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?