The Times They Are a-changin´: Looking into our business model
A few days ago I participated in the 23rd Marketing Partner Forum in Orlando organized by Thomson Reuters. Many panels and presentations during the conference continued to stress the changes that are taking place in the legal market. That was also a topic of analysis in the reports “2016 Client Advisory” prepared by Citi and Hildebrandt, and the “2016 Report on the Legal Market” prepared by The Center of the Study for the Legal Profession of Georgetown Law, and Thomson Reuters Peer Monitor.
This last report begins with the story of Kodak, the famous and leading photograph company that went bankrupt because of its resistance to change when the industry became digital and they could not sold films anymore. Kodak knew the changes were coming but, since they were so successful, they just couldn´t accept that the changes were profound and pretty much decided to look the other way. So success could be a danger and, in the opinion of this report, something similar could happen to some players in the legal industry if law firms do not start adapting to the new market conditions and change basic aspects of their business model.
Clients in the driver´s seat. A change of business model.
The most basic change is that after 2008 the industry turned into a buyer´s market (unlike the way it used to be for several decades). As a consequence, clients expect more value for money and want control over decisions related to organization, staffing, scheduling and pricing of legal matters. They want predictability, efficiency and cost effectiveness. To achieve that they resort to various alternatives like disaggregating legal work in various firms, use alternate service providers and increase their internal legal departments. In Orlando it was mentioned that the overall legal work in the US market has increased in the last couple of years, but most of that growth is not going to the law firms.
The Georgetown report indicates that law firms are not reacting proactively but rather in passive and reactive ways. The resemblance to the Kodak case is that law firms, rather than being unaware of their challenges and dangers, they are choosing not to respond proactively to them. The reason may be, according to the report, that they do not want to change a business model that has been so successful for so many years.
New Entities. Different Models
This report identifies five types of new legal providers: “(i) secondment firms that provide lawyers to work on a temporary or part-time basis in client organizations; (ii) law and business advice companies that combine legal advice with general business advice of the type traditionally provided by management consulting firms; (iii) law firm “accordion companies” that provide networks of trained and experienced lawyers to meet short-term staffing needs in law firms; (iv) virtual law firms and companies that typically drive down overhead by having attorneys work from their own homes; and (v) innovative law firms and companies that typically offer specialized services under special fee arrangements or service delivery models that differ significantly from traditional law firms”.
It is certainly early to predict how successful these type of organizations will be and the extent of damage they can cause on traditional law firms. So far they concentrate on simple and commodity-type of work, but with the development of technology in the professional arena it is likely that this could have an increasing trend.
We should certainly add the accounting firms to this scenario. They seem to have a much clearer idea of how an organization works than lawyers and they have probably learned from the mistakes they have commited in the 90´ when they tried the legal market.
Areas of Improvement
The Hildebrandt report highlights the following areas for improvement the firms should work in this highly competitive environment.
Should we bother in Latam?
The “Kodak Syndrome” could be even more dangerous in Latam. Why? Well, we always have the feeling that things will not change that much in our shores. Some of the larger firms in the region –many in Brasil- have been working in this direction given the challenges presented by the larger size. But even some of them are still struggling in trying to become more institutional and avoid endless discussions and ego-battles among partners that prevent them from becoming more efficient and stable.
It is true that some of the changes described in the above-mentioned reports are still only partially perceived in the Latam market, but they are undoubtly happening. The basic concerns related to the type of relation the firms should have with clients, and the way to organize the firm around an efficient service and value to the client are also affecting our markets.
The institutional defficiencies experienced in many firms delay or limit a proactive attitude towards these issues, perhaps even more than in the international arena, since partners need to have a clear strategic idea of where do they want to go and a strong alignment to execute it. Firms still in their internal discussions about succession, leadership, governance and compensation run the risk of loosing focus on the things that really matter.
Changes –specially radical ones- are always disturbing and difficult, but looking the other way is the best way to make them more painful and even risk your future existance. As Bob Dylan poetically expressed it “Then you better start swimmin´ or you´ll sink like a stone, for the times they are a-changin.”
