported that DLA Piper will consolidate its document production in a single location.)
The rapidly changing legal landscape creates threats and opportunities. Smart law firms will work on improving service delivery to keep their top clients happy and gain share of wallet from them.
What is the sound of outstanding law firm client service?
That’s a rhetorical question inspired by a Wall Street Journal article today, The Search for Sweet Sounds That Sell, which holds hidden lessons for law firms.
It describes how makers of consumer product goods invest heavily to engineer the sounds products make when opened or during use. “Subtle auditory cues can make a big difference to shoppers choosing from several brands, companies say.” Clinique tested “40 prototypes of inner parts of the mascara” so that it would make the right sound when twisted shut. Frito-lay had to pull environmentally friendly packaging of SunChips off the market because consumers did not like the noise it made when opening. A Sharpie has to make exactly the right sound. The list goes on.
The relevance to law firms? Most consumer goods are mature products. Makers invest in both product formulation and package design. Sound, smell, and package design matter - a lot.
I have bad news for law firms: you increasingly look like the makers of consumer goods. You operate a mature business in a slow-growing market where providers compete furiously for
consumers clients. Too many lawyers think that product formulation quality legal advice is the only that counts.
Smart lawyers and firms understand that clients also care about packaging and delivery. Client service may not have a sounds but it does have many service delivery attributes. These include responsiveness, transparency, attitude, pricing, and company / industry knowledge.
Investments in pricing, legal project management, technology, knowledge management, and alternative resourcing mean as much if not more to improving service delivery and client experience than they do to legal work. How long before law firms invest in labs to test out different approaches to service delivery?
I feel like I am waiting for the other shoe to drop in the BigLaw market.
Consider the following items over the last 10 days that discuss the woes of large law firms:
- Law Firms Wring Out Back-Office Costs in the Wall Street Journal on law firms opening low cost service centers and outsourcing (front page, Market Place, 8 Oct 2012).
- To Survive, Firms Will Have to Get Serious About Costs, Get Off the Lockstep Treadmill by Patrick Lamb of Valorem Law in the ABA New Normal series, who writes about ‘right staffing’ (9 Oct 2012).
- Law firm partnership: the Grand Delusion by Stephen Mayson, on the fundamental problems of law firm partnerships (9 Oct 2012)
- Suicide Pricing, a Bloomberg Law interview with Bruce McEwen (aka Adam Smith, Esq.), who suggests Biglaw over capacity is driving unsustainable downward price pressure (12 Oct 2012). He has also written a recent multi-part blog post, Growth is Dead.
- BigLaw must reduce cost, not just tinker with pricing by John Wallbillich (aka The WiredGC), on how real competition drives down prices and that alternative fees alone do not reduce costs. (16 Oct 2012).
- And the walls came down by Jordan Furlong, who offers an excellent overview of legal market challenges / solutions (17 Oct 2012).
- Inexorable laws of supply and demand are biting #BigLaw by George Beaton, a very astute legal market observer and consultant in Australia, who cites the Mayson and McEwen blog posts, adding his own take, including that corporate law has become a permanent buyers’ market. (19 Oct 2012)
If the commentators are right, what happens? We see some signs of change and law firm response, for example, reduced hiring of new lawyers, stealth lay-offs, alternative fee arrangements, legal project management, and lower cost staffing. These changes feel enormous to law firms yet I could argue these are simply “minor adjustments", an inadequate response to new market forces.
One commentator offers a dire prediction: the ABA Journal headline, reporting on a Bloomberg Law interview with consultant Kent Zimmerman of the Zeughauser Group, says it all: Law Firm Consultant Predicts ‘Absolutely’ More Layoffs and as Many as Five BigLaw Dissolutions . Without taking a position on that view, I note that law firms are not like airlines. When airlines reduce capacity, they park airplanes in the Arizona desert or sell them in distant markets. That capacity goes away, which reduces supply, which lets airlines raise prices. When law firms dissolve, many lawyers move to other firms. Capacity does not just disappear.
So that’s why I wait for the other shoe to drop. Maybe we get lucky and somehow muddle through. But maybe BigLaw is in worse trouble than firms currently understand. That’s why I have shifted my focus to service delivery improvement. Law firms that figure out how to provide outstanding service to their top clients have a better chance of prospering.
The College of Law Practice Management presents the Futures Conference on October 26-27, 2012 at Georgetown Law in Washington, DC. Anyone interested in the future of law practice and legal business should attend. Click here to register
Below you will find the program in chronological order. I am a Trustee of COLPM and conference co-chair with with Steve Nelson of The McCormick Group.
NEW MODEL LAW FIRMS
Big Law has never been the only option for general counsel. Today, many alternatives exist, including “new model law firms.” This panel will examine how these firms do business, practice law, differentiate, serve clients, and offer lawyers a different work experience. We will also hear from the founding visionaries on where they think the law firm market is heading.
Moderator: Ron Friedmann, Fireman & Co. Consulting
Panelists: Mark Cohen, Clearspire; Ben Lieber, Potomac Law Group PLLC; Andy Daws, Riverview Law, and Patrick Lamb, Valorem Law Group.
THE CHALLENGES OF DIVERSITY IN A NEW STAFFING ENVIRONMENT
Law firms are adjusting the traditional personnel model, reducing the number of equity owners and adding new tiers of service providers. But the challenge of diversity remains. A nationally-recognized expert in diversity issues within law firms and other legal settings, Verna Myers will address what legal employers can do to tackle this critical issue.
Speaker: Verna Myers, Verna Myers Consulting Group LLC, author of Moving Diversity Forward.
PRESENTATION OF 2012 INNOVACTION AWARDS
The 2012 InnovAction Award Winners present.
Moderator: Tim Corcoran
LEGAL ACADEMY RESEARCH PROJECT
Reports on two research projects underway at the Center for the Study of the Legal Profession, Georgetown Law: Integration and Fragmentation in the Modern Law Firm; Developing Attorneys for the Future: What Can We Learn from the Fast Trackers?
Moderator: Mitt Regan, Georgetown Law
Panelists: Juliet Aiken, Georgetown Law; Heather Bock, Georgetown Law and Lisa Rohrer, Georgetown Law.
THE CONSUMER LAW REVOLUTION
The panel will consider such questions as: How is technology changing delivery of legal services to consumers? How is technology changing how lawyers who serve consumers practice? Do we see signs today that consumer law developments are already doing so? Will constraints - for example, client or lawyer conservatism, immature technology, or ethical barriers - limit a more rapid evolution or a real evolution?
Moderator: Tanina Rostain, Georgetown Law;
Panelists: Stephanie Kimbro, Burton Law LLC; Michael Mills, Neota Logic, and Marc Lauritsen, Capstone
EXPLORING THE NUANCES OF VALUE
In 2011, a panel focused on defining value. Now, in this panel discussion, we take the next step, as law firm and inhouse representatives explain how alternative arrangements are developed and tweaked so that both sides can derive value.
Moderator: Aric Press, American Lawyer Media
Panelists: Toby Brown, Akin Gump; Mark Chandler, Cisco Systems.
FUTURE OF MANAGING PARTNERS
The future demands a new focus in law firm management. This panel, featuring extraordinary managing partners, examines the critical roles and responsibilities of MPs in firms of all sizes—and what the panelists see as the future challenges and opportunities in firm management, including managing talent at all levels and “getting things done” in ways that most benefit the firm, its people and its clients.
Moderator: John Michalik, JJeyEm Consulting and author of The Extraordinary Managing Partner, Reaching the Pinnacle of Law Firm Management
Panelists: Thomas Grella, McGuire Wood & Bissette, P.A.; Fredrick Lautz, Quarles & Brady LLP; Charles Vigil, Rodey, Dickason, Sloan, Akin & Robb, P.A.; Ward Bower, Altman Weil, Inc.
THE NEW NORMAL FROM THE GENERAL COUNSEL PERSPECTIVE
General Counsel face continuing pressure to control costs while coping with growing demands for legal advice. In a panel organized by the Association of Corporate Counsel, you will hear how experienced law department leaders respond to this pressure and what it means both for their department operations and the law firms they retain.
Moderator: Amar Sarwal, ACC
Panelists: Scott Chaplin, Jorge Scientific Corporation; Susan Hackett, Legal Executive Leadership and Eric Margolin, CarMax, Inc.
LEGAL SERVICES UPDATE
2012 has been a year of intense pressure on low-income people facing legal problems and unfortunately, intense pressure on the legal aid organizations that serve them. In these tough times, law practice management expertise and best practices are needed more than ever to improve efficiency, buoy up morale, tune up staffing and employ new technologies. During lunch, Jim Sandman, President of the Legal Services Corporation and a 2012 College fellow-elect, will update attendees on bleak conditions facing LSC and describe a new mentoring initiative in the planning stages that will expand the pro bono consulting the College can offer to legal aid.
Skip this post if you believe the BigLaw market will return to its pre-2007 state. If not, does your firm have a strategy to control and reduce costs?
Two reports last week remind us of the tough market Biglaw faces. Bruce MacEwen, aka Adam Smith, Esq., has written three masterful installments on why Growth is Dead (Part 1, 2, 3). Separately, the Wall Street Journal blog reported on a Wells Fargo survey of 115 law firms: a “grim outlook”. Revenue is up 3% but expenses are up more than double that, at 6.5%.
Associate compensation is a big number - new lawyers earn $160,000.. So too is overhead - it typically exceeds $200,000 per lawyer, and pushes $300,000 at many firms. Getting the lawyer headcount right is hard but firms give this a lot of thought.
It’s not clear, however, that as many firms give as much thought to overhead and to cost control and reduction. But that may be shifting. Last week Bingham McCutcheon announced that it will open a low cost service center in Lexington, KY with 250 staff. Other firms with publicized domestic low cost service centers are Pillsbury (Nashville, TN), WilmerHale (Dayton, OH), Reed Smith (Pittsburgh, PA), and Orrick (Wheeling, WV).
An owned and operated service center lets firms benefit from the lower labor and occupancy cost of a smaller city relative to lawyer offices in major cities such as NYC, DC, DC, Chicago, LA, or SF. Smart firms also save with efficiency gains from centralizing staff, improving processes, and deploying better technology. Similar benefits are also available by working with outsourcing companies.
The interesting question is whether the BigLaw market will soon tip in favor of centralized services, whether in an owned-and-operated low cost center or via a third party outsourcing provider. With BigLaw moving in a pack, can it be long before partners press the COO to at least investigate a lower cost support options?
The College of Law Practice Management announced this week the winners of the 2012 InnovAction Awards. (I am a COLPM trustee.) InnovAction honors innovation in law practice management.
This year, two law firms were honored, quoting from the College’s awards page:
“Littler was selected for Littler CaseSmart™. In response to a client challenge, Littler Mendelson developed Littler CaseSmart™, a solution that combines a re‐engineered legal process (deployed in a client‐dedicated, team‐based model) that is built on a technology platform that allows for the strategic management of a high ‐volume of administrative agency charges (such as federal, state, and local charges of discrimination), at a fixed, per‐charge fee. Littler CaseSmart™ provides transparent, privileged, and real‐time online access to the status of the client’s legal matters, as well as a dashboard of key performance indicators, visual graphics, and reports. The Littler CaseSmart™ approach completely re‐engineers the way in which matters are handled, maximizing the use of technology to anticipate attorney needs as they conduct research, prepare responsive documentation and perform legal and risk analysis in order to enhance efficiency while maintaining firm profitability.”
“Seyfarth Shaw was selected for its SeyfarthLean program. Well before the fall of the financial markets, Seyfarth leadership anticipated the need for better ways for a law firm to meet its clients’ rapidly evolving needs for value, efficiency and continued high quality of legal services. Based on that simple goal, we have become the only large law firm to build a distinctive client service model - called SeyfarthLean - that combines the core principles of Lean Six Sigma with robust technology, knowledge management, process management techniques, alternative fee structures and practical tools. The broad, systemic use of such a model across multiple practice areas is unique to the legal profession and reflects a fundamentally different way of thinking about how to deliver legal services.”
Among the other InnovAction award submissions (PDF) were two other law firms that focus on process improvement and/or project management: Baker Donelson created BakerManage, “a patent pending system that compliments the legal expertise of our attorneys by providing them with the tools to be better project managers” and Sutherland Asbill & Brennan LLP created its “Legal Project Management (LPM) program [to provide] training and implementation tools for lawyers and clients to more efficiently and effectively deliver legal services.”
For more information on the awards:
Sometimes I despair that the legal market never changes. Then I remind myself of the many past changes and signs of more to come.
Lawyers may object to change but the sweep of events proves that resistance is futile. Eventually, lawyers assimilate to the new thing. The ones who don’t become such a small minority as to be irrelevant. Consider some initially-resisted ideas that no one questions today:
COMMUNICATIONS, INTERNAL AND EXTERNAL
- Internal e-mail
- External e-mail
- Voice mail (now on the decline?)
- Law firm marketing, advertising, and doing PR
- Social media (see, e.g., How in-house lawyers are using social media in the current issue of Inside Counsel)
- Practice group management
- Practice group profitability analysis
- Two lawyers will always share one secretary
- Why do we need to do business research?
- We’re a law firm, why would we ever need a website?
- Web access for lawyers
- Scanning and OCR instead of or in addition to bibliographic coding (on the wane by now only because paper is on the wane)
- Requesting or reviewing digital files [reminder: 10 years ago, most consider e-discovery exotic]
This list simply reflects what readily came to mind. I’m sure there are many other examples. Though the pace of change today is still too slow for my taste, good signs abound. Two examples illustrate the direction we are heading. The lead story in August issue of Law Technology News , The Eureka Moment - How six Big Law firms stopped dithering and learned to love legal project management is a good sign that LPM will eventually be near universal in BigLaw. And the Ark Law Firm Pricing and Profitability conference (at which I am speaking on Sept 27 in Chicago) suggests the same for alternative fee arrangements (AFA) and pricing analysis.
A new report delivers more bad news about US large law firm performance. What should management do?
The just-released Hildebrandt Institute Q2 Peer Monitor Report observes “warning signs are emerging that the remainder of the year could pose numerous difficulties… A combination of lethargic demand, weak rate growth and struggles to restrain costs will make it challenging for firms to achieve meaningful revenue and profitability growth.” The report suggests that in this market, “strategy and execution are becoming more critical than overall market conditions in determining individual firm performance.”
What does it mean for a law firm to have a strategy or to execute? Four recent items news items suggest some answers:
DEPLOY TECHNOLOGY STRATEGICALLY. Law firms must use technology strategically to improve client service. For example, they can invest in business intelligence, legal project management, practice productivity tools, and delivering service via the Web and mobile devices. I was pleased to read in the opening sentences of a recent UK survey of law firm tech spending: “With no prospect of a rise in chargeout rates, lawyers are searching for a new way to jump-start their profitability, and technology is increasingly the answer. While firms have slashed spend in most other areas, IT budgets are on the up as they search for software solutions that will allow them to pull into the outside lane and cruise past the competition.” See “The IT Crowd” in The Lawyer Business Technology Guide (emphasis added). The article quotes observers who say tech spending is shifting to the strategic; alas, I see no unambiguous survey results supporting this conclusion. Nonetheless, I agree with the sentiment.
ACHIEVE OPERATIONAL EXCELLENCE. On the topic of execution, read Paul Lippe’s Want Quality? Learn to Operate in the ABA Journal New Normal series. He compares the skills of a top brain surgeon versus a doctor running a giant healthcare organization to support his conclusion that most legal problems are “not ones that yield to marginally superior individual expertise, but are systemic problems that require systemic and operational solutions.” Lippe offers as an example a legal process outsourcing provider that produced “a 75-page proposal [that reflects] a deep and specific knowledge of how to get legal work done well beyond anything I’ve ever seen from a law firm.” He observes that “LPO is… materially better at process because they focus on outcomes”. The lesson: while it’s great to have top lawyers, it is just as important if not more so for law firms to focus on how they do the work. That means process improvement, budgets, and matter management.
MANAGE OVERHEAD TO RATIONALIZE LAWYER SUPPORT. Execution is also about how firms support lawyers. Last week, two firms announced staff lay-offs (see Star Tribune article on Dorsey & Whitney and Above the Law post on Fulbright). This sad news reminds me that overhead in many large law firms exceeds $200,000 per lawyer (and $250,000 in NYC) and that secretarial ratios range from below 3 lawyers to 1 secretary to 6:1. Given both high cost and high variability, more lay-offs are no surprise. The question is whether lay-offs reflect mere cost-cutting or deliberate process engineering of support functions. Good execution means the latter but the evidence I typically see suggests the former.
EMPLOY THE SCIENTIFIC METHOD. Three Cheers for Scientific Backbiting in the Wall Street Journal (28 July 2012) explains that scientists arrive at truth by trying to disprove others’ theories. “Confirmation bias", a deeply ingrained human trait, makes it very hard for an individual scientist to disprove his or her own theory. This holds an analogous lesson for law firm management. Excellence in operations and strategy requires testing. If management relies only on its own experience and opinion, failure is more likely. Management must learn to test their plans and accept feedback from multiple quarters. Just because management thought of an idea does not make it right - let clients and others provide feedback and prove or disprove the plans.
Until 2008, demand for corporate legal services grew rapidly. Large law firms could prosper with little attention to strategy or service. Today, however, firms face flat demand plus competition from other firms and alternative legal services providers. To maintain or gain share and protect profits, firms must improve service delivery. BigLaw managers need to look to other industries for important lessons.
The grocery store business is large, mature, and hyper competitive. Recent moves by Tesco, the largest grocery chain in the UK, offer service delivery lessons for the legal market. Last week, in Tesco Tries Out New Retail Recipe - In Push to Restore Sales Growth, a $1.55 Billion Overhaul Aims to Make the Company’s Stores ‘Warmer, Friendlier’, the Wall Street Journal reports how Tesco is improving customer experience to reverse a sales decline.
Tesco is adding employees to improve service and ensure product stays in stock. In addition, “small things matter” notes a company executive, for example, lighting brightness, shelf heights, and product packaging. Tesco carefully engineered multiple changes, testing them in 200 stores rolling out chain-wide.
Law firms can draw two lessons. First, the customer experience, which service delivery drives, makes a big difference in keeping and gaining clients. And second, service delivery improvements require careful testing.
Few law firms talk explicitly about improving service delivery but many now take steps to do so. These include legal project management (LPM), process improvement, and alternative fee arrangements (AFA). Law firms, like grocery chains, have ample opportunities to test such changes on a limited basis before rolling out more widely. Law firms can test by client, matter, office, lawyer, or practice. They can see what works, what does not, and expand the successes systematically. As they do so, they should develop delivery metrics to measure outcomes; these can include client surveys, costs, and legal outcomes.
Some lawyers may object that the grocery industry bears little resemblance to law firms. Exactly. It is time for law firm management to lift the blinders, to look to other markets for techniques that help maintain and improve profits in the face of tenacious competition and flat demand.
General counsels face continued pressure to control legal spending. One increasingly popular way to save is to use an “alternative legal service provider", a company that charges less than large law firms.
A few forward-thinking law firms have developed their own alternative services. One of the earliest instances I recall is UK-based Berwin Leighton Paisner (BLP). Several years ago, it developed a lawyer staffing business, Lawyers On Demand (LOD). LOD has won innovation awards from the Law Society, The Lawyer, the FT Innovative Lawyer, and InnovAction (College of Law Practice Management).
In May, the firm announced it was spinning off LOD as a separate company within the BLP group (see article in The Lawyer). So I was pleased to be able to interview Simon Harper about LOD. He is a co-founder and, up until the spin out, was a BLP partner.
Ron: Why Lawyers on Demand?
Simon: About five years ago, my co-founder Jonathan Brenner and I observed that clients in the UK wanted a more flexible way to buy legal services. We saw an opportunity to provide high-end lawyers to corporate law departments on a staffing basis, offering a flexible resource with an effective hourly rate significantly lower than law firm rates.
Ron: Why the Spin-Off?
Simon: LOD has been very successful in the last five years. To ensure we can continue to grow, we need additional flexibility. So in May, BLP announced that it would spin-off LOD into a separate entity and retain 80% of the new entity. Being separate gives us a couple of advantages. One is that we can develop our own management style and models. Both BLP and LOD know that the track record of UK and US law firms managing non-traditional models within their business is mixed at best. We wanted to avoid those issues. And second, as a separate entity, with our own identity, we can service the needs of other law firms, a growing market for us. We have already provided lawyers to and had numerous inquiries from other firms. Being separate, I believe we will be able to convert more of the inquiries to working relationships. Even before the spin-out, clients understood they were working with individual LOD lawyers and not retaining BLP – that will continue moving forwards.
Ron: How Does LOD Compare to Legal Process Outsourcing?
Simon: LOD is quite different from LPO. LPO focuses on high volume tasks. The providers routinize and document tasks so that relatively junior personnel can perform the work. In LPOs, most work is performed by workers trained as lawyers but neither the workers nor the providers practice law. In contrast, our lawyers do practice law. Moreover, they are quite experienced and work on tasks not easily routinized or documented. BLP recognized this distinction early on and, in fact, also offers its Managed Legal Service (MLS), which assumes responsibility for all or part a corporate legal function to produce significant annual cost reductions – this can also include partnering with an LPO provider to deliver work in lower cost centres, both onshore and offshore.
Ron: How Does LOD Compare to Legal Staffing Companies, Specifically Axiom Law?
[Editorial Note about Axiom Law: Prior to Axiom’s founding around 2001, lawyer staffing companies focused on providing contract lawyers for high volume projects, primarily document review in litigation. In contrast, Axiom placed former Big Law associates and partners on multi-month assignments in the offices of general counsels. These experienced lawyers offered specialized expertise and worked on high-end projects. By eliminating law firm overhead and partner profit, Axiom can pay its lawyers a good wage, charge much less than law firms, and still earn a profit.]
Simon: Axiom entered the UK market six months after we did but we viewed this as good news; it validated the LOD model and market need. LOD is different from Axiom in at least two respects. First, our lawyers working with corporate counsel teams have the support of BLP know-how, resources and training, and second, we do sell to law firms.
Ron: What is the Attraction for Lawyers to Join LOD?
Simon: We offer lawyers more autonomy and flexibility than law firms (and most corporate counsel teams) regarding how much they work but with the benefit of BLP’s law firm brand. For example, lawyers might choose to work only 10 months in the year or three days per week. Initially we thought that most would choose LOD because of family reasons. It turns out that there are many reasons top lawyers want flexibility. For example, some pursue creative endeavors or are passionate about hobbies, others simply want a change or to avoid workplace politics. The flexibility turns out to be attractive – we receive more than 50 resumes for each lawyer that we take on to the LOD team.
Ron: Can lawyers work part days? Remotely?
Simon: So far, short days have rarely been an option but we have seen little demand for that from lawyers. Clients agree the work location with the LOD lawyers, which is usually the client’s offices, though some lawyers do work remotely and I expect there will be more remote work in the future.
Ron: What Role Does Technology Play in LOD? In allocating lawyers?
Simon: We offer a bespoke [customized] human service. So technology has not been a significant factor in our operations though I expect that will change over time. We are currently investigating options to systematize further our allocations process.
Ron: Will LOD Become an Alternative Business Structure (ABS) in the Future?
[Editorial Note: The UK deregulated its legal market this year, allowing non-lawyer ownership of law firms through the ABS. The number of ABS applications to date as exceeded what most market observers expected.]
Simon: Our business is not capital intensive so we see little advantage in outside investment or that form of business structure. The de-regulation has, however, created a climate very favorable for our service.
[Editorial End Note: For those who would like to learn more about LOD, I recommend an article by Simon Harper in Managing Partner, Dec 2011/Jan 2012, Flexible Staffing.]
In the last few months I have been writing about law firm service delivery: how firms can optimize the experience of their top clients to gain share of wallet and increase profits. This includes deploying tools such as legal project management, process improvement, technology for efficiency, deep knowledge of the client’s business, and client teams. As I begin pitching this idea as a consulting offering, I have been concerned about the tension between individual partner and firm institutional interests. So I was interested to read The McCormick Group’s Take…on The Value of Client Teams by Steve Nelson.
Firms should want to institutionalize clients but individual partners may resist. Partners may want to keep their clients and “books of business” portable. Steve Nelson, a leading legal recruiter, lawyer, and former legal journalist, writes in an e-mail update today that the market is shifting away from individuals, toward institutions. Reproduced here with his permission is “The Value of Client Teams":
“At the recent Legal Sales and Service Organization meeting in Chicago, there was an invigorating discussion about client team programs at law firms. While there was debate as to whether these teams actually produce any significant additional business for the firms, one of the participants, Adam Severson, Chief Marketing and Business Development Officer at Baker Donelson, pointed out that these programs can provide one significant additional benefit. In the event a key lateral leaves, the teams can help galvanize the firm to reach out to existing firm clients to communicate its commitment to the client and ability to handle that client’s matters properly and without any interruption, and thus, in the end, keep much of the work at the firm.
This story seemed to coincide with another trend that we’ve been hearing from managing partners throughout the country, specifically that there is a widening gap between the prospective portable billings that incoming laterals vouch for and the actual results that occur months after the laterals arrive. While some of this can be attributed to overly optimistic predictions by the laterals themselves, we believe that other factors are more significant. In particular, the old adage about “we don’t hire law firms, we hire lawyers,” often no longer applies. Instead, in an era where increased pressure is on corporate counsel to reduce outside legal spending, there has been an increased emphasis to consolidate legal providers who both know the client’s business and can offer increased efficiencies. So the ability of one partner (or sometimes even a group) to hold onto a significant amount of a client’s business in a particular discipline is diminishing each year. Add to that the key client programs that many firms have instituted, which include client feedback interviews, secondments, and other initiatives, it’s clear that the landscape of client relations has changed.
There are a couple of implications for the future. One is that law firm lateral hiring should be the acquisition of “talent", not simply the acquisition of books of business. The dangers of that latter strategy are well illustrated in the recent Dewey debacle. But perhaps more subtle is the importance of hiring the best possible business development talent. Those professionals who can help a firm solidify existing client relationships, and perhaps forge some new ones, are well worth the investment.”
Can lawyers match the productivity growth in the rest of the global economy?
I thought about this after reading a Wall Street Journal article last week, Robots Get a Makeover in Factories, which describe a new generation of robots that help assemble delicate devices, a big change from the early, giant welding robots. This is just another example of the continuous improvement in manufacturing productivity.
Would that we could say lawyer and law firm productivity improves continuously. Of course, measuring legal productivity and quality is hard, a problem Paul Lippe addressed in What if Someone Could Measure What Lawyers Do? in his New Normal column in the ABA Journal (8 Feb 2012). And Fred Bartlit reminds us in his New Normal column last week (30 May 2012) that we should not confuse amount of lawyer time spent with quality of output or productivity.
Improving service productivity is harder than improving manufacturing productivity. Yet consider a host of process- and technology-driven improvements in efficiency, quality, or customer experience:
- Architects’ work was revolutionized by computer-aided design systems.
- Medical care improves demonstrably when doctors and other health care workers follow checklists (as I noted here in a 2003 blog post).
- Customers usually have a better experience waiting in a single line that feeds multiple check-out stations than choosing a single check-out line. (Some of us remember the misery before “jet lines” were introduced.)
- Companies invest significant research dollars to speed up processes. Fast food chains have successfully found ways to shave seconds off the time required to fulfill drive-through orders, which turns out to be critical to profitability. Airlines continue to research how best to board planes efficiently, though the optimal answer appears elusive.
- Technology has improved service experience everywhere. Common examples include the ATM, insurance agents equipped to pay claims in the field, picking up a rental car from a special aisle without having to stop at the service counter, the Apple Store experience of paying the person who helps you via a hand-held credit card reader, and the option to shop on the web instead of a store.
In the legal market, word processing and e-mail were probably the biggest and most ubiquitous productivity boosters over the last two decades Both are about 20 years old and both raise some productivity questions as well. (Arguably, lawyers should delegate more work on document processing than they do. And many lawyers lose time managing e-mail.)
More recently, predictive coding in e-discovery has significantly boosted lawyer productivity, though it remains controversial. I expect that legal project management and process improvement will have a bigger impact but it is early days. Can we expect to see the regular introduction of new processes, techniques, business models, and technology in law that we see in many other economic sectors? As clients continue demand higher value from outside counsel, law firms that improve productivity will win market and mind share.
Last week in Client Service Lessons from a Large Law Firm Secretarial Cut I wrote about law firm secretarial cutbacks and the implications for client service. Three readers, each an accomplished blogger, commented on the post, which I reproduce here, plus my own observations on their comments.
Firms that cut back on secretaries are doing so, to my mind, almost entirely to save money; improving internal efficiency is a distant second and improving client service isn’t even in the race. They think that “technology” can do the things that secretaries traditionally have done; the problem is they overlook the lawyer management functions that secretaries have almost always performed.
Secretaries, unlike almost any other creature on Earth, can actually get lawyers to do what they’re supposed to do. They chase them down to fill in their time sheets. They push the really important priorities up the lawyer’s to-do list. They remind them about the colleague who’s come to their closed office door three times for a consult. They act as the lawyers’ ambassadors, apologists and oracles for colleagues and clients alike. Secretaries with four, five or six different “bosses” can’t perform many of these functions and will rarely feel inspired to do so anyway.
I suspect that many lawyers don’t put up a lot of resistance to secretarial cutbacks because they’re secretly happy not to be managed anymore. It’s easy to dismiss an Outlook reminder or overlook a scheduled meeting when there’s billable work to be done. Law firms don’t appreciate secretaries’ lawyer management functions half as well as they should, and those that keep cutting back on secretaries will learn how costly that failure really is.
While Jordan’s initial statement may be true in general, I know one firm where it is not: the one I work at (Addleshaw Goddard). We have made significant changes to the secretarial role, driven by the need to improve client service. There has been some technology-driven change (digital dictation, for example) and some cost savings, and those will continue. However, these cannot be separated from our desire to improve client service delivery. (I have looked for published material on the work done by our Secretarial Services team, but I haven’t found any, so I can’t provide any links for you.)
Secretaries that are just doing the same thing they did 5 or 10 years ago probably are “legal dinosaurs.” Their roles have changed as new lawyers are coming out of law school that can type as fast as they can.
I disagree with Jordan that “lawyers don’t put up a lot of resistance to secretarial cutbacks.” They do. The loss hampers their efficiency. They know it. They just can’t show the positive ROI that a good secretary generates.
I agree with Jordan that cost-savings motivate cutbacks but I disagree about lawyers not wanting secretarial nudging. I’m with Doug that many lawyers suffer when they lose a secretary. And Doug’s dinosaur comment is right - the question is what should secretaries do today. Or, more broadly, what support should firms offer lawyers today.
Given flat legal demand and rate pressures today, a growing share of BigLaw revenue comes from alternative fee arrangements (AFA). Well-structured AFAs should motivate firms to utilize lawyer time as efficiently as possible. That means providing the right support and technology. Exactly what that means remains to be defined. In this newly competitive BigLaw market, smart firms will experiment with new approaches and differentiate. That likely will spawn a wider range of approaches to staff and technology support than we saw in the past.
In the New Normal of the legal market, law firms must think carefully about adding the fixed cost of new full-time lawyers. Three news items this week, a Citibank law firm report, a Freshfields launch, and an Altman Weil survey, highlight this concern.
Among the 176 large law firms that Citibank surveys, lawyers averaged 1640 billable hours in 2010-2011, down 100 hours from the 2001-2007 average of 1740 (see Citi: Demand For Legal Services Up, But Outpaced By Spike in Expenses, WSJ Law Blog, 14 May 2012).
With this excess capacity and demand almost flat, hiring full-time lawyers creates a big cost risk. Yet law is a ‘lumpy business’, with many peaks and valleys in demand. Keeping bench strength to meet peak load demand kills profits. Instead, firms must find new ways to staff up for the peaks.
One answer is contract lawyers. This week, the Altman Weil 2012 Law Firms in Transition found that in 2009 28% of managing partners thought more use of contract lawyers was a permanent trend, this year, 66% do. In 2011, almost 80% of firms of 250 or more lawyers used contract lawyers, up more than 15 points from 2010.
A new item today illustrates another creative approach to managing capacity. The Lawyer reports in Freshfields turns to former lawyers to fill fee-earning gaps that Freshfields’ London office will tap its lawyer alumni (partners and associates) to staff matters.
Law firms that manage productive capacity wisely will protect their profits. Flexible staffing is key. Of course, using “temporary” lawyers can have an impact on service delivery and the client experience. If, however, firms manage this carefully and communicate the benefits and operations plan clearly to clients, both firms and clients will benefit enormously.
Over time, I expect that law firms can amass “Big Data” that helps them forecast demand. And they can and should use resource allocation technology to ensure maximizing productivity.
ALM’s Daily Business Review reported Friday that Greenberg Traurig lays off staff to achieve 4-to-1 attorney-secretary ratio. Firms may find this news startling or old hat. For me, it speaks to the issue of improving law firm service delivery.
The article notes that with “new technology, fewer paper copies and scheduling software, secretaries are starting to become legal dinosaurs, legal experts say.” It also reports some firms are moving to ratios of 5:1 or 6:1.
When firm management contemplates increasing the secretarial ratio, does it consider the impact on client service? I fear not. Few firms systematically consider what support lawyers need. (See my 2009 post Law Firm Staffing Reference Model.) The right level of support depends on how to provide top clients with the best experience.
My experience suggests that secretarial ratios do indeed need to go up. As firms ratchet back on secretaries, however, they must provide other types of support. For example, I know at least one firm that replaced secretaries with recent college graduates; it found the former had skills more closely aligned with lawyers’ actual support requirements.
More generally, lawyers may need less help with documents but more help understanding their clients’ companies and industries. And they need help setting alternative fees and managing projects. As secretarial counts go down, the headcount of pricing experts, project managers, and business researchers must go up.
Simply following other law firms that make cuts - without thinking through the client experience impact - means firms losing a big opportunity to improve client service. Firms should re-think their service delivery approach. As they consider how to improve client experience, they will likely identify both cost-saving opportunities and areas for new investment.
[Additional notes: For more on secretarial ratios, I want to point out that while technology enables a higher ratio, it is not the only factor. For about a decade, firms have had two other options that support higher ratios. First, smart firms off-load heavy word processing to central word processing staff, either in an owned-and-operated center or with an outsourcing company. My 2008 ALA Legal Management magazine article, Dealing with Documents: The Pros and Cons of Outsourcing, explains the benefits of this approach. And second, creating secretarial teams can help improve utilization and service, as discussed in my 2003 Legal Times article The Future of Legal Secretaries.]
Clients assume lawyers have the right expertise and will deliver good outcomes. For all but a few matters, to keep and win work, firms must create a good client experience by customizing and optimizing service delivery.
I start with a couple of observations from outside legal about service delivery. I now use Skype for conference calls and join.me for screen sharing. Skype is free and, unlike most audio conference services, shows who is talking - a great feature when on the line with new contacts. Join.me, unlike Webex, offers basic service free and is less of a hassle to set up. Because new these new providers offer better service delivery, they win my business. The lesson? Through better service delivery, new providers gain share of market and share of wallet.
That ideas is now taking hold in the legal market. Only a few firms will continue to win business on the strength of their name. The rest must provide clients with better service delivery to keep and win business. That means understanding client expectations and changing how how lawyers practice and the firm operates, for example, with alternative fee arrangements, process improvement, project management, KM, technology, new approaches to resource allocation, a better approach to staff support, value-add services (e.g., private content), and tailored business intelligence.
Three news items this week drive home this point. The Monday New York Times editorial, The Cautionary Tale of Dewey & LeBoeuf notes that large firms face “more competition from firms abroad and newcomers to legal work", a move of work in-house, and clients who “are increasingly aggressive about keeping fees down and asking firms to share risks”. That BigLaw market pressures make it to the op-ed page of the Times tells us a lot.
Today, Patrick Lamb of Valorem Law, in his New Normal column in the ABA Journal, writes “Skilled judgment must be delivered efficiently. Clients care what service costs—even skilled service. Clients want service to be delivered predictably.” He likens a good lawyer to a symphony conductor who causes “other lawyers and third parties to work efficiently and effectively together to produce results at a cost known to and approved by the client.”
The Times summarizes the pressures and Patrick explains how service delivery can respond to the pressure. But the managing partner of Seyfarth, J. Stephen Poor, in the Monday Times Dealbook Blog post, Re-Engineering the Business of Law, illustrates that making these changes is not so easy. He opens with:
“True long-term success requires businesses to improve continually and reimagine how they operate in the face of changing competition and market forces. Yet this innovative urge, which drives so much of the rest of the American economy, is largely absent from large law firms.”
[The imperative for firms he says is to] “find different paths to deliver value to those who buy our services. Lawyers today should be asking themselves nontraditional questions: how to apply resources more effectively, to shorten cycle time and lower the cost of their work product and other deliverables, while raising the level of service.”
He explains challenges his firm faced in executing their well-publicized process improvement and that marketing is not enough: firms must change how they deliver services.
I agree. One of my current projects is developing a service delivery effectiveness assessment. In doing that, I see that while few metrics or guideposts exist, firms have the opportunity to consider - and adjust - many aspects of how their lawyers practice and how their firms operate as businesses. As Mr. Poor suggests, the path may not always be easy. But the imperative is clear and the pay-offs worth it.
[Link to prior Service Delivery posts.]
Does BigLaw have a future?
Two pieces yesterday remind us that the legal market faces peril and change. Jordan Furlong, in Losing the Confidence Game, points out six trends that threaten lawyers. He concludes by wondering whether lawyers are up to meeting the challenges. Almost as if written in response but simply published the same day, Patrick Lamb of Valorem Law, in the ABA Journal, A ‘Valorem Dozen’: The Ingredients for One New Normal Firm, offers great suggestions on how to do so. His tips include using low cost resources and focusing on outcomes rather than time.
For many reasons, not least that general counsels buying habits change slowly, I see no existential threat to BigLaw. Some firms may fade, some may implode, but others will thrive. Thriving, however, requires thinking and innovating. Some are doing so as these examples and data illustrate:
- I count 10 firms that operate low cost, centralized service centers, some of which provide lawyer support as well as business services. The earliest of these I can identify opened in 2001 - so this is not new.
- About a dozen firms, perhaps more, have industrialized their approach to e-discovery and document review.
- Several firms now take project management seriously. For the latest and a very interesting example, see today’s post by Pam Woldow, A Case Study at the Cutting Edge: Legal Project Management in Australia (about Mallesons).
- Three firms now offer alternative staffing models, arguably competing with staffing agencies. I know of Berwin Leighton Paisner’s Lawyers on Demand, Eversheds Agile, and Fenwick & West’s FLEX. Freshfields had planned to launch an alumni network, Freshworker, but put it on hold according to Legal Week
- About one-half dozen firms have publicly announced partnerships with legal process outsourcing (LPO) companies.
- I understand about a dozen firms now have pricing specialists to deal with alternative fee arrangements.
These make me optimistic that some large law firms will prosper.
Paul Lippe, founder and CEO of Legal Onramp and ABA Journal Legal Rebels series contributor, asks a great question: Where Are the Legal Jeremy Lins?.
He writes in a March 13th article so titled
“How often in law do we look at what really happens with something we do (outcomes), versus how much we do and what other lawyers think? As a result, we have too few Jeremy Lins: too few lawyers who can confound expectations and deliver outcomes rooted in truly superior performance… So we end up with what might be called the Gladwell effect, where reputation drives reputation.”
To overcome this problem, to identify the legal superstars, Paul argues that we need metrics on outcomes. I agree that we need data, not just precedent, not just supposition, not just word of mouth.
Jeff Carr, Vice President, General Counsel & Secretary of FMC Technologies wrote a comment that I like because it expands on the idea of outcomes (reproduced with his permission):
“You know, I almost missed this column because of the title. It’s not that I don’t know about professional or college sports, it’s that I truly don’t care about them. Thankfully, this column was brought to my attention and there is much here to ponder.
As the leader of a legal team that constantly evaluates performance and compensates the players (inside and outside counsel and LPO’s) according to that performance, I humbly think we’re pretty good at this. And I’m just arrogant enough to assert that I think we’ve helped make the lawyers that we work with better lawyers. They are not better lawyers because we’ve somehow made them smarter, or technically better—no—they are better because I think and hope we’ve taught them the keys to outstanding customer service. As Paul points out, that’s all about outcomes—but outcomes are not simply “winning”. Outcomes to us means helping us achieve our objectives (“effectiveness”) while delivering value (“efficiency” and “predictive accuracy”), and while adopting and reflecting our culture. (“communication”, “teamwork”). While we also measure the technical trade-craft of law (“knowledge”), that criteria is actually not as important to us than the others—instead it’s kind of like the entry stakes to being on our legal team. In the somewhat weird parallel universe of lawdom, somehow knowledge is elevated by the practitioner more than customer delight. Hence a world where peer evaluations reign supreme when customer perceptions is really what matters. I’m sure all the folks at Kodak thought physical film would similarly reign supreme—in other words, if your feedback loop of customer value doesn’t really involve customers, you’d better look out for the meteor that’s going to wipe out your business model.
Paul’s right, defining expectations and delivering to those expectations makes for good lawyering. Exceeding those expectations to the delight of the customer is what makes for truly exceptional customer service and therefore outstanding lawyering.
Jeff reinforces my recent posts on improving the client experience at large law firms. I wrote a comment that expands on both Jeff’s and Paul’s points:
“In the world of corporate law departments and large law firms, legal outcomes must be measured relative to a joint assessment of the expected outcome at the matter outset. For example, winning a $100M judgment sounds great unless you had a strong expectation that $500M was far more likely.
Corporate clients must take an evidence-based approach to evaluating law firm results. That means analyzing e-billing data to assess performance cross-sectionally (across firms) and longitudinally (same firm over time). This requires characterizing each matter for difficulty and expected v. actual outcome - a worthwhile exercise to evaluate outcomes.
I’m also with Jeff Carr on his broader view of “outcome”. Along with “legal outputs” such as advice, settlement, judgment, or a contract comes the experience of working with lawyers. The experience includes the overall cost, how closely the cost came to the predicted budget, the efficiency of the work, the quality and frequency of communication, and the transparency of the undertaking. Surveys get at the attributes Jeff describes.
Law firms should collect data to measure the multiple aspects of “service delivery” and the “client experience”. (I wrote a blog post a week ago explaining Why BigLaw Needs a Chief of Client Experience.)
Unless both clients and law firms empirically evaluate outcomes andexperience, we can’t identify the Jeremy Lins among lawyers. We are left simply with “reputation drives reputation.”
Empiricism may, however, not be enough. We also need a change in GC job security and personal-risk assessment: If the GC fears for her job because an outcome is bad and she did not select a white shoe law firm, in spite of the data showing other firms were as good, then all the data in the world won’t make a difference. So the CEO, CFO, and COO have to buy into the evidence-based outcomes approach.”
Last week I wrote that law firms need the equivalent of conductors and composers to orchestrate how they deliver service to clients. The Wired GC’s post yesterday, What if Law Firms Priced Like Apple?, serves as a springboard to extend this thinking.
His post points out that Apple has a low supply cost, which enables it to offer premium products at highly competitive prices. The analogy for law firms would be “to offer defined services for a lower block rate to their best customers? This could be for off-the-shelf information plucked out of knowledge management systems or owing to enhanced productivity gained from experience managing outsourced work.” The post concludes that high-end law firms might use KM to do some lower-end work for valued clients.
I will take the Apple analogy further to extend my post last week, Optimizing the Law Firm Client Experience. Apple sells not just products but also an experience. The experience includes the Apple Store, the distinctive website, the product packaging (Steve Jobs is the lead on a patent for one package), the integration and similarity across products and services, and the on-going connection via the iTunes stores and application.
Law firms can learn from Apple, as the Wired GC suggests. Clients expect large law firms to deliver excellent legal results. But how many deliver a client experience commensurate with that result. If Apple packed the iPad in a box similar to one of the major PC manufacturers or the iPhone in an impossible-to-open plastic clam shell, those products would just lose some magic. Or what if apps worked like typical desktop productivity suites. We might still get value, but it wouldn’t feel nearly as nice – and you would not be willing to pay as much.
So beyond the lesson the Wired GC takes from Apple about pricing is the Apple lesson about creating a highly desirable experience. Law firms can learn from this. I’m reminded of a story a friend shared recently about a Fortune 50 that dropped one firm in spite of excellent legal results; the in-house lawyers just could no longer put up with cost variances and communications lapses.
Legal results have become table stakes. So BigLaw needs to think about other axes of competition. Large law firms may not be ready to hire a Chief of Client Experience, but putting someone in charge of it could be highly profitable as Apple has shown.
[CREDITS: The idea of experience and how it affects pricing and law firm profits is a meme that has been brewing. Jordan Furlong, in Pricing to the client experience, inspired me to think about client experience as an attribute completely separate from legal results. I have also drawn inspiration from Danny Ertel of Vantage Partners in Fee negotiations part 7: It’s a process; Toby Brown of 3 Geeks in Wise Up Before Value Billing (at Attorney at Work) and The Value in Value Billing for Law Firms (at 3 Geeks); and Paul Lippe in the ABA Journal, What if Someone Could Measure What Lawyers Do?.]
Large law firms can no longer count on profit growth. With demand flat and buyers gaining power, firms must battle for share of market.
The easiest way to grow market share is winning a bigger share of wallet, that is, the percent of a client’s total legal spend. To do so, law firms must identify top clients and offer them better value.
Identifying “top” clients means more than tallying total client billings. High-revenue clients will make the list but profitability, growth potential, and industry fit with the firm’s strategic focus will influence selection.
Offering more value means improving the service experience. Firms can “play” many instruments: process improvement, project management, deeper business research, better resource selection, sophisticated business intelligence, service level agreements (SLA), client satisfaction surveys, technology to share information and streamline work, alternative fee arrangements (AFA), and knowledge management. The hard part is knowing which to play and how.
Creating an outstanding client experience is like composing and conducting a custom score for each. Today, few firms have composers and conductors to focus on what music each top client likes best. Firms that create and formalize such roles - the ones that play each top client’s favorite music - will win.
Dear BigLaw Managing Partner:
You recognize that the Old Normal is gone. Inertia may carry you a bit but change looms. If you are not retiring soon or if you want to help your younger partners, you need to take four actions to thrive in the New Normal. They’re hard and will take time, so start now.
1. IMPROVE VALUE BY PRACTICING LAW MORE EFFECTIVELY AND EFFICIENTLY
To meet the growing client demand for better value, you must improve how your lawyers practice.
Yes, partners don’t like others poking around what they do. But you can’t credibly say to clients you are one firm when every partner works differently. Figure out best practices, develop check lists, and standardize. Tell your partners this frees them to be creative where it really counts.
That will take time. So meanwhile, get cracking on legal project management. Whether your process is good or not, someone other than the billing partner needs to manage it. Grow or hire real project managers.
If you don’t have good KM and IT to support better process and project management, get it.
2. DIAGNOSE AND IMPROVE YOUR BUSINESS OPERATIONS
Have you taken a good look at your staff functions? Lay-offs reduced cost but did not fix underlying inefficiencies.
Find the fluff in your finance, marketing, IT, HR, library, secretarial, recruiting, and facilities. Figure out what you can centralize and streamline. You almost certainly have too many staff in your most expensive office space. If you don’t have the scale or stomach to open a low cost service center in a place like Wheeling, Dayton, Manila, or Nashville then consider outsourcing. Or consolidating operations in one of your own lower cost office locations.
3. ENGAGE YOUR CLIENTS
Delivering a brief, advice, or deal document is easy and billable. But to truly engage clients your lawyers need to know their business. Partners must read the news and attend the events important to clients and spend non-billable time talking to them about their business and legal problems ("what keeps you up at night?").
Separately, you personally need to know what big clients think of your firm. Find out what your clients think; have regular conversations and act on what you learn.
4. ADOPT METRICS AND FORMAL GOVERNANCE MECHANISMS
You won’t succeed with the above unless you measure what you do. Decide what’s important prospectively, then measure to see if you hit targets. Rinse and repeat. You’ll also need a governance structure: who does what when you don’t hit the targets.
Your work is cut out for you. But you have one other task to do support all this: quit saying “non-lawyers”. Dividing the world in two serves no good purpose. Teams works best when you eliminate castes. And in the New Normal, it takes a team.
Happy New Year.
It’s hardly news that a US or UK law firm lays off lawyers and staff. Hogan & Hartson’s buyout of selected staff my eye.
Hogan & Hartson offers buyouts to 240 staffers (National Law Journal, 10 Feb 2009) reports that the firm is offering buyouts to 240 legal secretaries and word processors. Managing partner J. Warren Gorrell “said that the buyout offer is not a sign of financial problems for the firm, nor is it an omen of future layoffs. Rather, the buyouts are a byproduct of overcapacity in the secretarial ranks and improving technology.” That said, he does acknowledge the downturn is a factor.
In The Crisis Goes to Waste as BigLaw Muddles Through I point out that across the board staff cuts make no sense. Hogan’s selective cut makes more sense.
I wonder, however, if the firm will re-allocate secretaries and word processors so that lawyers receive the right level of support. If a firm has to cut - and many do - it should take that opportunity also to re-think how it delivers support.
I fear that BigLaw is following in the path of the Detroit Big 3 car makers. Adjust here and there but no plan or vision to change fundamentals. If firms have plans around how lay-offs will lead to a better business model for the future, they are not sharing (or the press is not reporting).
Law firm lay-offs continue aplenty. How should firm management decide about cutting staff?
Staffing Cuts Multiply, but Are Associate Cuts a Better Solution? by Karen Sloan (The National Law Journal, 23 Jan 2009) recounts the many BigLaw staff reductions and suggests “firms should be cautious in their reductions and should be careful not to cut staff too deeply. Arbitrary cuts in key departments, such as marketing and technology, could ultimately hurt the firm by undermining efficiency and long-term growth plans. ”
My recent post Law Firm Staffing Reference Model argues that firms must “determine what support lawyers need [and] know what lawyers should do on their own and what they should delegate.” I’ve not seen evidence that firms systematically assess support needs.
In the NLJ article, Reed Smith managing partner says his firms cuts were evenly cut across departments because “Our intention is not to let any of these services slip.” The logic eludes me; maybe the cuts should be concentrated.
Absent rigorous analysis, cutting evenly across the board suggests that a firm has no idea what support is really required. Evenly distributed cuts imply that rational decisions were made in the past, that support needs remain constant over time in spite of the march of technology, and that wild gyrations in practice group revenue have no impact on support needs.
I suspect this crisis is going to waste. Many BigLaw firms will muddle through, a few more may collapse. But will any really get rational about how they operate their very expensive support?
How should law firms support lawyers?
Sounds simple but is it really? Firms can compare their staff ratios or cost as a percent of revenue using survey data. The averages, however, conceal huge variations. For example, I know that three large NYC law firms have lawyer to secretary ratios of 2.9, 4.7, and 6.0. And I’ve seen surveys reporting IT spending as a percent of revenue range from 3% to 7%. Can the extremes both be “right"? Are averages best practices? In my experience, the variations arise randomly, not from objective factors such as practice mix.
To determine what support lawyers need, firms must know what lawyers should do on their own and what they should delegate. Should lawyers dictate or type? Do legal research or delegate it to a research lawyer? Make their own travel plans or use a travel agent? Do their own analysis in Excel or rely on a business analyst? These are hard questions but if firms don’t ask them, how do they know the appropriate support?
If firms do ask these questions, how should they balance the potential tension between what lawyers want and what’s best for the institution? Individual lawyers may well say “do everything for me” but the firm may say “be as self sufficient as possible”.
Could we build a law firm reference staffing model based on clearly articulated principles and reproducible analysis? Would this be helpful? Is anyone aware of any work along these lines?