Legal outsourcing’s AFL moment

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Posted in: Innovation, Outsourcing

It’s July, we’re in the middle of a record-breaking summer of heat, and the major-league baseball trade deadline is just days away. So naturally, I’m going to talk about football.

This isn’t entirely a propos of nothing: the National Football League lockout recently ended with a 10-year collective bargaining agreement, and a frenzy of free-agent signings has followed. But I actually want to go back several decades and tell you about an upstart operation in the 1960s called the American Football League, because the AFL has something to say about a legal process outsourcing (LPO) industry at a crossroads.

Here’s a brief summary of the AFL’s short but extraordinary history, from Wikipedia:

The American Football League (AFL) was a major professional football league that operated from 1960 until 1969, when the established National Football League (NFL) merged with it. The upstart AFL operated in direct competition with the more established NFL throughout its existence. Though downplayed by the NFL as inferior, the AFL signed half of the NFL’s first-round draft choices in 1960, including All-American Billy Cannon, perennial All-Star Johnny Robinson, and Hall of Famer Ron Mix. Overall, AFL teams signed 75% of the league’s draft choices that first year. It continued to attract top talent from colleges and the NFL by the mid-1960s, well before the Common Draft which began in 1967.

A merger between the two leagues was sought by the senior league and announced in 1966, but was not finalized until 1970. During its final two years of existence, the AFL teams won upset victories over the NFL teams in Super Bowl III and IV, the former considered one of the biggest upsets in American sports history. When the merger took place, all ten AFL franchises became part of the merged league’s new American Football Conference (AFC), with three teams from the original 16-team NFL (the Pittsburgh Steelers, Cleveland Browns, and Baltimore Colts) joining them. The remaining 13 original NFL teams became the inaugural members of the National Football Conference (NFC). The AFL logo was incorporated into the newly minted AFC logo, although the color of the “A” was changed from blue and white to red. The NFL retained its old name and logo and claims the rights to all AFL products including the eagle logo.

This tells most of the story, but the key learnings lie in the details. The AFL originated with the NFL’s rejection, in 1959, of attempts by eager would-be owners to add expansion franchises and share in the growth of a prosperous league. Undaunted, these entrepreneurs started their own league, and despite shaky beginnings (and lower-quality offerings), persevered to the point where the NFL was forced to take the upstarts seriously. The AFL succeeded by entering markets overlooked by the NFL (such as Kansas City, Houston and Buffalo) and by raiding the NFL of talent: first by drafting and outbidding college players previously bound for the NFL, then (by mid-decade) poaching established players (especially quarterbacks) from NFL rosters. Striking a lucrative TV contract also gave the AFL access to outside capital it needed to compete with the incumbents. Eventually, in order to control runaway salaries and stem the talent bleed, the NFL agreed to a merger with a league barely six years old.

You can probably see where I’m going with this. The legal process outsourcing industry shares a remarkable number of characteristics with the 1960s’ American Football League: reacting against established providers who refused to allow new competitors, they start up their own business catering to under-served markets with lower-budget offerings. But then they start making talent inroads, first with raw recruits and eventually with respected veterans. The real break comes with access to outside equity that allows them to fully compete with the incumbents, and eventually, head-to-head competition proves the quality gap isn’t so great after all.

But there’s more. The AFL didn’t just force its way into an established league: it changed the way that league did business. The NFL was never glamorous or especially exciting, whereas the AFL went out of its way to market itself that way; today, excitement marketing is the foundation of the NFL brand. Even by the time the merger took place, many of the AFL’s innovations (arguably including the Super Bowl itself) had spread to the NFL:

  • Players’ names on the backs of their jerseys
  • Stadium scoreboard clocks to track the official time
  • A 14-game schedule (up from the NFL’s traditional 12)
  • More colourful uniforms
  • More passing attempts per game (though not as much as legend would have it)
  • And perhaps more importantly, more black players

Real agents of change don’t just disrupt the marketplace position of incumbents: they change the nature of what that market provides. This is the opportunity, and the challenge, that lies before outsourcing companies in the legal market right now. If all they intend to do is offer the same basic services in the same basic way as law firms, but at lower prices, these companies will have a very short lifespan. The key to LPO’s survival is not just to evolve upwards from the traditional law firm model, but to be so successful that law firms have no choice but to adopt their innovations.

We’ve seen very small degrees of innovation and adaptation from lawyers in private practice, and even smaller responses from lawyers in corporate law departments, and it’s not enough. Law firm and in-house lawyers are, for the most part, trapped in the same closed, cyclical eco-system, perpetuating an unsustainable business model out of short-term self-interest. Only an outsider can break that system, and only by coming at it with sufficient force and from the correct angle. The best opportunity for powering real change in the legal marketplace today lies with LPOs — and behind them, with the business and corporate entities awaiting the arrival of Alternative Business Structures in the UK — ready to do things differently and better.

But the critical questions are: will they decide to be pioneers, or merely opportunistic entrepreneurs? Will they come up with enough crowd-pleasing innovations to attract financial support within and outside the legal industry? Will they build a better model, one that law firms eventually will have to adopt simply to safeguard their own livelihoods?

Those are the three strategic challenges that outsourcers and other would-be change agents need to answer. How they respond could very well determine the nature of the legal marketplace for decades to come.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Losing the quality wars

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Posted in: Clients

There are days when I feel optimistic that lawyers can rise to the challenges before us and take the lead in the new legal marketplace now emerging worldwide. And then there are days like today.

Three data points for you. The first from a friend who sent along this item from the 2010 ACC/Serengeti Managing Outside Counsel Survey:

Slightly more than 40% of in-house counsel believe that the value of the work performed by at least some of their outside counsel declined during 2010. About 55% of in-house counsel provided some specific suggestions to their outside lawyers as to how the quality of services could be improved.

The second, from an outstanding article by USC Law School’s Gillian Hadfield:

Surprisingly, the complaints I hear focus far more on the value of legal work than on the cost. This focus is surprising because during the last decade or so, the cost of legal services and procedures has soared. One recent industry survey concluded that law firm prices had increased 75 percent since 2000, far outstripping a 20 percent growth in non-law firm costs. … But the cost problem only sharpens the sting of complaints about value: Clients feel that they are paying more and more for legal work that helps them out less and less.

The third, from a LexisNexis Martindale-Hubbell survey (as reported by the AmLaw Daily) about law firm “efforts” to solicit and implement feedback from clients:

More than 70 percent of law firms responded that client feedback affects the way their lawyers conduct business … yet fewer than half (48 percent) formally solicit client critiques and just one-third communicate the feedback to lawyers. … Corporate counsel report that one of their biggest frustrations is giving feedback that is neither properly fed back to relevant parties in the firm, nor acted upon. … 56 percent of firms reported that their lawyers were either “ambivalent” or “not enthusiastic” about any attempts to actively communicate with clients.

Folks, it’s one thing to be defeated by superior forces with a better product or service. It’s another to lose before we begin because we couldn’t even be bothered to show up for the fight.

It should be clear enough by now that client work is segmenting into a small number of mission-critical matters and growing piles of ordinary and commoditized tasks. It also should be clear that highly efficient and systematic competitors from outside the profession have targeted those piles and are on a mission to own them. We are getting beaten up on both price and convenience because we don’t take either of these pillars of business success seriously. None of this, unfortunately, is new to lawyers.

But the one thing we could always fall back on, the foundation stone of our professional edifice, is that we deliver high-quality legal work when it counts. Competitors without our training, expertise and ethics might take away all that basic low-margin commodity work, what with their relentless focus on efficiency and customer service. But no computer, no paralegal, no foreign attorney will ever be able to replace the high-quality legal solutions we deliver to our clients. That belief lies at the heart of what I can only call our continued widespread complacency in the face of extraordinary market change.

And that’s fine. But if high-quality legal solutions are the foundation of our offering, then the three points listed above should strike fear. Because if we lose our clients on quality — if clients come to perceive, and a disturbing number already do, that the quality of lawyers’ services is declining and that we don’t seem to care — then we are in serious danger. Clients will always pay us whatever we charge for one thing: high-quality services that deliver verifiably high value. If that foundation crumbles — if our quality suffers and our value, already questionable, declines further — what do we think is going to happen next?

I want to see the legal profession win the coming battles for the lion’s share of the legal marketplace. But if it’s not asking too much, could we at least arrive at the battlefield on time and give it our best shot?

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.