“In retrospect, all revolutions seem inevitable. Beforehand, all revolutions seem impossible.”
— Michael McFaul, National Security Council
We are in the midst of a true revolution in the delivery of legal services. And upon reading that, it’s likely that you will fall into one of two camps: those who have already heard the guns firing and who are nodding their heads in agreement, and those who dismiss all the warnings of imminent change as excessive and overwrought.
If you’re part of the first group, I look forward to hearing your reports from the front lines. If you’re part of the second group, and it strikes you as hyperbole that anything could really change the legal industry in this country, in our lifetimes, please read on. Because many of those sounding the alarms happen to be more Paul Revere than Chicken Little.
Take Bruce MacEwen, for one. If you don’t know Bruce, you should. He is the talent behind the thought-provoking Adam Smith, Esq. blog, which looks at far-reaching trends in the legal profession. As the name of his blog implies, he is interested in the business and economics of law. Forgive me for stealing from the old E.F. Hutton ads, but when Bruce speaks, people listen.
And so, when Bruce said, “Outsourcing is here to stay” in a recent post, it’s worth paying attention. He was not talking about software development. He was talking about legal services that have always been provided by top-tier law firms to their corporate clients. But now there’s a new vendor of legal services in the room and it’s not a traditional law firm. It’s another animal altogether that some have labeled Legal Process Outsourcing (LPO).
Bruce continues, “Whatever you call it, and whatever you think of its quality, clients have tasted the fruit of the forbidden tree and they’re not going back. If document review can be conducted by Ivy League law school grads…for $50/hour instead of $350/hour, what’s not for a client to like?”
So, just who are these revolutionaries providing legal outsourcing? You may be surprised by how large and successful they already are. They include companies such as Axiom, which calls itself “the first real alternative to the traditional law firm for complex legal work.” It has offices on three continents and its clients include Amazon, Cisco, Morgan Stanley and UBS. And then there’s CPA Global, which raised $700 million in a private placement ear
lier this year in the UK (for a mere 49% of the company). These guys aren’t just players; they’re game-changers.
But how has the legal profession allowed this to happen? Is this an example of Schumpeter’s creative destruction? Or is it an indication of just how unresponsive BigLaw has been to its clients? I would suggest that the answer to both of these is yes, and that a systemic and stubborn lack of responsiveness has made corporate clients hungry for alternatives. In fact, a recent survey of 550 general counsel by InsideCounsel confirms that many of the top law firms in the country have been letting their corporate clients down in many ways. A couple of figures from the survey tell the story succinctly:
- 51% of general counsel don’t think law firms recognize their budget constraints.
- 65% of general counsel say that law firms don’t actively seek ways to reduce costs.
Hmmm. If anywhere from one-half to two-thirds of the top law firms are unresponsive to their clients’ needs to keep costs down – and this coming nearly two years into the Great Recession – doesn’t it make sense that these same clients would be desperately seeking alternatives? And in retort to the many attorneys who would protest that any alternatives to BigLaw would by their very nature provide inferior legal services, I offer a third takeaway from the InsideCounsel survey:
- 59% of general counsel say that law firms don’t understand their business.
Ouch.
Given this widespread client unhappiness, in any other industry such an underperforming business model would have been forced out years ago, driven to the sidelines by a host of competitors with lower price points and much improved customer service. Of course, since this is the law we’re talking about, it has taken a little longer to see real change take place, but it’s happening now. Market forces have finally come to the legal profession.
As Ron Friedmann suggests in Will Legal Outsourcing Drive Law Firm Innovation?, “The very forces that enabled the birth of the LPO industry – globalization, technology and shifts in buyer attitudes – continue to push legal work toward standardization and systemization (as Richard Susskind discusses in The End of Lawyers?). That means work once done only by associates can be performed by more efficient operating models offered by alternative sources such as LPOs, contract attorneys, virtual law firms, online legal resource providers, and still-to-be-invented providers.” [Note that Friedmann is the SVP of Marketing for Integreon, another leader in the LPO space.]
And as MacEwen tells it, the challenge posed in the business world by “young and initially quality-compromised, unworthy upstarts” is “not just that they can steal market share from the relatively small slice of clients who are extremely price-sensitive, it’s that they can slowly change client behavior.”
Actually, I believe that client behavior in the legal sphere may not be slow to change; in fact, now that Pandora’s box has been opened and viable alternatives are available and are proving themselves, inside counsel will fairly quickly look at all the offerings of the LPOs.
MacEwen goes on to say, “And this is precisely where the independent outsourcing firms can have an impact. Once clients begin to get accustomed to the notion of being able to unbundle, or unchunk, legal engagements – be they disputed matters or transactional ones – there’s potentially little end to it.”
Finally, Friedmann warns that we must remember one thing: “LPO is symptom, not cause. The cause is corporate client price sensitivity and quest for value. These have changed buyer (general counsel) behavior, which in turn has propelled growth of law firm alternatives.”
So, what’s the answer for traditional law firms? I think it’s three things: Innovate, move up the value chain, and – above all else – focus on being truly client-focused, efficient and responsive. I say truly because there is no room for mere talk in this revolution. The only survivors will be those who can differentiate themselves from the pack – and that pack is about to get a whole lot more crowded.
