To retain existing client relationships and attract new clients, law firms are expanding their services. In today's blog, Bill Lepiesza discusses the complexities, opportunities and challenges that law firms face as they compete for global clients in a price sensitive, increasingly competitive environment.
Law firms have undergone significant organizational, operational, and economic changes over the last decade - leveraging new technology, pricing and service models, and operating on unprecedented global scales. With the pace of change not showing any hint of slowing down, the best managed firms have an opportunity to significantly benefit by outmaneuvering and outthinking their more change-resistant competitors.
The Law Firm of 2016 Vastly Different than the Law Firm of 2006
Ten years ago, a 2006 ABA roundtable on law firm technology and operational trends, noted the improvements in sophistication of eDiscovery, records management, and early stage knowledge management and collaboration tools, and the nascent move to outsourcing more routine and repetitive legal work to shared services/lower cost centers.
Five years ago, in a 2011 article, The Economist detailed the "forces" at work in shaping the economic and business landscape of the legal industry, including "clients [becoming] keener to query their bills - and to demand alternatives to the convention of charging by the hour, such as flat, capped or contingent fees" and globalization, with its corresponding rise in competition. These factors, in turn, were predicted to soon create bifurcated paths to success: a cadre of elite law firms "tightly focused" in a few fields of practice, and the development of mega-sized multinational firms with the "promise that wherever clients want to do business, they will deal with a seamless entity."
Today, each of these trends has come to shape the legal industry with varying degrees of significance, but in any case, the business of successfully managing a major, multinational professional services institution, delivering sophisticated and robust legal solutions to clients (i.e., a leading global law firm) is certainly a more complex, competitive, and comprehensive proposition than ever before.
Pricing and Legal Service Delivery
The 2016 Report on the State of the Legal Market, jointly issued by the Center of the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters, found that "law firms clients are more willing than ever before to disaggregate matters, combining the services of several different service providers in order to achieve increased efficiencies." This extends to "utilizing non-traditional service providers (including non-law firms) to provide a wide range of services previously obtained almost exclusively from law firms."
While the report notes that many law firms have made at least superficial "passive and reactive" efforts to address this shift - working to improve budgeting, legal project management, and exploring alternative fee arrangements - there is tangible, "mounting evidence that firms that have responded proactively...by making strategic changes to their lawyer staffing, service delivery, and pricing models are outperforming their peers in terms of financial results." Broadly, "firms at the highest end of the market will always be sought out for critical, bet-the-company work...but the range of activities that only traditional law firms can undertake will continue to narrow...the Walmarts and Amazons of professional services are at the gates."
Knowledge management has evolved from an esoteric field to a function that is central to how well-managed firms operate. New systems and technology solutions have greatly facilitated the capture, storage, accessibility, sharing, and ability to utilize the wide array of data and work product generated through the course of business. Lawyers now have dashboards to monitor financial, team, matter, and practice performance in real-time, resulting in better data-driven decision making and management.
And as firms look to improve efficiency and drive innovation, artificial intelligence (AI) may come to play an increasingly more meaningful role in certain areas of legal practice. Baker Hostetler recently announced the "hire" of the world's first AI lawyer, ROSS - a software platform that utilizes the IBM Watson system - as a legal researcher in its bankruptcy practice to "comb through huge batches of data" and provide responses in natural language "as intuitive as an actual colleague." In addition to greatly reducing time and cost in "quickly responding to questions after searching through billions of documents," if conditions, regulations and laws change "ROSS will be able to track whether it affects the case."
Besides improving research functionality, AI is entering the realm of "predicting legal outcomes."Technologists at Michigan State University "created an algorithm to predict the outcomes of US Supreme Court cases [that] attained 70 percent accuracy for 7,700 rulings" - and service providers are "taking that one step further, working with analyzed information to predict future litigation."
Between 2015 and 2016 Mayer Brown, Shearman & Sterling, and DLA Piper had 10, 11, and 16 percent total office growth, which included 14, 14, and 23 percent growth (respectively) outside of the US. While these numbers are impressive in their own right, the firm that topped the charts in global expansion figures was Dentons, with an amazing 156 percent growth (153 percent outside of the US), tripling from 2,580 to more than 7,500 lawyers worldwide, and expanding its global reach from 26 to 57 countries.
Dentons strategy and "polycentric" value proposition has been clearly articulated by its Global Chief Executive Officer, Elliott Portnoy: "unlike other firms, we have no headquarters, and there is no central or dominant region or location - we will be Australian in Australia just as we are African in South Africa. We don't have one dominant culture because we don't believe clients are seeking that kind of centralized approach. Indeed, we do business like our clients do." This includes the potential to provide legal services, globally, to multinational clients on a scale above and beyond historically traditional law firms.
Even for firms with a less aggressive appetite for worldwide growth, the rapid "shrinking" of the globe, continuing intersection of geographic spheres of influence, rise in multinational expansion and commercial engagement in client industries, and other associated factors mean that managing and leading across increasingly complex global constituencies becomes more and more important for successful law firm leaders by the day.
Law firms have changed dramatically as institutions in the 21st century. As the legal industry continues its accelerated pace of transformation, myriad possibilities are open for the best-managed firms that are able to anticipate and adapt to new economic and business conditions. While further dramatic shifts - such as finally "breaking the lock on the billable hour mentality," or even departure from the partnership model - might seem far-fetched today, they could quickly become the reality of tomorrow.