07 Oct The Industrial Revolution of Legal: From Artist to Cog in the Machine
The Industrial Revolution of Legal: From Artist to Cog in the Machine
The practice of law no longer enjoys the status of art — in the sense that art is subject to a mysterious set of rules for its production that are immune to economic forces. The legal profession has disintermediated and now presents an array of choices in service providers, including legal process outsourcing (LPOs), third-party vendors and, of course, in-house legal departments.
Law firms are now merely another cog in the commerce that is the legal supply chain — and lawyers, as their primary producers of output, are an integral part of the machine’s movement. Some firms are not so inclined to recognize the morphing of the profession into a supply chain — and are, instead, relying on brand, established relationships and market share to do the revenue-driving. Like Thelma and Louise, these firms are choosing to put their feet to the pedal of a dying model; it’s an adventure, but it doesn’t end well. The “2016 Report on the State of the Legal Market” by the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Peer Monitor identifies this as “The Dangers of Success,” citing Kodak’s 1999 bankruptcy that resulted from its refusal to recognize the rise of digital technology (which, ironically, it invented). For those firms looking to thrive, they must evolve their business models; people, process and technology will be key, and lawyers are integral to the business processes of running their practices. It’s no longer a matter of simply billing and collecting hours; rather, lawyers are fast becoming central to the operation and are directly involved in pricing, pitching and winning work. Subsequently, they must be hands-on, monitoring their matters, actively preventing misallocation of resources that could result in write-offs or write-downs, and delivering transparent services that are managed and produced to budget.
The Legal Supply Chain
Historically, it’s been a seller’s market, where lawyers banked on their reputations as they set their own rates, then increased them every year — and clients willingly paid. However, the legal supply chain has put pressure on firms’ traditional flow of work from clients, eroding demand to flat growth year over year. According to the Altman Weil “2016 Law Firms in Transition Survey,” this is a result of the following market forces:
- More price competition — seen as a permanent trend by 95 percent of law firm leaders
- Commoditization of legal work — 88 percent
- Replacement of human resources by technology- 85%
- Competition from nontraditional service providers — 82%
Clients no longer automatically accept rate increases. Managing the firm’s business model now means establishing the right price for the right level of service — and doing so hinges upon firms’ understanding of two things:
- Where and why work is going outside the firm
- Its internal costs of production
The “ACC Chief Legal Officers 2016 Survey” reports that not only are legal departments already positioned in the supply chain as alternative service providers to firms (37 percent), 40 percent also decreased outside counsel spend in 2015.
When clients go to market, procurement is increasingly influential in purchasing decisions; overall, according to the Buying Legal Council’s “2016 Legal Procurement Survey,” 86 percent of routine “commodity” legal services purchases are managed by procurement, as well as 64 percent of so-called “breadand-butter” work and, most important, 45 percent of high-end legal services.
On top of this, the “BTI State of Alternative Fee Arrangements 2016” survey states that outside counsel spending under the AFA umbrella jumped to 35.6 percent of total spending in 2015. The pièce de résistance is delivered during billing, where, the Altman Weil survey reports, the use of discounts is now so widespread that a median of 21-30 percent of all law firm fees and up to 40 percent of large firms’ revenue comes from discounted fees. This is a potent cocktail of disintermediation and downward pressure on fees.
The final nail in the coffin is clients’ demands that matters be priced transparently and predictably and resourced appropriately. These demands are not merely verbal, but often contractual. Issuing outside counsel guidelines (OCGs) has become both commonplace and increasingly complex — at times, comprising hundreds of pages, stipulating what might be onerous provisions regarding how work is delivered, who can do it and which third-party providers can be used. OCGs can also include an intense focus on data security and limitations on access to matters and matter data (i.e., all matters must be locked down to only those who require access to work on them) and what types of costs will be reimbursed, if at all.
These are the business processes of the new market. Firms have years of experience on which to draw in order to meet the demands of the new revolution, and that experience already exists in time entries, historical bills, document management systems and any number of legacy systems the firm is running. The problem many firms face is that legacy systems were not architected for today’s challenges, and pulling the necessary information into actionable intelligence often proves too cumbersome and time-consuming to manage. OCGs are a prime example of this difficulty, as each includes a unique set of conditions that firms have little ability to capture, correlate and track beyond what often ends up in billers’ notes — and yet payment is contingent upon contractual compliance.
The Right Service Level at the Right Price
Here we are in the industrial revolution of the legal profession: law firms are merely one cog in the commerce of legal, and lawyers are the primary producers of the product in a market mix of alternative service providers, downward pressure on fees and unilaterally imposed complex contractual agreements.
Firms are tasked to deliver the right service level to their clients — allocating resources appropriately at a price this new market will bear, while still maintaining profitability. Lawyers are tasked with taking the ball over the goal line, which means monitoring their matters to ensure nothing goes out of scope.
This is where OCGs and their exported billers’ notes become more than just cumbersome provisions — if the lawyer is not directly engaged with the contractual stipulations that affect payment, it can result in write-offs and writedowns up to 40 percent of the time (according to the Altman Weil survey).
Innovative firms are implementing structured processes such as legal project management (LPM) to better manage workflows. However, LPM means different things to different firms based on a varying mix of capability, maturity and cultural challenges within the firm. The goal: to place more structure on the delivery of legal services.
As the producers of legal services, lawyers need to be not only inspired by LPM but encouraged to implement structured processes. As pricing discussions occur and clients increasingly desire to be involved in the ongoing financial health of their matters, it isn’t feasible for lawyers to wait for teams of administrative experts to collect the right data from disparate legacy systems and assemble the information into a consumable fashion. A consumable version must be at the lawyer’s fingertips so those client discussions can happen fluidly.
This is where the true value of well-integrated technology comes into play. Firms that understand the new reality and want to gradually and successfully implement processes to accommodate it need intuitive systems designed for lawyers to understand. Partners, especially, need to be more engaged with such technology as their roles have shifted from being timekeepers to managers — matter managers and project managers. Systems must be intuitive yet simplistic and provide powerful, real-time information and integrated workflows to both enable and encourage lawyers to use them in order to implement a more structured approach to the delivery of legal work.
Lawyers are no longer the artists who can generate unique works and name their price, leaving back-office teams to bill clients for the lawyers’ perceived value. They are now part of a larger assembly line — one that incorporates structured processes and relies on efficient technology to ensure its optimal performance and delivery
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