There’s a story told about Jack Welch, former GE president — it might be from one of his books, or it might be apocryphal; quite possibly it’s both. The story goes that soon after he took over the company, he called in his vice-presidents and other senior people and advised them that countless smaller companies and start-ups were out there gunning for GE, hoping to take down the top dog by finding the chinks in its armour and exploiting them. He directed his people to locate these companies, identify the disruptive innovations they were coming up with, and prepare defences against them.
Two days later, Welch called those same people back into the boardroom and told them he’d changed his mind. When his VPs and senior leaders found these companies and figured out what they were doing to destroy GE’s business, they weren’t to prepare defences against those innovations. They were to adopt them.
In a nutshell, that describes the challenge facing companies in virtually every industry today, especially legacy industries like music, automobiles and publishing where complacency has led to ruin. Very rarely, companies rise to the challenge: consider The Atlantic magazine, which is meeting this innovator’s dilemma by doing exactly what Jack Welch prescribed: reinventing its business model before competitors force it to do so. In the words of the company’s media president:
“‘If our mission was to kill the magazine, what would we do?'” said Smith, who added that a digital competitor was going to do that anyway, so they did it themselves.”
The article continues: “There are so few companies that realize this needs to be a key element of their strategy. Someone else is out there trying to kill them. So do it yourself and reap the rewards. … [The Atlantic] recognized that digital wasn’t just an adjunct to the print product, but a core element of the brand and the publication. So, they … looked for ways to make the digital product be fantastic on its own. And, now, nearly 40% of the brand’s revenue comes from its online properties….
What GE and The Atlantic saw and responded to, most lawyers and law firms cannot or will not see. Most lawyers are blissfully unaware that they’re in the cross-hairs of numerous entities outside the legal profession, entities that have set their sights on the legal marketplace intending to own some or all of it. These entities know the history of this market very well, and they know that lawyers and law firms own a near-monopoly on legal services thanks mostly to ancient regulatory circumstance. They believe those accidents of history have run their course, and that the field will belong in future to whoever best delivers what the market wants and needs.
Accordingly, these entities are now sizing up the legal profession, looking for weaknesses and soft spots to exploit. They have several advantages, including financing, business savvy, and patience. But their most powerful weapon is their attitude: unlike most lawyers, they believe there’s nothing natural or pre-ordained about lawyers’ domination of the legal services marketplace, and they believe it can be ended within the decade. Very few lawyers believe this, and very few law firms are taking the Jack Welch approach of both knowing your enemy and adopting its methods.
So here’s a primer on your enemy and its reconnaissance efforts. When these entities sit around a table and say, “How can we kill off law firms? What key weaknesses can we exploit?”, here are three answers they’re most likely to come up with, the jugular veins they’re aiming for.
1. Price. Simplest and easiest. Clients of all types and sizes will tell anyone who asks (a group that rarely includes lawyers) that they dislike what they perceive as the high price of legal services and the uncertainty surrounding what the final price will be. Competitors outside the profession have looked at this carefully and concluded that lawyers’ prices are high for two reasons: (1) lawyers are incredibly inefficient, the equivalent of candlelight-workers in the electric age, and (2) lawyers are accustomed to a certain income and lifestyle and, in the absence of real competition, charge high prices to maintain them.
These new entities are hyper-efficient, partly because they come from start-up tech-aligned backgrounds, and partly because they never worked in law firms and weren’t raised in all the assumptions by which lawyers operate. And because they’re outsiders, hungry and ambitious, they start from a much lower level of “necessary income” expectations (it helps that they’re not burdened with tens of thousands of dollars in law school debt from the start). Lawyers can rattle off many reasons why we charge what we do, failing to recognize the fundamental marketplace rule that customers don’t care, not one inch, how much it costs you to provide a product or service. Price is a gaping strategic exposure for lawyers, and competitors have already locked onto it.
2. Intelligence. I don’t, of course, mean this in the sense of raw brain power; lawyers are plenty smart. (One of lawyers’ strategic weaknesses, by the way, is our failure to recognize that we’re not the only or the most gifted smart people in the room). I mean this in the sense of industrial or competitive intelligence, the ability to understand and manipulate the ways in which we and our competitors do business and the costs at which that business is carried out. Most lawyers and law firms have only a rudimentary grasp of these things: business is done the way it’s always been done, from our forefathers’ time: it works and it makes money, so what’s not to like?
Law firms with rich intelligence capacities would know how much it costs them to deliver their services, how much their rivals charge and why, what knowledge its people and systems collectively possess, and how to apply that knowledge in a systematic way. This describes very few actual law firms; but it describes perfectly the competitors now entering the marketplace. They employ elementary principles of business process engineering and more advanced methods of project and knowledge management, they have a knack for getting work done both cheaply and well, and they know their clients and other competitors cold. The legal profession’s counter-intelligence efforts in this regard have been virtually zero, and we are terribly vulnerable as a result.
3. Responsiveness. This concept has several different dimensions, some of which will be familiar to lawyers from client complaints. We don’t call clients back quickly enough or stay in touch often enough; no matter what we may believe of ourselves, client surveys consistently state that as far as our customers are concerned, we’re pretty terrible communicators. It also applies in the sense of lawyers’ failure to properly immerse ourselves in clients’ worlds and priorities, such that our services could be provided in a more timely, appropriate and targeted fashion. These are not insurmountable obstacles: these are simply choices lawyers have made regarding how to go about our work. These new entities, seeing an opening, are choosing otherwise.
But even more fundamentally, “responsiveness” describes a category of weakness that applies to our whole approach to the marketplace. If there’s one thing that strikes competitors from outside the profession about our marketplace, it’s this: why don’t lawyers care that 75%-80% of the population, civilian and corporate, can’t afford lawyers’ services? Never mind the moral argument: what kind of industry or profession is content to let so many fields lie fallow? How can you possibly not care about billions of dollars’ worth of legal service opportunities that go begging to be met (with more to come, as the economy surely worsens)? The legal profession, from all outward appearances, is either clueless about or indifferent to the latent legal market. Rest assured, our new rivals are not.
How do you kill a law firm? Assuming the firm doesn’t die of natural causes or commit suicide, you identify its weaknesses and you exploit them mercilessly, over and over again, until the firm is helpless to defend itself or its client base. Believe me when I say that as targets go, most law firms present themselves as fat, immobile, complacent victims-in-waiting. It’s not too late to prepare defences, and it’s not impossible, no matter how it might seem from the inside, to take the necessary, disruptive-innovation steps to turn your firm into the kind of world-beating champion your rivals hope to become. But time is running very short. Jack Welch took two days to change his mind. How long will it take you?
Vulcan's Forge
I haven’t commented here in some time, mostly because my interest here is primarily technological as opposed to legal, and while Law21 tends to keep modern technology in mind (it would have to, after all, being a blog) the author hasn’t specifically written anything focused on technology in recent months.
However, this piece caught my eye last week, mostly because I think there is an analogy here the legal profession and the technology/IT marketplace as a whole – one which may not bode well for any possible acceptance of the need for change in the legal profession.
Jordan’s points above are basically that law firms to survive in the 21st century are going to have to (rapidly) change their pricing scales and their means and ability to communicate with and respond to their clients – in short, provide the service the client wants at a price the client is willing to pay, in a time scale which is continuing to shrink.
This is remarkably similar to what has been going on in the IT world over the last 20 years in terms of Microsoft’s ongoing quest to monopolize the desktop operating system and the Linux/free-software communities equally serious quest to subvert it. (Before you roll your eyes and moan, here’s another Linux prophet, that’s not where I’m going with this).
Linux does have a number of advantages over Windows – remarkably similar to those points mentioned in Jordan’s post as being the necessary direction for law firms if they want to survive. It’s cheap (free), faster, more secure, and the development community behind it is considerably more responsive to requests for improvements than the behemoth that is Microsoft.
Yet Microsoft continues to be the desktop OS of choice for the majority of PC users, both in private use and for commercial purposes. Why?
It would seem obvious that given a choice between a less expensive option and a more expensive one, all other things being equal, most reasonable people would choose the less expensive one. Yet clearly, people – and therefore, the businesses which provide services to them – aren’t.
Which means that the real issue here, in both the technical and the legal environments, isn’t price or performance, it’s inertia. The resistance to the idea of change simply because one is comfortable with the status quo.
What I think this means – speaking from the perspective of the IT world – is that Microsoft will continue to own the desktop computer OS market for the forseeable future, possibly followed by a sudden and very unexpected shift in the market towards Linux and other alternatives.
What it means for the legal profession? I don’t know. I can’t comment on how your clients feel above your prices, or how quickly you respond to their needs. But I suspect a lot of the people in your industry will look at Jordan’s question above – How long will it take you (to change your mind)? – and respond “Why do I have to?”
Of course, they’re probably also the ones who keep rebooting their desktop PC from a “blue screen of death”.
William Henderson
Jordan,
Very insightful and worth reading. Vulcan’s point on the power of inertia is a good one, though I agree with you that vendors are slowing gathering force to take pieces of this market. As you suggest, so much of what lawyers do is not necessarily practicing law — it is research, or writing, or compiling, etc. That work is amenable to process engineering, to the point where two lawyers litigating a case against one another could use the same vendor to supply them with critical inputs.
Such a vendor is (a) not practicing law because it is not counseling clients or appearing in court, thus (b) not subject to conflicts or fee-splitting regulations with non-lawyers; (c) has enormous potential economics of scale and scope; (d) open to outside investment with a long term time-horizon. When vendors provide phenomenal saving AND high quality, inertia will eventually give way — and when it happens, it will probably happen very quickly.
This is no pie in the sky ideas — I talked to a CEO of such a company today. He has an MBA, not a law degree, and has 25 employees, many who whom are engineers and marketing people. And he is financed by venture capital + has skin in the game.
Jason Kohlmeyer
Great article, probably one of the best on this topic I’ve read! I think it’s so odd that we lawyers don’t see that LegalZoom and the competitors are going after small law as well as big law and that whining about unauthorized practice of law is not the best way to keep ahead of them!
E Nuff Sed
This is happening in every profession – Physicians are being threatned by Nurses and Pharmacists who are slowly moving up the value chain. Dentists by Dental Hygienists who have now won the right to set up their own practice. Engineers by technicians and everyone (except perhaps barbers) by hyper-competent service providers in developing countries. Lawyers like everyone else have to move up the value chain and offer better value for money.
Daniel B. Winslow
Well said. There is significant interest among companies in a new idea for civil litigation: Economical Litigation Agreements a/k/a “litigation prenups” which will reduce commercial litigation costs up to 40%. Not so much interest among law firms. That’s got to change. For a free copy of the ELA model contract language and info, go to http://www.cpradr.org.
Timothy B. Corcoran
Excellent article, as always, Jordan. My reaction and some additional commentary on my blog (here: http://www.corcoranlawbizblog.com/2010/08/the-end-of-the-american-way). Professor Henderson mentions talking to a legal vendor CEO who is already displacing lawyers with his technology and processes, much as my company was poised to do several years ago before it went in a different direction. The future is here.
Keith Orenstein
As a practicing attorney, I totally agree that lawyers should be more efficient in their practices and should communicate better with their clients. There is also no doubt that legal fees are a lot higher than most people can afford.
I do not, however, believe, as your article intimates, that there are “entities” lurking somewhere out there in cyberspace waiting to absorb us like the borg.
Bottom line: you still need to go to law school; you still need to pass the bar; and you still need to work your butt off to develop the skills necessary to succeed in the shark tank that is the legal profession. This takes time, effort and money; and there is no way around it.
Somehow, I don’t see these so-called “competitors from outside the profession” showing up in courtrooms anytime soon. Instead of painting a vague doomsday scenario, why don’t you tell us who these alleged “entities” are and what exactly they are doing to decimate the ranks of the legal profession? Otherwise, your article is pretty useless.
Rafael Moscatel
As someone who has worked with lawyers for 10+ years in a variety of ways, I agree that firms can be inefficient. However, an underlying source of increased litigation E-discovery costs is the lack of the parties and their attorney’s archaic records management philosophies.
Karl Chapman
Jordan, this is good. Particularly the understanding that for new entrants “… their most powerful weapon is their attitude: unlike most lawyers, they believe there’s nothing natural or pre-ordained about lawyers’ domination of the legal services marketplace, and they believe it can be ended within the decade.”
Of course, forecasting is notoriously difficult. But some predictions are easier to make than others. Customers will drive change quicker than law firms anticipate. The partnership model is not fit for purpose in the market place emerging. Hourly billing will, for the overwhelming majority of legal work, be replaced by fixed and other pricing models that deliver certainty. Technology will play its proper role supporting high quality service delivery rather than focused primarily on time recording. Law firms that bury their heads in the sand and hope things will ‘return to normal’ will wither and die. The big winners are customers.
Lincoln Mead
Jordan,
An excellent read (as always) and timely as we are seeing the University of Utah Law School begin the process of creating a new home for itself. The current Dean, Hiram Chodosh, describes it as a teaching hospital for those entering into the legal profession and that focus, along with some other design choices shows some recognition of the changes taking place in the market and the culture. It will be interesting to see how the curriculum evolves in a new environment.
David Swede
Like many law firms we are having this exact debate internally, wrestling with the concept of bridging the gap between knowing that value in legal services is not always easy to put a cheap price on, as against the fact that clients see things very differently. Regulation also comes into the mix, clients often don’t understand that there are 3 parties at the table, them, us and our Regulators.
Meena Toor
Nice article Jordan – I particularly liked the analogy which makes you stop and think.
Knowing your competition is key and who are your biggest competitors can be hard to decide. At Chambers and partners, we created legal rankings based on client’s, for the client, and this has been a method that has continued since 1990.
To aid the second and third parts of your post, check out these guides online at http://www.chambersandpartner.co.uk (twitter @chambersguides) and review all the rankings for free. No catch.
Thanks and keep posting J