Guest Post: Why are we Really In the Business of Law?

I’m pleased to welcome Heather Gray-Grant as our guest blogger for this edition.  Heather is a marketing strategist, planner and implementer, and an executive coach.

The first question in a strategic marketing plan is always the same:  what is your purpose?  From there, we essentially determine how to fulfil that purpose in a way that demonstrates positive differentiation in the eyes of target clients.

Within the free world, “purpose” is clearly a desired understanding.  Amazon has over 53,000 books under that keyword search, and yet I couldn’t find a single one dedicated to the purpose of a law firm. You might suggest that’s because it’s obvious: to provide high-quality, cost- effective legal services together with outstanding client service.   But is it the truth?

Lately, I’ve been reacquainting myself with some law firm outliers , sometimes referred to as “new law” firms (as opposed to the “big law” firms from which they seek to differentiate themselves).  These new law firms purport to be changing the law firm business model based on a different set of purposes.  See if you can figure out what their purposes are:

Firms like Conduit Law, Delegatus and Axiom provide clients with flexible service delivery through such mechanisms as embedded lawyers (think secondments) on demand for projects, or for short or long term general placements.

Cognition motivates lawyers to provide outstanding client value and service with a “gamification process” that earns them redeemable points.  Miller Titerle focuses on the other side: providing exit bonuses to lawyers who aren’t fitting in with their service methodologies and client service-focussed culture.

The pool of professionals and how they operate are a little different at these firms as well.   Delegatus has no interns and is completely comprised of fully-trained lawyers from big firms.  This includes many part time and contract lawyers, and most of them work virtually, which means a 50% savings on overhead costs.  There’s no minimum target for their lawyers.   As you can imagine, they tout significantly reduced fees over their big firm counterparts.

Axiom professionals include lawyers but also business people (analysts, financial planners, accountants, etc.).  They maximize efficiency by eschewing the traditional law office layout.  Instead, they look a bit like a gaming company – endless funky cubicles surrounded by glass boardrooms for team work as needed.

Clearspire believes it has perfected the law firm business model by ensuring individuals stick to their core competencies.  For example, it has divided the firm into three disciplines: Law, Admin and IT.  These areas are run as separate units, and then collaborate as needed to run the firm as a whole.  (I`m over simplifying due to space limitations, and would encourage you to visit the websites of all of these firms to find out more about their innovative approaches).

The culture of an organization can often be gleaned through their recruitment marketing. In those materials, these firms all seem to share the desire to attract those unafraid of practicing differently than in the big firms, of feeling passionate about the law again, of connecting more with the clients, and of feeling better about where they work. Big firms say these things, too.  The difference is in how the two models operate to prove these aspirations.  Clearspire explains their views on this on their site.

“The big law firm model has failed to evolve over the past century. The focus on partner profits accounts for the gross misalignment of interests found within traditional firms…Attorneys and firms are continually at odds over billing quotas, rainmaking pressures and the absence of work-life balance – the byproducts of an economic model that leverages people and time rather than technology or business processes.”

The site goes on to explain how Clearspire believes the big law firm model accounts for itself.

“Within the typical firm, partner profits account for more than 30% of the balance sheet. Another third supports lavish office overhead. The remaining third pays the salaries of the firm’s lawyers who actually do the client work. In sum, nearly two thirds of the firm’s hourly rate offers little direct value to the client.”

Reality check: staff, IT and marketing costs also account for a sizable portion of the typical law firm budget, and I doubt that most partners would feel they provide little to no value to a client.  But I get the idea that Clearspire would prefer there was a better correlation between client value and service costing and I think most clients would agree.

I love the determined innovation of the new law firms referenced above because I believe their actions honestly stem from a purpose of providing better services to clients.   A business exists primarily for the purpose of selling its product or services to a consumer.  Big firms have often been described as operating more like “clubs”, in part because some of them seem to be focussed foremost on providing a comfortable environment in which the partners can practice.  In such environments, client focus is at best a secondary goal.

New law firms are reversing this order, winning market share and ironically, seem to be more successful in creating a meaningful career environment for their lawyers while doing it.

For more information on Heather Gray-Grant’s services, please go to www.heathergraygrant.com

 


Is this the “tipping point” for use of Lean Six Sigma in law firms?

Clifford Chance, a ‘Magic Circle’ firm in the UK, has decided to train all of its lawyers in ‘Continuous Improvement’ techniques. CI is a subset of Lean Six Sigma or Lean, a process improvement technique used by Fortune 500 companies for years, but has had minimal penetration in the legal industry to date. Seyfarth Shaw, a large US law firm, has been an innovator in Lean techniques for several years, but few other firms have committed to Lean in the way Clifford Chance is now doing.

Lean is a method used for increasing efficiency of processes, as explained in this article on legal process mapping. Seyfarth Shaw, one of the firms mentioned in the article, has used process mapping with its clients with good results.  They have reduced ‘waste’ in legal processes, which can range from 30% to 80% of the total work required.  It is surprising there is so much waste in how legal work is done.  Perhaps not that surprising; however, as hourly billing arrangements encourage wasteful working habits. You get paid more money the more hours you work on a file under hourly billing arrangements, so the temptation to over-work a file is there.

Hourly billing encourages inefficiency, while fixed fee billing encourages efficiency.  As law firms become more efficient in the way they work on files, they must switch to fixed fee billing to maintain or increase file profitability. If you don’t change your billing method, you will find your profits shrinking away as you get more efficient under hourly billing.

Many firms resist fixed fee billing since they aren’t willing to change the way they do the work. Why change when making good money under hourly billing arrangements? What will likely force the change is that the move to Lean techniques by firms like Clifford Chance will accelerate the move to fixed fee billing arrangements. As this happens, other magic circle firms and large US firms will be forced to change to compete for clients hungry for this more efficient way of working and the lower overall legal costs that result. Eventually the rest of the legal industry will follow suit.

Partner compensation systems will also need to change to reward partners for increasing efficiency instead of billing more hours. This will be a very difficult change for most firms, however, and there will be casualties along the way as partners battle to maintain their position on the compensation grid. So law firms need to prepare for these changes now, before it’s too late.


The Accountants are Back!

Recent developments indicate that accounting firms such as KPMG are looking at getting back into the legal industry after an absence of over ten years. See articles here and here. Accounting firms had to get out of the legal services business back when the Sorbanes-Oxley Act came into effect in 2002 due to conflicts with their management consulting, audit and legal services businesses.

With the ABS regulatory changes now well underway in the UK, accounting firms are looking closely at the legal industry again.  Accounting firms are well ahead of law firms on the business management and marketing fronts, and will be formidable opponents to law firms if they commit their resources to a full-scale re-entry to the legal industry.  And that’s what they appear to be preparing for in the UK. I fully expect the global accounting giants to make a big push into the legal industry in the near future, and smart law firms will team up with the accountants to provide global business advisory services unmatched in the world today. Some global accounting firms will move back into the legal sector again in a big way by merging with mid-tier and large law firms in ABS structures to gain legal market share quickly.

I also see many opportunities for small and midsize law firms to team up with accountants to provide trusted business advisory services not being offered today.