The rise of market pricing

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Posted in: Clients, Pricing

So yesterday, I posted some thoughts about the problems I saw with value pricing in the legal market. The post drew a lot of interest and several insightful comments, especially from Ron Baker, and I encourage you to read the post and comments together when drawing your conclusions about value pricing.

Today, in this follow-up post, I want to expand on yesterday’s closing comments about how I think the future likely belongs to “market pricing” — that is, a system based almost entirely on how much the buyer is willing to pay the provider. I’ll preface these thoughts with what I should probably have prefaced yesterday’s — that I’m not a pricing expert by any means, and that I’m not advocating for or against any particular pricing mechanism (well, except the billable hour — I’m always happy to rail against that). What I’m aiming to do here — what I do most of the time at Law21, frankly — is not to describe the preferable future, but the probable future. Sometimes, happily, these are the same thing. Sometimes they’re not.

In order to have “market pricing,” one of the first things you’ll need is a market. Law has not always provided this element — in fact, I would argue, the legal sector has not been a functional “market” in the traditional sense for most of its history. To have a market, you need both buyers and sellers — plural. If you have one buyer and one seller, you’ve got a transaction. If you’ve got one buyer and many sellers, you’ve got a monopsony. And if you’ve got many buyers and one seller, you’ve got a monopoly — in this case, personified by the legal profession.

As I’ve written before, whatever the positive outcomes of restricting the authorized provision of legal services to a single class of provider, consumer choice is not among them. It’s trite to observe that most lawyers don’t view themselves in commercial terms (“Law is a profession, not a business!”), don’t like to compete against each other (it’s still forbidden in many jurisdictions for one lawyer even to suggest she’s better than others), and strike back ferociously against “non-lawyer” market activity. Lawyers have always been the exclusive supplier of legal services, and the organized Bar devotes enormous energy and resources every day to keeping it that way.

That’s why “market pricing” in the law has essentially always been “lawyer pricing.” We value our services according to the effort required and the costs incurred in applying our talents, and we decide what those efforts and costs should be. As I argued yesterday, this is largely because we don’t know any other way of doing it — but let’s be honest, it’s also because doing it this way has been easy, convenient, and profitable. So long as we’re the only authorized and competent providers of legal services (and lawyers get the final word on both authorization and competence), so long as we have knowledge and access and skill that no one else has, then we are the market. And we’ll price our services however we like.

That’s the world we all lived in up until about a decade or so ago. That’s when we began to see the emergence of unauthorized (hello, LegalZoom), newly authorized (hello, LLLTs), and unanticipated (hello, computer) suppliers of competent legal services. You could write a book about this (some have), but what matters for our purposes is that there is now more than one type of seller in the legal world.

And while these new players are still in their relative infancy, and lawyers still command the vast majority of legal spending, the seal has been broken. Lawyers’ share of the legal services market has peaked. (Since it used to be 100%, it really had nowhere to go but down.) Our share will decline from this point onwards — not down to zero, not anywhere close to it, but low enough that other suppliers can gain and solidify viable positions. And we will have an actual, functional market in legal services.

As we approach this event horizon, a lot of things are going to change, and the pricing of legal services will be among them. A multi-provider legal services market will breed intense competition for market share. There are three principal ways to win and retain market share in the legal sector.

Compete on quality. This is where lawyers instinctively gather — we maintain a nearly religious belief that our excellence, expertise, and education will persuade clients to choose us (as they should!) over anyone else. The problem with trying to compete on superior quality, though, is that not many clients can accurately assess quality, and fewer still base their purchasing decisions on getting the “very best.” And as technology upgrades and process improvements continue to take hold in the legal sector, the standardization (get used to that word, lawyers) of legal work will come ever closer, and quality distinctions between providers will cease to be very meaningful. Quality, from the client’s perspective, is table stakes: they assume it. What else you got?

Compete on service. A number of smart providers (not all of them lawyers) will differentiate themselves on the basis of the way in which they deliver their services, including the client’s experience throughout the transaction. Ron Friedmann’s excellent post on this subject should be a call to arms for lawyers to take service seriously, through better operations, user design, relationship-building, and responsiveness to client preferences. The great thing to remember about competing on service delivery is that anyone can do it — it takes no special intellect or pedigree to treat your customers like gold, just effort and commitment. But for all I champion competing on service, there are still significant investment costs to get there, and as more providers figure it out, it could well be a diminishing differentiator over time. And that leaves:

Compete on price. This is where the legal market is going — slowly and fitfully in some areas, rapidly in others. We’re going there because price is the one thing clients can understand at the beginning of a transaction — service doesn’t manifest itself until during the transaction, and quality doesn’t manifest itself until afterwards. Price is clear, obvious, comparable, and certain — you know what your investment is going to be right from the start. A billable rate and an estimate of hours is not a price — it’s a non-binding estimate. Nobody prefers non-binding estimates over a set price, including lawyers. The legal market is now filling up with providers willing and able to offer a set price at the outset. They’re going to take business away from providers who can’t.

Note that I haven’t said “Compete on the lowest price.” That’s not what I’m talking about. Number one, we’re not there yet — first we need to get to a point where most legal services are sold with a price tag, not a running meter, and that’s still some distance away. Number two, the lowest price in any market is not always the winning one — for many buyers, price is a proxy for quality, both low and high, and some buyers are not comfortable with the lowest bid. But rest assured, as quality differences among suppliers continue to narrow — and we are a lot closer to that point, in both the corporate and consumer legal markets, than many lawyers think — and the risk that “low price = low quality” falls, then prices will fall, too. And as price competition heats up, many legal services will become much more affordable than they are now.

Ideally, the value of a legal service will match up reasonably well with its price, but there’s no guarantee of that. Ask a criminal defence lawyer how that feels. (In my own perfect world, governments would significantly subsidize the income of lawyers who practise criminal, family, and refugee law, in recognition that the value of their services to the client and to society far surpasses what even healthy market mechanisms can provide. This would be more than just “legal aid” — this would be a restructuring of private legal services in these areas into a quasi-public service, maybe even a utility.)

Some areas of the law will be less amenable to automation and standardization pressures, of course. This is where you’ll find your outstanding advocates, your shrewdest negotiators, your most insightful counsellors. They’ll charge staggering amounts of money for their services, far more than they do now, because their customers need what they’re selling and can afford it. In some ways, they’ll come closest to “value pricing” as I described it yesterday — really getting paid what their services are worth — but probably still won’t achieve it. (If you give one piece of good advice every week to the $50 million CEO of a $50 billion company, what should your take-home pay be? I’d say a lot more than $1,000 an hour.)

My larger point, however, is that the pricing of lawyers’ services will be affected by many factors — but lawyers’ opinion of what their services are worth won’t be among them. This is what I mean by “market pricing” — buyer preferences, enabled by market forces beyond lawyers’ control, will determine how much money buyers fork over for legal services, and in what format. If the new legal market resembles other markets to any degree, then buyers’ pricing preferences are going to include:

  • simplicity,
  • convenience,
  • reliability,
  • comparability, and
  • affordability.

Roughly, I suspect, in that order.

And I’ll add this: It is in the direct financial interest of clients to accelerate the evolution of the legal sector towards multi-provider status. This might not yet have occurred to groups like corporate counsel associations and chambers of commerce, but if not, it very soon will. The more sellers, and the greater diversity of sellers, of legal services in this market, the sooner that buyer-driven pricing will become a reality. Lawyers and bar groups that continue to fight the “non-lawyer” battle should be aware that it won’t take long for their clients to choose a side in that fight.

So what’s the takeaway for lawyers? Above all, I think, it’s this: In a market in which you have little control over your price, you must have complete control over your costs. You cannot tolerate a situation in which your costs of doing business are unstable or unpredictable. You can’t be at the mercy of your suppliers of goods and services (as indeed, your own clients cannot be at the mercy of you). You can’t run a business riddled with inefficiency and duplication, or you’ll be cleaned out by other businesses that aren’t. You must know not only how much it costs you to deliver a service, but also how to continuously reduce that cost, how to increase your productivity, to remain competitive. If you invest well in process enhancements, service upgrades, and marketing improvements, then you’ll be able to influence your price, perhaps significantly. But complete control? Very unlikely.

Pricing is hard. One of the reasons it’s especially hard in the legal sector is that we’re just now emerging from a monopoly situation in which pricing didn’t really matter — we didn’t even have “price,” in many cases. Our current struggles around pricing are just part of the birthing pains of an actual, healthy, bouncing baby market. If you don’t have a handle on it yet, don’t be too hard on yourself — not many people do. But you do need to get a handle on it as soon as you can. When it comes to legal pricing, our time is not our own.

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I’m honoured to have received this review of my new book, Law is a Buyer’s Market: Building a Client-First Law Firm, from James G. Leipold, Executive Director of the National Association of Law Placement (NALP).

“This is a book you should buy and read if you take an active interest in the future of large law firms in North America, but I would go further and recommend you buy two copies, sneaking one onto the desk of your managing partner or dean by stealth in the dark of night. [Jordan] does as good a job as anyone of diagnosing the current law firm malaise, and he does it with an easy grace and style that makes the read a pleasure — then he goes further and offers a road map for building the law firm of the future.”

Learn more about Law is a Buyer’s Market, including how to order here at Law21.

The problem with value pricing

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Posted in: Clients, Pricing

A day in the life of the corporate legal market:

A law firm submits a bill to a client. The client doesn’t like the bill because the amount is higher than expected or seems incommensurate with the value of the service. The client contacts the firm and asks for the amount to be reduced.

What does the firm do? Eight times out of ten, it reduces the amount, at least according to all the accounts I’ve heard and read. The client pushes back, and the firm gives way. This happens every day in the corporate legal world, and when it happens often enough, the nature of the transaction itself changes. The “final” bill issued by the firm actually becomes the starting point in negotiations — short and one-sided negotiations, as it turns out, because the client says, “I will pay this much,” and the firm invariably says, “Okay.”

Why doesn’t the firm push back harder? Why doesn’t it take steps to demonstrate that the bill represented good value? Because, in most cases, the firm can’t. It can’t really explain why Lawyer A spent 37 hours on the client’s project, beyond “That’s how long it takes,” and why her billable rate is $275 per hour, beyond “That’s how much she costs.” Why does it take this long? Why does she cost this much? These questions are terrifying to lawyers, because their honest answer would be: I don’t know. Lawyers have never thought much about it, because they’ve never needed to think about it. That’s not how the legal market has worked up till now.

But, notice: The client does not normally offer a substitute value definition. The client does not say, “The value of the services you provided to us is closer to $X, an amount we calculated according to the attached methodology, so send us a bill for this amount.” Most clients can’t easily assess the value of the legal services they received either, but they’re pretty sure the firm’s bill is too high and they’re very sure they can get it reduced. So they’re likelier to simply say, “Knock 12% off the amount” or “Drop all billings for lawyers called fewer than three years ago” or some such. In practical terms, neither lawyers nor clients really know the value of the lawyers’ work. They’re both groping around in the dark.

Lawyers have always measured and sold their services according to inputs — their hourly efforts, primarily — because it’s all they’ve had to go on. Lawyers can easily measure their inputs, but they can’t really measure outputs, because legal output value is entirely situational and subject to the client’s experience and assessment. Clients have never enjoyed paying lawyers on the basis of inputs, but it’s not like they had any better ideas. “Value pricing,” attractive as it is in theory, confronts clients with some hard questions: “How much are these services really worth to me? Do I want to take the time to find out? And if I do find out, do I want to tell the lawyer?”

Consider: How much is a contract worth if it never gets so much as glanced at by either party for its entire term? (This describes a whole lot of contracts.) Based on outcome and use, the contract arguably is worth almost nothing. How much is that same contract worth if it ends up helping to clinch a transaction worth $300,000? Now, what if a $300,000 dispute is avoided because the contract was so well-drafted? Would anyone ever know the dispute was avoided? If the client somehow found out, do you think he’s going to call up the lawyer and invite her to send him a new bill to reflect this higher value?

Or how much is a last will and testament worth? Set aside for a moment the insurmountable challenge of pricing the peace of mind that comes with knowing your loved ones will receive the assets you intend for them. Suppose the testator has assets of $10,000 — how much should the client pay for that will? What if the testator wins the lottery the day after he buys the will, and his estate is suddenly worth $10,000,000 — is the drafting of the will suddenly worth more?

The most frequent response to these objections, and it’s an entirely reasonable one — I’ve been making it myself for some time — is that the lawyer and the client should have detailed conversations about their respective needs and situations, develop a degree of trust in the other’s good faith, and arrive at an amount (or a framework for determining an amount) that strikes both sides as fair in the circumstances and attentive to each side’s needs. A fine example can be found in this insightful article in Bloomberg Business of Law, which describes Ron Baker’s excellent eight-step model for setting up a value-pricing system between a law firm and a client.

I’m confident that this model is extremely effective, and for those lawyer-client relationships that have managed to put it into practice (mostly those with large volumes of repeat business, I’d imagine), it seems to be delightful. But I’m also confident that many firms and clients alike would consider it to be a significant outlay of effort and resources. It requires a lot of time, expertise and goodwill on both sides to make it happen — a degree of exertion that rarely scales and that most people, lawyers and clients alike, aren’t interested in making. (I’m not saying, to be clear, that they shouldn’t make the effort. I’m just saying, in practical terms, most won’t.)

This is the real reason, I think, why value pricing has been slow to make headway in the legal market: It is incredibly difficult to calculate the value of lawyers’ services. It’s a huge hassle. Many people want something easier to understand and simpler to implement, even if it’s less reflective of actual value. The billable hour is not hanging around because it’s a brilliant pricing mechanism. It’s hanging around because we haven’t come up with anything equally simple but markedly better.

And these are just the easiest examples. How much is it worth to help someone escape an abusive marriage and keep a violent ex-spouse away? How much is it worth to help someone stay out of a brutalizing federal penitentiary? How much is it worth to help someone flee certain death from religious persecution by enabling their emigration to a liberal democracy?

The value provided by lawyers in family, criminal, and refugee law is off the charts — yet they’re some of the lowest-earning lawyers in the profession, because the value of their services routinely outstrips their clients’ ability to pay it. The “value pricing” argument cuts both ways, and not always to the client’s benefit. And anyway, in none of these situations does either the client or the lawyer have the time or inclination to develop a trusting relationship that can enable fair pricing.

The real value proposition of most legal services is an enigma, one that can be solved with great effort over a sustained period of time — but my expectation is that few people will consider this kind of effort worthwhile.

So how can we better price lawyers’ services? “Input pricing” is a fiasco: the price bears no relation at all to the value of the work, and the client bears all the risk of errors and inefficiencies by the lawyer. “Value pricing,” as I’ve tried to demonstrate, is theoretically appealing but is often unworkable without a significant investment of effort in each client transaction — an effort that in itself will raise the cost of the lawyer’s services and complicate a process that most clients desperately want to streamline.

For these reasons, I’m coming to think that the likeliest pricing system to emerge for legal services will be simply “market pricing” — that is, how much the client is willing to pay the provider. I don’t pretend that this is necessarily a desirable system — it’s a highly imperfect one, and potentially regressive. But as the legal market continues to evolve and legal supply continues to diversify, I think “market pricing” will be able to deliver more fairness, value, and expedience to the pricing of legal services than we have today. More on this in a follow-up post, “The rise of market pricing.”

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Law is a Buyer’s Market: Building a Client-First Law Firm is available here at Law21 (in print) and at Amazon (as a Kindle e-book). “This is an exceptionally clear book, brimming with practical help, and humorous into the bargain,” says Richard Susskind, author of Tomorrow’s Lawyers. “Jordan’s assessment of the legal market should be read carefully by clients and lawyers everywhere.”

Faster horses

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Posted in: Law21

Abraham Lincoln never said, “If you want to test a man’s character, give him power.” Albert Einstein never said, “If you judge a fish by its ability to climb a tree, it will live its whole life believing it is stupid.” I suggest openly mocking your Facebook friends who post these and other misquotes, because we live in a post-Snopes world and there’s no excuse for that kind of thing anymore.

Here’s another classic misattribution: Henry Ford never said, “If I’d asked my customers what they wanted, they’d have said, ‘Faster horses.'” What’s interesting about this one, though, isn’t whether the real Ford said it (the attitude embodied by the quote does seem to have cost his company auto market leadership in the 1920s, at any rate). It’s whether the “fictional Ford” was correct. Is it foolish to ask your customers what they want when you’re trying to innovate new and better products and services? This is a live question today for lawyers and law firms in a rapidly accelerating buyer’s market.

The argument in favour of shunning your customers’ input on product development is that they see only the products and services they’ve always had, and so they only ever seek incremental improvements (in Clayton Christensen’s phraseology, sustaining innovations). They’re not going to make the leap of imagination required to visualize something brand new, an improvement in kind rather than degree (disruptive innovations).

Steve Jobs is the modern ambassador for this latter approach. While the world was trying to build better BlackBerries, he asked a question nobody else had asked: What if we do away with the keyboard and make the whole device a touch screen? Asking and answering that question made Apple several kajillion dollars, so you can see why people are enamoured of it. There are other examples. James Dyson asked: Why do fans needs blades? Muhammad Yunus asked: Why not lend very small amounts of money? iPhones, bladeless fans, and microfinance are three great innovations of our times, all decidedly not generated by customer focus groups.

So how should lawyers approach this question? Should we incorporate our clients into the process of making our law firms better? That certainly seems like a good idea — I’ve been hammering away at it for years, at any rate — given that our clients will have a much clearer sense of their needs than we will, and we should be gearing everything we do to maximize the effectiveness of the outcomes we provide to them.

And yet, even in this era of unprecedented access to legal information, clients often don’t know what they don’t know. The problem or the need they perceive isn’t always the one that they should be addressing — good legal advice isn’t just about fixing problems, but is also about correctly diagnosing which problem needs to be fixed. Moreover, your client might identify the wrong solution to his problem. He might tell you that he worries constantly about his legal matter, and so what he wants is your cellphone number so he can call you any hour of the day or night to get reassurance. Is that really in anyone’s best interests, especially yours?

Here’s what I think. Our fictional, customer-scoffing Henry Ford was both right and wrong. He was right insofar as he recognized that his customers couldn’t also be his product development people. They couldn’t be expected both to buy the current thing in great quantities, and simultaneously to recognize the shortcomings of the current thing and busy themselves in proposing a replacement. Your clients represent an important resource upon which you should draw to build a better law firm, but if you wait for them to come up with better ideas, your competitors will come up with them a whole lot sooner.

But fictional Ford was also wrong, because he stopped the process of inquiry there. “Faster horses,” he harrumphed, and that was that. Here’s what fictional Ford should have done: When his customers said, “Faster horses,” he should have replied, “And what do you need them for?”

The reason why people say “faster horses” is that they’re in a hurry. They want to get somewhere in less time than it currently takes them. But they’ve never conceived of a horseless carriage with an internal combustion engine, so they express their desire in terms they know and understand. Once they’ve seen an automobile, their frame of reference changes. Now they want faster automobiles, and eventually, they’ll want warmer and safer and air-conditioned and Wifi-enabled automobiles. But the point is that it was never the “horses” they wanted. It was always the “faster.”

Last week, I was told about a major courier company that conducted an extensive strategic review of the core purpose of its business. What emerged from that review process was a decision to branch out into 3-D printing. Stop and think about that for a minute. The company recognized that it wasn’t in the business of sending packages; it was in the business of helping people get something they didn’t currently have, but wanted as soon as possible. Overnight delivery, one-hour delivery — these are just faster horses, the best solution that current technology can offer. 3-D printing is the automobile: a solution you never knew you wanted until it was offered to you.

Smart companies ask customers what outcome they want, not what vehicle they think should deliver the outcome. The outcome could be concrete — I want something here, in my hands, right now — or it could be experiential — I want to access the world’s information as quickly and easily as possible. Then the companies listen closely to the answer and ask, “And why do you want it?” And they keep asking, keep drilling down, until they come to the heart of what the customer desires. Then they ask themselves: How can we fulfill this desire better than anyone else and better than this customer imagines?

Your client says, “Give me your cell number,” but that’s not really what he wants. He wants to know the latest information about his legal matter because he’s deeply anxious about it, and he wants to be able to relieve that anxiety whenever it arises. So you tell the client that you’ve created a password-protected private page on your firm’s website where he can log in to access the status of his case and his bill any time of day or night. I promise you he’ll forget all about your cellphone, because he doesn’t really want to talk to you. You’re just the fastest horse he can think of. Give him an automobile instead.

Bring your clients into the process of making your firm better — they’re the whole reason your firm even exists, after all. But don’t ask them what you should do next, because that’s not their role. Ask them what they want and need, and why they want and need it. Keep asking and digging until you’re sure you’ve reached the bedrock motivations that drive them to consult your firm. Then create services, products, and solutions that respond to those motivations. It’s not the “horses.” It’s the “faster.”

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Gerry Riskin, chairman of Edge International Consulting, reviewed my new book, Law Is a Buyer’s Market: Building a Client-First Law Firm, and called it “a must-read for firm leaders and anyone else who has a concern about the future of the legal profession.” For more information, other reviews, and a link to purchase, please visit Law21’s Books page.

How to bring about change in law firms

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Posted in: Change, Leadership, Management

(Note to readers: Pursuant to the terms of the New Author Self-Promotion Act of 2006, please be advised the statutory maximum of three (3) plugs for my new book will appear in this post. Thank you.)

Everyone’s gotten the memo by now. The legal market has experienced fundamental change, and law firms need to respond in equal measure. If your firm’s leadership doesn’t know or accept this, then with great respect, I think your firm needs new leadership. Ignorantia mutatio non excusat, to muddle a phrase.

Nor should any law firm leader be allowed to say, “I don’t know what we can do.” There’s now a wealth of practical, reliable information about how firms can change their operations and run themselves more effectively and profitably. This information is widely and easily accessible in countless articles, blog posts, and books, such as the brand-new and well-reviewed Law Is a Buyer’s Market: Building A Client-First Law Firm. (1)

So we know what we need to do. What we don’t yet know, for the most part, is how to do it. Bringing about change in a law firm remains extraordinarily difficult, and the more fundamental the change, the greater the difficulty. That’s a problem, because we need to start implementing all these great ideas and putting them into practice at our earliest opportunity. Owning the tools won’t help us if we don’t take them out of the toolbox and start using them.

These were some of the thoughts on my mind when I addressed the annual meeting of the Association of Legal Administrators in Denver earlier this month. I felt confident that this audience of law firm leaders and managers understood, more so than most, the steep challenges looming over law firms today. I also hoped — correctly, as it turned out — that they would be able to share some success stories about how they had overcome the incredible resistance within law firms to doing things differently.

In this post, I’m going to lead off with some of my observations about why change in law firms is so hard, and follow that up with suggestions and examples, drawn from the ALA conference and elsewhere, about how firms can nonetheless bring change about.

Why it’s hard to change law firms

Change in law firms is hard mostly because change is hard, period. People hate change. I mean, they love it in the abstract, and they’re happy to tell other people in great detail why they should change, but they don’t want to actually do it themselves. This is human nature, and unless you plan to automate your entire law firm (which I do not think you should do), you’re stuck with it.

I go into more detail about this in Chapter 14 of my new book, Law is A Buyer’s Market (2), but there’s extensive psychological research documenting people’s resistance to change. Two behavioural patterns in particular, the status quo bias and the endowment effect, show that people naturally prefer things as they are, fear a loss more than they desire an equivalent gain, and place a higher value on an item simply because they already own it. Change represents a loss of the known and familiar, and people will fight that, no matter how attractively you sell the replacement.

But of course, lawyers fight change more aggressively and successfully than other people. Partly this is because we’re wired to be more conservative and trained to be more risk-averse than the general population, and partly because we’re skilled at arguing our way around and past an unpleasant or inconvenient fact. And since law firms are the concentrated commercial expression of lawyer culture, they are especially change-recalcitrant places. For better and more detailed analysis of lawyers’ resistance to change, read this excellent article by Anne Collier and review this slide deck by Ron Friedmann and Jim Tuvell.

So it’s worth keeping in mind, before we proceed to possible solutions, the nature of the problem. Lawyers aren’t fighting your change efforts simply to be difficult. They’re fighting it because everyone fights change; the fact that they’re lawyers just makes them especially good at it.

How to change law firms

The first thing to recognize is that there’s no single right answer. Experience has shown that facilitating change, especially in law firms, requires the use of more than one tactic or even several, sometimes applied in sequence, sometimes simultaneously. This complicates the process, of course, but it might also be a relief to know that there’s no magic bullet out there to which other firms have access and you don’t.

The second thing to recognize is that you are not going to accomplish change by working against your own people. No matter how frustrating you may find their resistance, they are not your enemy. They perceive their own interests very clearly and will fight to protect them, as would you in their place. Strive to understand those interests. You shouldn’t place those interests ahead of the firm’s, but you do need to know them and clearly acknowledge them.

All that having been said, here are five approaches that I’ve seen and heard about that have had some success advancing change in law firms

1. Build trust through transparency. This is my preferred tactic, and it received a lot of support from the ALA audience. Leaders of law firms in difficult circumstances opened up the books inside the firm, showed everyone the nature of the challenge, and asked people to help overcome it. They personally visited lawyers and staff, answered questions as best they could, and tried to defuse any suspicion of a hidden agenda. Call it “change management by walking around.” If you prove yourself trustworthy, you’ll gain trust, and thereby cooperation. I’ve written on this subject before, and I’ll re-up this quote from that post: “Every change requires effort, and the decision to make that effort is a social process.”

2. Give people control. People’s feelings of powerlessness in the face of change fuels much of their resistance to it. You can’t give people the power to reject or excuse themselves from change, but you can give them the power over how to adapt to it. One ALA attendee described how her firm wanted to help improve people’s physical and mental health, but couldn’t settle on a program to achieve it. So they gave everyone a $1,000 voucher to spend on any wellness-improving activity they liked. The diversity was amazing — gym memberships, yoga lessons, vacations, etc. — but so was the massive, firm-wide improvement in morale and productivity. People chose how they wanted to adapt to a new firm directive, and that improved buy-in tremendously.

3. Make it a game. Much has been written on gamification in the law, and possibly it’s been oversold a little at this point. But for lawyers, who like competing and love winning, gamification has a lot of potential to help facilitate change. Another ALA attendee described how her firm struggled to get lawyers to turn in their dockets on time. So they made it a competition, offering incentives to file dockets by a certain time every week and publicizing within the firm which departments and groups led the firm in hitting their deadlines. Cash prizes were also offered to the monthly and annual leaders. Docket compliance, which had been limping along in the 40% range, roared to the mid-90% level. Lawyers love winning.

4. Occasionally, apply the hammer. Carrots are fun and attractive incentives, but sometimes, you just need the stick. There are limits to the volume and intensity of punitive measures you can apply in law firms, especially to lawyers; but on a short-term basis, backed by strong leadership, it’s highly effective. A number of law firms, including one ALA attendee’s, have withheld a partner’s payouts until that partner turned in his or her dockets. This measure was strengthened by its logical argument: we can’t pay you if you don’t bill your work. The bonus here, to my mind, is the quiet, morale-boosting delight junior lawyers and staff take in seeing consequences applied to powerful rule-breakers; it makes them likelier to follow the rules themselves, too.

5. Await new conditions. This can be phrased, less charitably, as “Wait for the difficult people to leave or die.” I included this on my list at the ALA partly as a joke, but it did get a few hands raised here and there. Sometimes there’s a small number of influential people who are blocking a change initiative because they feel it would hurt their personal or financial interests. Pressure from respected peers can often lessen this resistance, but not always. I once advised a legal organization facing this kind of problem. I said, “If you can’t change the landscape, change the weather.” My client introduced a fleet of minor innovations and talked repeatedly about how the future would bring more change. Soon enough, some resisters began to move on, partly because they could tell the climate was changing and it wasn’t going to suit them as well.

We talked about other approaches at the ALA event, such as alarming everyone with dire warnings, or selling the benefits of change in detail, but these were generally held to be less effective. “Scared straight” has a checkered history of success as a change tactic, and as mentioned previously, people are usually not persuaded to give up present conditions by the promise of future benefits. I also added my own recommendation that whatever change you want to accomplish in your firm, enlist your clients in the effort. It’s easy to ignore what some consultant or even the managing partner says; it’s harder to ignore what the person behind your origination credits says.

I’d love to hear your own thoughts and success stories about change in law firms in the comments below. But it’s worth emphasizing, again, that the most effective change management processes will combine several of these and other approaches and will be careful to administer the right medicine to the right people.

What matters above all is knowing your firm, knowing your people, listening to their concerns, showing you’ve heard them, and continuously enhancing the level and quality of trust between the firm’s leadership and the people they’re leading. Change isn’t something you do to people. Change is something you help people go through. Make that the mantra of your firm’s change management efforts.

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Here’s what the business intelligence director of an AmLaw 100 firm wrote me about my new book, Law is A Buyer’s Market: Building A Client-First Law Firm: “You offer an exceptionally clear diagnosis of many law firm ills and concrete recommendations on changes law firms should make in order to thrive in the buyer’s market. It is a very practical book … I hope more lawyers and law firm decision-makers read this book and take appropriate actions.” Law is A Buyer’s Market is available here. (3, right under the wire)

So I wrote a book

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Posted in: Law21

This book, to be precise:

This is Law Is A Buyer’s Market: Building a Client-First Law Firm. It’s 224 pages in paperback format, runs 15 chapters, and clocks in at about 75,000 words. It explains why the balance of power in the legal market has shifted from lawyers to clients, forecasts the future success of law firms that recognize and respond to this fact, and recommends courses of action by which today’s firms can reconfigure their purpose, markets, clients, strategies (plural), operations, and personnel to be among those successful responders. I’m really proud of this book, I’m kind of worn out from writing it, and I’m still a little astonished that I’ve managed to pull this off.

I’ve been wanting to author a book for years now, almost since I first set out on this speaking and consulting stage of my career back in 2010. Two years ago, I decided to move from wishing to commitment: I stepped away from posting to this blog, I cut down on my speaking engagements, and I cleared the deck in order to give myself time and space to produce a book about the legal services marketplace. The delays and misadventures I encountered while trying to do that are set out in the book’s introduction. Suffice to say I have enough material to someday produce a blog post titled “How not to write a book.”

But I can also now tell you how to write a book: Identify and maintain a clear vision of what you want a specific audience to know and what you want them to do about it. My specific audience is the people (lawyers and otherwise) who lead, influence, or care about the sustainability of midsize and large law firms over the course of the next five to fifteen years. What I wanted them to know was not just that legal market conditions were changing — their Accounts Receivable reports had already told them that — but why it was changing and how it would change further. And most importantly, I wanted them to have my practical advice about what they should and could do, right now, to change what their firms do and how they do it.

I sent advance copies of Law Is A Buyer’s Market to some people in the legal industry whose work I really respected, asking them whether, if they thought the book merited it, they might supply a testimonial. I was deeply gratified to receive, among others, the following responses:

“This is an exceptionally clear book, brimming with practical help, and humorous into the bargain. Jordan’s assessment of the legal market should be read carefully by clients and lawyers everywhere.” – Prof. Richard Susskind, author, Tomorrow’s Lawyers.

“Law firm leaders who adopt Jordan’s suggestions for managing the law firm of the future – focusing on clients, competitiveness, and culture – will more effectively serve the real business needs of their clients and will be better able to face the disruptive forces that are irrevocably changing the legal market.” – Scott Rechtschaffen, Chief Knowledge Officer, Littler Mendelson P.C.

“This book is a must-read for every law firm leader. It informs strategic planning from the client’s perspective, helping law firms improve the legal delivery service model and deliver greater value to clients.” – Jill Weber, Chief Marketing and Business Development Officer, Stinson Leonard Street; 2017 President, Legal Marketing Association

“Jordan’s provocative book is a challenge to all law firms and lawyers — to listen attentively to our clients and see the world through their eyes, to build our businesses on rapidly changing client needs and markets, and to embrace technology-enabled innovation.” – Peter Lukasiewicz, Chief Executive Officer, Gowling WLG

“Jordan Furlong has written a book for the first generation of law firm leaders to face the existential threat of a true buyer’s market.”– Prof. William Henderson, University of Indiana Maurer School of Law

 “If you are a law firm partner or leader, you must read this book and suspend the natural but dangerous desire to believe it doesn’t apply to you – because it applies to everyone in our industry.” – Susan Manch, Chief of People & Development, Norton Rose Fulbright US LLP

For a whole bunch of reasons, I decided not only to self-publish this book, but also to sell it exclusively here at Law21. So if you go looking for Law Is A Buyer’s Market at Amazon, you won’t find the print version there.

What you will find, at Amazon US and Amazon Canada, is the downloadable Kindle version of the book. You’ll also find it at Amazon Mexico, United Kingdom, France, Spain, Germany, Netherlands, Brazil, India, Australia, and Japan — and folks in those jurisdictions might be especially interested because, I’m sorry to say, the shipping costs of the printed book outside North America are more than half the price of the book itself.

That price, by the way, is US$34.95, plus a US$5.00 flat fee to help offset shipping and handling costs for the US and Canada ($25.00 for shipping outside North America). There are also discounts available for bulk orders, should your law firm or law school be interested.

You can find ordering information for Law Is A Buyer’s Market on Law21’s Books page — and while you’re there, you might also want to check out Creating an Online Publishing Strategy for Law Firms, a book I’ve co-authored with my friend Steve Matthews of Stem Legal Web Enterprises that’s been published by the ABA’s Law Practice Division. (I didn’t actually intend to have two books available at the same time — that was just a happy coincidence.)

And if you happen to be in or around Toronto on Thursday, March 23, the official launch event for Law Is A Buyer’s Market takes place at Ryerson University’s Legal Innovation Zone from 5:00 to 7:00 pm (please RSVP through the link if you’d like to attend). I’ll be saying a few words about the book, talking about the latest developments in the legal world, and trying to figure out how to use Shopify’s point-of-sale platform in real time, which should be amusing for all concerned.

Anyway, there you have it. I’m happy to answer any questions you might have about the book — just leave them in the Comments section below and I’ll get to them as soon as I can. If you do pick up a copy of the book, I trust and hope that it will reward your investment. And as always, I tremendously appreciate your continued interest in this small corner of the legal world.

Getting over technology

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Posted in: Clients, Technology

Since the start of the year, I’ve received three different media calls asking me about the role of artificial intelligence in the law. Partly to make good use of the notes I prepared for these calls, and partly so that I’ve got something written down to which I can send reporters with future inquiries of this type, here are some of my thoughts on the topic of technology in law practice.

The truest observation ever made about technology remains this one from American computer scientist Alan Kay: “Technology is anything that wasn’t around when you were born.” British author and technophile Douglas Adams famously expanded on Kay’s comment: “Anything that’s in the world when you’re born is normal and ordinary and just a natural part of the way the world works. Anything that’s invented when you’re between 15 and 35 is new and exciting and revolutionary and you can probably get a career in it. Anything invented after you’re 35 is against the natural order of things.”

These two quotations should be borne in mind anytime you start talking about technology in law firms. Law firms are stuffed to the rafters with technology, and always have been. There’s the photocopier, for example — an extraordinary device, if you stop and think about it, and who talks anymore about how many monks it replaced? Email blew me away the first time I used it — you can send a written message to someone in the building next door, immediately! The telephone, for crying out loud — maybe the most revolutionary invention of the last 500 years, and now we let almost every incoming call go to voicemail. Since the time feathered quills and inkwells were first replaced by fountain pens, lawyers might have complained about every new technology, probably resisted it, but inevitably they accepted and assimilated it.

So it will be, soon enough, with artificial intelligence. I’m as amazed as you are by what can already be accomplished in legal services by machines equipped with cognitive reasoning, and how much more those machines certainly will accomplish in future. But right now, somewhere in your community, someone in her late teens is thinking about maybe applying to law school someday, and by the time she’s called to the Bar in 2027, AI-powered legal services will be normal. They’ll be routine. They’ll be boring. And our future lawyer will be less than 10 years away from grumbling about genetically engineered judges.

By all means, maintain a childlike sense of wonder about the evergreen miracles of technology as long as you can. Keep postponing and rescheduling your appointment with curmudgeonhood (I missed that train awhile back.) But at the same time, maybe the best thing we can all do to really absorb and apply the astonishing power of technology is to just get over it.

Let AI become normal. Wait for it to become routine — it probably won’t take as long as you think. But the longer we talk about the exciting but virtually indefinable term “artificial intelligence,” and the longer we tolerate the repeated use of “robot lawyers” with anything but self-aware irony, the longer it’s going to take us to make the necessary adjustments to our worldview and just get on with things.

If I could offer one reliable way to help speed along this adjustment, it would be this: Stop asking whether “AI will take away lawyers’ jobs.” Stop asking what AI will do to, or for, the legal profession. Stop thinking about AI from the perspective of the lawyer altogether and start thinking about it from the perspective of the client.

How will AI help clients? Will employing AI, or any burgeoning technology, help a client to get what it needs faster, less expensively, or at a higher degree of quality? Will the client get a better result — measured in outcome, experience, or resource allocation — using a new technology than would have been possible or probable with pre-existing tools and methods? If I’m at a legal tech trade show and I’m talking with an AI vendor, this is what I want to know, and I want numbers and case studies to back up the answers.

Because if there are AI tools out there that can deliver those foregoing outcomes to my clients, then I want them in my law practice, today, while I can still derive a competitive advantage from using them — before they’re widely available, before they’re commonplace, before they’re boring.

Ten to fifteen years from now, by the time our late-teens prospective lawyer is well into her career, many law firms could offer a branded, mobile, user-friendly application to which their clients subscribe, on a paid or even a complimentary basis. Clients would ask this application — out loud, with their voices — questions about how the law applies to a situation they’re facing, or what they should do in a circumstance in which they find themselves. They’d receive immediate, practical, and accurate answers from the application, close it up, and get on with what they’re doing.

Today, we’d consider that to be a significant, even sci-fi-level advancement (and make no mistake, we have a significant distance to go to get there). But by the time we do get there, it will be considered normal. “Yeah, that’s just the Answer App; all the firms have one now.” The great gift (and curse) of technology in the 21st century is how quickly it renders the magical commonplace. Law, which is so far behind technologically and has so much ground to make up, is going to experience that gift in an especially rapid-fire and visceral fashion.

So quit worrying about what technology will do to you and your firm. Start thinking instead about what it can do for your clients. Figuring out the second point will, in due course, take care of the first.

Navigating the multi-polar legal market

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Posted in: Access, Clients, Law Firms

Georgetown Law School and the Thomson Reuters Legal Executive Institute are ready to call it: the party’s officially over. The 2017 edition of their annual Report on the State of the Legal Market is unequivocal in its assessment of how completely the commercial legal services market has changed over the past decade.

Corporate clients, under intense internal pressure to reduce the overall costs of legal services, insisted on taking control of their matters and managing the work of their outside law firms to a degree never before seen. [They] emphasized the need for greater efficiency, predictability, and cost-effectiveness in the legal services they received. This basic change in client attitudes … has resulted over the past decade in fundamental changes to the legal market itself. These changes are foundational and, in all likelihood, irreversible.

These trends are sufficiently familiar to us by now that we might dismiss this as merely a statement of the increasingly obvious. But consider just how much has changed in the last decade. Ten years ago this month, the Dow Jones Industrial Average stood above 12,000 points; the NASDAQ hovered around 2,400 and the S&P 500 at 1,400. Two years later, they’d each lost more than 40% of their value. While the indices have more than recovered in the intervening decade (they stand at 19,828, 5,565, and 2,268 this morning, respectively), law firms’ fortunes have not.

Back in 2007, as “The State of the Legal Market” reminds us, firms were coming off “more than a decade of almost uninterrupted growth in demand, revenues and profits.” As the report’s subtitle (“10 Years of a Stagnant Law Firm Market”) suggests, those days are a hazy golden memory. “[D]emand growth for law firm services has been essentially flat, productivity has been declining, expenses have been growing (albeit at a fairly modest rate), and leverage has remained essentially unchanged. In short, the only factor positively impacting revenue growth has been the ability of firms to raise rates 2 to 3 percent a year.”

So the market conditions for commercial legal services have changed, and many law firms are significantly worse off for it. But the remarkable thing (or the frightening thing, depending on your perspective) is that we haven’t even seen real change in this market yet.

All that’s really happened so far is that corporate clients have become rather more stringent about outside counsel budgets and have begun to use alternative suppliers more frequently. Those measured steps alone have been enough to eviscerate profit margins in many law firms. Imagine what will happen when clients start to get serious.

Because so far, they really haven’t. Ron Friedmann makes this point in an illuminating post titled “Legal Operations – What We Know Now.” Ron reports on the slow ascendance of law firm shared services centers and other staffing changes, but I’m especially interested in his dispatches from the client side, based on the Blickstein Group’s Law Department Operations Survey:

  • 57% of responding law departments, up from 50% two years ago, report having an LPM program. Of these, only 2.5% report the program as “very effective” and 44% as “somewhat effective.” In my view, more law departments need LPM and they need to do it better.
  • 63% report having formal metrics or reporting but effectiveness is low. On a scale of 1 to 5 (where 1 is primarily manual and 5 is fully automated with dashboards), the average is 2.1. To get more value from both in-house and outside lawyers, law departments must continue on the metrics past more rapidly.
  • Law departments use providers other than law firms for a range of functions as the chart below shows. Legal process outsourcers (LPO) are one provider type doing this work: 21% of respondents use LPOs, up from 17% in 2015. These data are one explanation for the relatively flat growth of large law firms.

These are, let’s be honest, pretty weak numbers. Fewer than 3% of law departments find LPM “very effective”? Metrics and reporting earn just a 42% average grade in sophistication? Barely one in five law departments sends work to LPOs? This isn’t a knockout punch; these are merely exploratory jabs — yet they’ve still been strong enough to send many law firms reeling.

There’s no single reason for the trepidation with which law departments have flexed their muscles so far. I don’t think you can attribute it all to doubts about the efficacy or reliability of alternative legal services providers: the major players in this sector have ten-plus years of outstanding results and tens of millions of dollars in annual turnover. Nor can you still put it down to loyalty shown by general counsel to their longtime law firms, a rapidly diminishing commodity as generational change reshuffles the ranks of law department leadership. It might, in the end, simply be the difficulty everyone encounters when trying to break old purchasing habits, multiplied by lawyers’ inherent difficulty in changing anything.

But I do think an additional, underrated factor might be a high degree of uncertainty within law departments about what their options actually are. I’ve presented to law departments and spoken with in-house lawyers who are intensely interested in getting better results, faster and less expensively, than their traditional methods have delivered. But they don’t know:

  • what categories of new processes or alternative suppliers are available to them,
  • which processes and suppliers are most highly regarded within each category,
  • which processes and suppliers are most appropriate to use in a range of situations,
  • what bottom-line improvements they should expect from using such processes and suppliers,

and perhaps most importantly,

  • what they themselves would have to do differently if they employed these processes and suppliers.

Armed with this information, law departments could greatly accelerate their use of alternative methods and suppliers of legal service delivery. The problem is that there’s no obvious credible place to obtain this information. The providers of the alternatives themselves are hardly an objective source of insight; equally, I wouldn’t rely on law firms to extol the relative virtues of their competitors. A number of legal consultancies have this capacity in theory, but I’m not aware that any specialize in practice (though I’d be happy to learn otherwise).

It seems to me that this calls for a new capacity in the legal market — one that I cover in my upcoming book Law Is A Buyer’s Market: Building a Client-First Law Firm, which you’ll be able to buy here at Law21 late next month. (Yes, this is a plug.)  Here’s what I wrote on this subject:

In this new market, legal services buyers have to work a lot harder to choose their legal services providers and must manage their legal affairs much more closely. They need to understand how legal tasks are carried out, which legal services (if any) they should carry out themselves, and how to monitor the progress of all their legal tasks against various time, budget, and effectiveness milestones. Even more challenging, buyers have to assess the value that their desired legal services provide to them, in order to figure out a fair price for those services and judge whether the services were delivered to expectations and specifications.

In this regard, a great opportunity awaits lawyers (or if not lawyers, anyone else with smarts and ambition): to create the role of “legal concierge.” This is a professional who gives you, not legal advice, but instead advice about buying legal services. He or she analyzes your situation, asks some questions, identifies potential sellers of appropriate services, and prepares you to approach and negotiate with them. You could think of it as a broker or real estate agent for legal needs, but I prefer the personal-service feel of “concierge.”

From a law department perspective, you could have a good argument about whether to “build or buy” this capacity. If the legal function is large and complex enough, you would invest a person or small team with the mandate of mapping out the entire ecosystem of alternative processes and suppliers and advising lawyers and support staff of the best options for each kind of project or case. Smaller law departments wouldn’t have the budget to develop that functionality, but they’d probably be interested in an outside concierge service that they could retain for advice on individual matters.

The real potential for a legal concierge, however, would be in the consumer and small business market. This sector is almost as dynamic as the commercial law market, in terms of emerging options to traditional law firms. But the buyers in this sector have almost no knowledge of the many cost-saving and efficiency-upgrading options that are now coming available to them.

Surveys repeatedly demonstrate that individuals and small businesses see legal services choice as a stark dichotomy: either hire a law firm or do it yourself (or ignore your legal matter altogether). They’re not just unaware of what other options can do; they don’t even think about the possibility that there are other options.

If you could reduce or eliminate that blind spot, you’d not only provide a valuable commercial service; you’d also go some distance towards closing the access-to-justice gap. Increasingly, I suspect, the A2J movement is going to focus less on making lawyers’ services more affordable, and more on making people aware that they have choices other than lawyers for their legal needs. In that vein, a good legal concierge could skilfully and objectively scan the legal market for various types of service providers and develop systems by which it could recommend that its clients retain one or another combination of such providers for its specific needs.

Like any good brokerage, of course, a legal concierge would have to be clearly independent and immensely trustworthy, so maybe it would be best to start out as a public or government agency (which would also alleviate the cost of using the service). But over time, I could see a company with a strong brand in trusted recommendations (hello, Amazon) take this service into the private sector. The legal market is becoming a complex, multi-polar environment, and with so many new destinations on offer, navigators are becoming increasingly necessary. A legal services concierge could be a good place to start.

Buyers of legal services are in ascendance, even if they don’t entirely realize it yet. Eventually, they’ll fully appreciate the power they hold and the options at their disposal, and they’ll start to navigate among those options with ever-greater confidence and discernment. Once that day arrives, many law firms might look back fondly on these last ten years not as an unhappy time of stagnation, but rather as a relative period of gentle and graceful decline.

Optimizing your law firm for trust

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Journalism, my former profession, is undergoing two related crises simultaneously. One of them, playing out in your news cycle right now, concerns the ways in which journalists should analyze and present important information to the public at a time when unhelpful terms like “fake news” and “post-truth” are in wide circulation. There’s a great deal riding on journalism’s ability to solve this crisis, especially starting nine days from now.

The other crisis, one that will be a little more familiar to lawyers these days, is how news organizations can stay profitable or even stay afloat when the traditional platforms and business models that have previously sustained journalism are falling away, and there’s no obvious replacement ready at hand.

Jay Rosen, a professor of journalism at New York University who’s interested in both these crises, was attending a Newsgeist conference last month and tweeted this thought-provoking observation by speaker Aron Pilhofer, the former digital executive editor for The Guardian:

By “trust,” Rosen is referring to a news organization’s credibility with readers, the degree to which readers feel confident they can rely on the organization’s accuracy and good faith. Among the suggestions offered in reply to the tweet were: ranking your sources, moving more slowly before publishing, thinking from the reader’s perspective, diversifying your staff, using more citations, “showing your work,” and of course, developing useful metrics to measure your trustworthiness. If this interests you as much as it does me, you can read more on the subject here.

The subtext of Rosen’s question, however, is that most news organizations are not currently optimized for building trust with their users. They are optimized for speed (beat everyone else to a story), attention (improve ratings and ad dollars), and journalists’ personal interests (scoops, fame, ambition, access to the corridors of power). It should be evident that these interests do not overlap neatly with the interests of the news organization’s consumers, let alone with the larger public interest that journalism has always served.

So I’d like to ask a similar question in the context of the legal market: What would a law firm look like if it were optimized for trust? That is to say, if a law firm reordered its priorities and re-engineered its processes so that its activities were bent towards increasing the degree to which its clients completely and implicitly trusted the firm, what would that look like?

There’s obviously a subtext to this question, too, and it’s that most law firms are not currently optimized for trust. I personally think that’s pretty self-evident. Most law firms, in my experience, are optimized for the following three outcomes:

  1. Revenue generation
  2. Equity owner profitability
  3. Lawyer prestige

That is to say, the law firm’s business practices, operational infrastructure, and everyday culture are all geared towards maximizing the amount of money the firm brings in, the amount of profit that money generates for the firm’s equity partners, and more distantly, the personal gratification lawyers experience from being associated with the firm. Lower down the list, although far from irrelevant, you’ll also find lawyer convenience, lawyer risk aversion, and law firm stability. These are the interests that law firms are structured to advance and the outcomes they are designed to produce, and historically, they’ve done a terrific job of it.

The reason I can say these are the interests and outcomes for which law firms are optimized is simple: these are the only things that law firms measure and track. Law firms care deeply about the number of billable hours their lawyers generate, the profitability levels of their partners (relative to other firms and to last year’s results), and the positions their lawyers and the firms themselves achieve in various industry rankings and league tables. These are almost the only performance targets for which firms develop and track metrics, and for which consequences will ensue for failure to meet them.

Law firms do not tend to measure client satisfaction. Many do not, as a general rule, even measure the degree to which they have achieved the goals their clients hired them to achieve. Lawyers will say that these are the firm’s true goals, and they will be sincere. But it’s hard for me to believe that something is an organization’s goal when the organization doesn’t measure it, and when the organization’s culture and incentives optimize it to generate other outcomes.

You’ll notice, by the way, that most of the foregoing goals and priorities are not even directed to the enterprise itself, but to its lawyers. As I explore in more detail in my forthcoming book, Law Is A Buyer’s Market (available here later next month), this is part of the long-standing battle between a law firm and its individual lawyers for command of the firm, a battle whose tide is in the process of turning against the lawyers.

That’s the subtext; what about the text? What would a law firm look like if, instead of optimizing to advance its lawyers’ financial position and self-esteem, the firm arranged itself so as to maximize the amount of trust that its clients were willing to invest? Here are suggestions for some steps such a firm would take:

  1. Transparently track its outcomes. A law firm would create spreadsheets for every single task for which clients have retained the firm, listing what the client has asked for, what the firm promised to do, what the firm delivered, and the client’s assessment of its satisfaction with the result in terms of outcome, budget, timeline, and responsiveness. These spreadsheets would be posted in a secure online location accessible by the client 24/7. Nothing matters more to the client than the result of the retainer; a trust-optimizing firm would give the client full access and ability to assess those results.
  2. Reliably price its services. Negotiating a predictable price or price range for a law firm’s services requires extensive conversations about the client’s goals, the importance of the task to those goals, and the value of the outcome, all of which both require and enhance trust. Moreover, a firm that guarantees a price risks a shortfall — but the willingness to take that risk will impress clients and show them that the firm is committed to the relationship. Defaulting to the billable hour achieves the opposite of these outcomes.
  3. Continuously improve its client experience. How a law firm interacts with its clients is almost as important to them as the quality and effectiveness of the outcome the firm achieves. A firm that paid close attention to its “user experience,” measuring its effectiveness and striving to achieve a better experience every time out, would redirect resources to monitor its performance in this area client by client. And every time out, the client would receive direct evidence that the firm can be trusted to put the client’s interests ahead of its own. That is not a universal sentiment among law firm clients at this time.
  4. Openly demonstrate its quality control. Clients rely on a law firm for a lot of things, but above all, they trust that the firm is really good at what it does. Top rankings in industry surveys can help build client confidence in this regard. But what would really move the yardsticks would be a transparent quality control system that showed clients how the firm vets its personnel, trains them to the highest skill levels, develops and implements processes to reduce errors and amplify effectiveness, and double-checks all work product and lawyer recommendations. You would deeply trust a law firm that took those steps. So would your clients.

The fact is, you can optimize your law firm for any number of different outcomes and priorities. But simply because the traditional law firm has long optimized itself for its lawyers’ financial well-being doesn’t mean that’s the only way to go about it. What would your firm start doing if it decided, tomorrow, to optimize itself to maximize the trust its clients place in it? What would your firm stop doing tomorrow to achieve the same end? The beginning of a new year would be an excellent time to reach out to your clients and invite them to join you in answering those questions.

You’re not selling what we’re buying

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Posted in: Law21

Demand is flat or falling at large law firms, says the newest Wells Fargo survey released yesterday. Revenue is now being driven solely by hourly rate increases, the last remaining income enhancement button that law firms can press and one they will presumably continue to press until it no longer responds. This is not an especially new development: as has been the case every year since 2011, the 2015 Altman Weil survey of Chief Legal Officers found that more law departments decreased their spend on outside law firms than increased it.

But shrinking demand at law firms is not the same thing as shrinking demand among clients. The need for legal services — in the absence of war, famine, or some other Horseman of the Apocalypse — has never decreased year-over-year at any time, anywhere in the world. Populations increase, businesses expand, regulations multiply, opportunities arise, crises metastasize — life continuously grows more complex, and legal needs grow along with that complexity.

Just because law firms aren’t getting as much work as they used to, that doesn’t mean there’s less work to be gotten. Corporate clients are actually spending more money; they’re just not spending it on law firms.

Consider that HBR Consulting reported a 1% rise in legal spend among 275 surveyed law departments earlier this month. But the same survey showed that corporate spending on outside counsel actually decreased by 2% in the same period. Litigation work at 151 large law firms firms dropped 1.1% in the first half of 2016, according to the latest Thomson Reuters’ Peer Monitor survey, and has now fallen for 15 consecutive quarters. But this is not because corporate clients have fewer lawsuits: according to the most recent Norton Rose Fulbright survey of more than 600 companies, lawsuits and proceedings commenced against these companies rose in the last year.

Add to that a study by Huron Consulting published in February that surveyed 700 general and senior in-house counsel: it found that while overall legal spending rose 2.2% in the 2013-14 period, that slowed to 1.7% in 2014-15. “Whether that goes down to a zero percent or it goes down to a decreasing percent, the trend is to go down,” said Bret Baccus, managing director of Consilio, which conducted the survey. But here again, the cause is not a reduction in clients’ legal needs, but that “there are now more programs in place within corporate law departments to help manage budgets and reduce legal spend.”

So if law departments do have money and they’re not giving it to law firms, where is it going? What has become increasingly clear throughout 2016 is that corporate clients are chanelling their legal spend in multiple non-firm directions.

  • Insourcing continues to be the most common alternative destination for law department spending. Fully 68 percent of managing partners and chairs told the 2015 Altman Weil survey that they’ve already lost business to corporate law departments insourcing legal work. Confirmation comes from the 76% of law departments reporting reductions in outside law firm spend that said they’ll re-allocate this work to their own in-house legal staff.
  • Mitratech reports that corporate law departments now spend about $1.5 billion annually in legal software, a figure it expects to swell as high as $6 billion. The fastest-growing corporate legal technology areas, according to the survey, are “knowledge management, legal analytics, legal project management, contracts management, and governance and compliance software.” (And note that many law departments have yet to board the technology train.)
  • The power of procurement professionals within corporate legal departments continues to grow. Eighty-six percent of procurement personnel reported in a Buying Legal Council survey in March that they exercise influence on spending decisions for commodity-type legal work — and incredibly, 45% also influence premium work such as high-stakes litigation and complex/high-level matters.
  • Royal Dutch Shell might be forging an entirely new path for non-traditional corporate legal spend, judging from a May report in Legal Business that the company was preparing to open its own offshore legal centre to service its global operations: “A mixture of non-qualified and qualified lawyers will be doing more high-end work as well as the traditional back office work which is more typically suited to offshore centres.”
  • And the money that corporate clients do spend on law firms now comes with conditions. The HBR survey also found that 85% of law departments now use alternative fee arrangements, and 80% plan to increase their use of AFAs next year. This isn’t the old “discounted hourly rate” dodge, either: fixed fees per matter and flat fees for all matters in a field of work were the two most commonly cited AFAs. BASF’s legal department even requires firms to present AFA options for every engagement.

The buying patterns of corporate legal clients have changed. Clients are buying less of some things (the efforts of lawyers billed hourly) and more of other things (the efforts of lawyers priced flat, software and AI, process improvements, legal analytics, offshore talent, and more). This isn’t a future trend: it’s an entrenched reality, right now and for the next few years at least.

So how should law firms respond? The Wells Fargo report recommends, as does virtually every other consulting report issued in the past two years, that law firms better align their workforce with their workload — that is to say, reduce their headcount by de-equitizing “under-performing” partners. No doubt, there are more than a few firms whose equity partner ranks could use some culling, but I really don’t think that’s the problem (and I don’t think that cutting loose every partner who falls below this year’s arbitrarily drawn “under-performance” line is the solution).

The problem is much simpler than that, and it looks like this: Clients are buying things that law firms don’t sell.

The great majority of law firms sell exactly one thing: the hourly billed efforts of their lawyers. It’s not that clients aren’t interested in buying that commodity — they are, and will continue to be, for a range of matters. But they’re just as interested, maybe more so, in buying other things, such as technology, analytics, and lawyers on a fixed-fee basis. But most law firms aren’t selling any of those things. So clients buy these things from legal tech startups and legal outsourcing providers, or they create these things by hiring in-house lawyers and legal operations experts. That’s where their money is going.

The real reason why demand is falling at law firms is that clients have diversified their purchases, but law firms haven’t diversified their offerings. Law firms are steakhouses. Clients are looking for restaurants.

If law firms want their clients to spend more money with them, they need to start stocking their shelves with all the other things clients now want to buy. They need to purchase legal technology startups and sell their products or services under the firm’s name. They need to acquire or rapidly build an analytics functionality and provide clients with its insights. They need to radically rethink the purpose and nature of lawyer secondments, maybe creating a “permanently seconded” lawyer trained and paid by the firm but embedded in the law department. They need to start offering fixed-fee “packages” of legal services in every industry group.

This time last year, LexisNexis bought litigation analytics pioneer Lex Machina. The purchase price was not disclosed, but the company was reportedly seeking a buyout in the $30-$35 million range. An AmLaw firm with an average PPP of $1 million and, say, 600 partners could have made a 5% one-time reduction of each partner’s annual draw and bought Lex Machina outright. Think of the massive volume of competitive market intelligence that firm would have acquired. Think of all the analytics services it could have sold to every corporate law department every year thereafter, paying back the partners’ investment many times over. What a missed opportunity.

Law firms can’t afford to miss any more of those opportunities. They need to recognize that an enterprise that sells only one commodity, no matter how excellent its quality, is deeply vulnerable to any reduction in market demand for that commodity. Diversify your firm’s offerings. Find out where your clients are spending money other than traditional law firms and what they’re buying there, and figure out whether and how you might offer that as well.

You might not think of analytics providers and outsourcing platforms and IT solutions and all these other new service providers as competition, because they don’t sell the same kinds of legal services that you do. But that’s not the point. They’re not competing against your services. They’re competing for your clients’ legal spend. And so long as law firms continue to offer one and only one thing for clients to buy, it will be literally no competition at all.

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blawg_100_2016I was surprised and honoured to find that Law21 was included in the ABA Journal‘s 2016 Blawg 100 list, my first appearance on the list in two years and my seventh overall. My sincere gratitude to the editors and the selection committee.

Playing the client’s game

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Posted in: Clients, Law Firms

Some years ago, when I was working for the Canadian Bar Association, real estate lawyers in Canada became deeply troubled about losing their lead role in residential real estate transactions. They complained that they undertook a great deal of work and expense to ascertain the validity of title, yet they made only a few hundred dollars per transaction, while realtors and title insurance companies did much less (in the lawyers’ view) and made much more. Many of the strategies drawn up to change this state of affairs aimed (ineffectively, as it turned out) to restore the lawyer as the “quarterback” of the real estate deal.

My problem with that approach, as I expressed it at the time, was this: I don’t think lawyers are the quarterbacks in this market. Quarterback is the most powerful position in football, a big-picture strategist, personnel manager, and elite performer all rolled into one. But most lawyers are tacticians, not strategists, and they prefer neither to manage nor to be managed. More likely, I said, we’re the third-down fullback called on to blast through the line in a short-yardage situation, or the speedy wide receiver who goes deep on 3rd-and-22 to make a big play. We’re specialist performers who wait on the sidelines until we’re called upon to do one thing really well.

I was reminded of that observation this week when I read a column by Anthony Hilton in the UK’s Evening Standard with the galvanizing title, “Why their profession’s failures mean lawyers don’t win top City jobs.” Among his critiques of the commercial bar, Hilton had this to say:

[L]awyers have allowed themselves to be pushed further and further down the food chain, and away from the seat of power. In today’s commercial world, when there is a deal to be done, it is picked over by investment bankers, brokers and public relations consultants — all of whom have a share of the ear of the chief executive. Then when all the high-level stuff has been sorted by these experts, the package is tossed to the lawyer with instructions to sort it out and make it presentable. … 

[L]awyers have lost the glamour, the access and the special status that came with having opinions worth listening to. They have allowed themselves to be commoditised and to become the last port of call. They have allowed some of their best brains to move in-house as general counsel in the biggest companies, taking the interesting legal advisory work with them. … 

Now, when Hilton speaks of “lawyers” here, he means the private Bar, members of law firms engaged in private practice. But of course, “lawyers” are also working in-house, as the very corporate counsel he refers to here. They’re serving as the executive-level advisors and risk management experts in corporations’ corridors of power.

So it’s not a question of “lawyers” per se losing their power and value. It’s a question of where lawyers need to go these days if they want to develop real power and deliver real value in corporate affairs. Hilton suggests they need to go to the client side — and that, when you think about it, is an astounding turn of events. Remember when law firm partners would look down dismissively on those lawyers who “couldn’t cut it” in practice and had to take refuge in-house? It wasn’t all that long ago.

I don’t think there’s any question that power (and therefore prestige) is increasingly accumulating on the buyer’s side of the legal service relationship. How much power? Consider another column, this one by Alex Novarese of Legal Business in the UK, who was reflecting on whether anything in the legal market really posed a genuine threat to the world’s most elite law firms. He concluded that there was such a threat:

[I]t comes from those paying the bills, the clients. The sustained development of in-house teams means major bluechips already have legal teams that resemble global law firms in their breadth and resource. …  The drain of good people from private practice to in-house has become a feedback loop and a dangerous one for law firms as it remakes the legal industry. In the UK, more than one in four commercial lawyers works in-house. On current trends, it is not outlandish to imagine a 50/50 ratio in 20 years. What happens to the conventional buy/sell dynamic when the clients have as many providers in-house as externally? Why go to a law firm at all?

That last question is remarkable simply for the fact that it can reasonably be asked. And as the world’s largest legal buyers build more and more internal legal capacity, there’s no obvious answer.

Google’s in-house law department, for example, employs 1,000 lawyers to focus solely on legal issues, which is more scale and expertise than the vast majority of law firms can muster. But Google, like many other companies, also maintains a Legal Operations team, which handles legal technology, internal operations, and interestingly, “vendor management” — and the “vendor” category includes outside counsel. Law firms, increasingly, aren’t going to report to the General Counsel — they’re going to report to the Director of Vendor Management. What does that tell us about how power and prestige are shifting?

If you’re looking for the quarterback in the corporate legal market right now, I think you need to go visit Legal Ops. The skyrocketing growth of the Corporate Legal Operations Consortium suggests that Legal Ops will continue to take on more power and responsibility in the corporate legal services relationship. And as power continues to accumulate on the client’s operational side, a major change is occurring in how corporate clients view legal matters.

The ongoing trend towards insourcing legal work, and the consequent decline in the amount of work sent to law firms, confirm that corporations are now building up their internal legal infrastructure. But they’re not just adding more lawyers — that would amount to simply replicating law firms inside the corporation, which is not a smart way to go about it. Large corporations are instead re-engineering their legal infrastructure towards a new model, one in which Legal doesn’t seek to address every legal issue within the company (which is an impossible task in massive organizations). Instead, the new infrastructure aims to help the company and its people solve legal problems themselves — or better yet, anticipate legal risks and thereby avoid problems altogether.

That’s a significant strategic shift, because it re-envisions the role of “legal problems.” Law firms tend to regard legal problems as part of their inventory, providing solutions to those problems on an hourly basis. But corporations view “legal problems” as an obstacle to business continuity and corporate profit, and therefore as something to be minimized and eliminated. In this model, legal expertise reduces friction and therefore cost. It’s not something you buy, it’s something you integrate into your business to help it run better.

“There are no legal problems,” said Cisco’s Mark Chandler recently. “There are only business problems.” I don’t think that’s entirely correct. But it doesn’t matter what I think — it matters what the general counsel of one of the world’s largest corporations thinks. And he’s redefining legal issues away from law firms and towards the company’s legal infrastructure.

No, I’m not saying this is “the death of BigLaw,” obviously. What I’m suggesting is that the large, full-service law firm — the traditional business platform for private-sector lawyers serving corporate and institutional clients — is entering a period of existential crisis. What purpose will law firms serve in this market? Why will clients go to them at all? What do they offer that the buyer cannot either develop and deploy internally or acquire elsewhere at a competitive price?

I’ve heard it said that 80% of corporate legal work is going to either stay in-house or be directed to lower-cost third-party specialists, with the remaining 20% of high-end, high-stakes legal tasks (the “bespoke” work) delegated to outside counsel. But law firms developed as destinations for 100% of that work, and they have the size, overhead costs, and hierarchical structure to prove it. What does it look like when a supplier loses 80% of its business? How do you cope with that?

We’re entering uncharted territory here, and there are possibilities arising that we’ve not considered before. Maybe full-service law firms that performed every aspect of a legal matter, no matter how trifling or routine, were a temporary stop on the evolutionary road of legal services. Maybe such law firms are vestigial and will eventually fall away — to be replaced by smaller expert boutiques where legal shoppers go for occasional splurges, while the rote work that supported their predecessors is either claimed by software and systems or is performed by clients in the ordinary course of events.

Is that the future for BigLaw? Are large law firms destined to be simply a collection of third-down specialists, niche experts called in to perform a high-value task once in a while? And if so, is there necessarily anything wrong with that?

I really don’t know the answers to these questions. But what I do know is that law firms — at least, as they are currently owned, structured, and managed — are in the process of losing their status as the legal market’s power brokers. The center of gravity in this market is shifting to clients, and it’s not going back. The law firm is now just one more resource among many, a particularly fussy and expensive resource called in only when absolutely necessary. And someone else is going to decide what “necessary” looks like.

The last, ominous, word on this goes to Alex Novarese: “what your clients want is not always good for you. What your clients want can clean you out.”