“Outsourcing is here to stay” writes MacEwen. He describes different flavors using a 2 x 2 grid: location on the x-axis with offshore or onshore ("foreign” or “domestic"); ownership on the y-axis with captive or 3rd-party ("owned” or “rented"). MacEwen notes that this model is “by no means exhaustive; it’s merely indicative and representative”. This is a good model for thinking about centralizing support services.
LPO will have a big 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.” MacEwen argues that LPOs are likely to go upmarket, meaning they perform higher value work, which will threaten law firms - and also force them to innovate and move up the value chain.
Working for an LPO, my view is that there is a clear line between legal support and law practice. An LPO cannot practice law so I think there is a clear limit to how far “up the value chain” an LPO can go.
Turning the “LPO moving up the value chain” idea on its head may well be a more helpful way to think about the legal market. 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.
So it is likely that repetitive tasks once the exclusive domain of partner-track associates will continue to be unbundled and move to more cost-effective approaches. Document review in litigation is the classic example. Even without LPOs, law firms’ ability to offer this service at associate billing rates is already threatened by corporate clients contracting directly with contract lawyer staffing agencies. An innovative law firm might even decide it makes sense to partner with an LPO to do the high volume, routine work.
Given this shift, MacEwen questions the fundamental premise of large firms, citing Ronald Coase’s Nobel Prize winning The Nature of the Firm. He suggests that LPO-enabled unbundling calls into the question the “why” of law firms: “Why create the management overhead, bureaucracy, and administrative friction entailed in any firm of scale? Why not just purchase whatever is needed, when it’s needed, on the open market?”
That is a good question indeed, but 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. Smart large firms can still profit from their scale. For example, they can
MacEwen raises provocative questions that large firms need to consider carefully. I have never been persuaded that “big is better”. Big is only better if size really confers benefit and the organization actively takes advantage of its scale. Big firms that adopt sound strategies and execute effectively will continue to thrive. Those operating on auto-pilot may indeed lack a good answer to the question MacEwen / Coase asks.
[Note: above is a modified version of my Integreon blog post, LPO as a Driver of Law Firm Innovation]
]]>This conference is for law firm leaders, managing partners, executive directors, c-suite law firm officers, consultants, law school deans and anyone else who plays a leading role in the business of practicing law. Click here to download the PDF program. Topics include The Impact on the Legal Business of Capital Markets’ Growing Interdependence, A Sea-Change in London (re equity investments and alternative business structures for law firms), and a wrap up session Now What? led by American Lawyer editor Aric Press. Other speakers include Peter Zeughauser, Simon Chester, Steve Matthews, Tim Corcoran, Marc Lauritsen, and Patrick Lamb.
I’ve attended many College meetings and they are outstanding. Unlike most conferences, vendor sponsorships play no role in the program or speaker selection. A committee of College Fellows works hard to identify topics and speakers based on the issues most likely to affect law practice management in the coming years. We are limiting the conference to 150 attendees so that we can ensure high quality discussion.
I hope to see you there.
]]>After getting my new PC, I went to Dell.com to order a docking station and battery. The docking station was easy to identify Not so the battery. I could not find the exact model of my PC, Latitude E4310, at dell.com. Hmm. I found batteries listed for Latitude E but the web descriptions did not include compatibility listings by PC model numbers. I lost quite a bit of time trying to figure out which battery was right yet ended up ordering an incompatible unit. As a veteran web shopper and ex-CIO, I found this rather frustrating.
Fixing this was a time sink, which I attribute to Dell’s, in my opinion, inadequate e-commerce capabilities. In getting the return merchandise authorization (RMA), the agent was unable to pull up my correct e-mail address, even though she had my order number. So I had to provide it orally. So much for back-end systems integration. The e-mail confirming my return lists the battery as ‘CUS BTRY 12C SONY’, which bears no resemblance to the ‘9-Cell/85 Watt-Hour Primary Battery for Dell Latitude E/Precision Mobile WorkStations M2400/ M4400’ that I ordered. This does not inspire confidence.
To compound frustration, I could not order the correct battery with the same person who takes care of returns. Transfer and hold. The sales person then tells me a part number to buy. I inspect it on the website but do not see a definitive listing that it is compatible. I ask for other choices. The second part number he gives me is not on the website at all. I ask about this and the agent tells me that not all batteries appear on the wesbsite. I find this baffling because I have no way to compare specs and prices.
So I ask to speak to a supervisor. After a long pause, I am connected with customer care. The agent immediately says “Our systems are down for updating, can you call back.” That is not what I call ‘customer care:’ I am amazed that Dell would take systems down at 9:30am Eastern. Further, one might expect customer care to offer to call back when the system is available.
At this point, I went to plan B: Twitter. My Tweet to @MichaelDell put me in touch with with someone in Dell Global Social Media. It turns out that since my company, a business customer ordered the computer, accessories for it are not listed at dell.com, which I was told was for consumers. That is not clear on the website. Moreover, I cannot be the only person with a company-provided computer who wants to order accessories and expense them.
Once I was in touch with a person, Dell did make the situation right and I got the battery I needed quickly. It is hard for me to understand though how or why anyone might consider Dell an e-commerce leader.
Dell was the PC king for years. They now lag HP and Acer in market share. Dell stock price is way down from its all-time high. A business model that worked magic for many years stopped working as well as it had. Beyond any IT and e-commerce lessons, law firms might take this as a cautionary tale about their own business models. How many ‘tried and true” law firm models will work in new economic circumstances. For an example of pressure on law firm models, see Adam Smith, Esq.’s post Innovators at the Barricades, in which he discusses the impact of legal outsourcing on BigLaw.
]]>The author, Justin T. Miller, J.D., LL.M., CFP®, is a regional director of the Legal Specialty Group at Union Bank’s The Private Bank. He writes
“Firms are finding that a two-tiered associate structure can be an efficient profit model in that the second tier of ‘non-partnership track associates’ are paid sometimes as much as 50 percent less than the first tier of “traditional associates,” but may be billed to clients with rates that are only 25 to 30 percent less than those of the traditional associates.”
Miller notes that multi-tier partnerships are common now but that tiered non-partner lawyers is a “recent development.” I agree. Though several BigLaw firms have staff attorney programs, these lawyers typically work only document review. Miller seems to envision a broader remit.
Such a move is consistent with Richard Susskind’s “unbundling” or “dis-aggretating” legal services (see The End of Lawyers? and the view I expressed in my post The Right Resources to Solve Legal Problems that in-house counsel must consciously decide what mix of human resources is most appropriate to work on a matter.
In concept, I think tiering associates is a great. To do it effectively, however, BigLaw needs a major “operating system” (OS) upgrade. That is, large firms would have to improve their management capabilities and approach. Here are some specifics to address:
CASTE MENTALITY. As Miller notes, “If implemented correctly, a non-partnership track associate should be considered a full-time member of the legal team.” The caste system still thrives in BigLaw and works against integrating professionals who lack the same pedigree as partners. TALENT MANAGEMENT. Lawyer recruiting, assessment, and career management are all geared toward elite law school graduates. Who will recruit the new type of lawyer? What are the appropriate criteria for hiring? What is the career path for this new tier of lawyers? Firms would need to answer these and other questions. PROCESS FOR DELEGATING WORK. Once on board, who allocates work to lower level lawyers and how? Partners and senior associates may (emphasize may) be good at assigning work to associates, but do they have skill, training, and know-how to delegate work “down the chain.” Doing so requires a deep understanding of the deliverables and what resources can most effectively produce them. For example, consider the common task of contract drafting. As Kingsley Martin notes in Contract Checklists-does sequence matter?, few lawyers approach contract review systematically. Without a process in place now, effective delegation is that much harder. MANAGEMENT SYSTEMS AND GOVERNANCE. Large firms may carefully review substantive legal work but few have formal systems for consistently measuring its quality.The concept of metrics is, at best, new to large firms. So one element of a management system is developing new metrics. Another element is a way to coordinate multiple work streams, also known as project management. BigLaw is just beginning to digest and embrace project management.
So I think a successful non-partner track lawyer program will require a major OS upgrade. Firms that can upgrade their OS to manage a new lawyer tier effectively - and that includes marketing it to clients - stand to win the favor of their clients. And that should translate to market and wallet share, which is critical in the current environment.
]]>Law Librarian Survey 2010: More Bang, Less Bucks writes-up the results and has links to survey data (free registration required). Almost one-half of the 86 firms replying (45%) reported staff cutbacks. The article raises a good question - what next? Here’s the quote:
But in interviews with a dozen library chiefs, one big fear kept resurfacing: How long can they keep cost-cutting? “There was a lot of fat,” says one library chief. “But now you’ve gotten rid of the fat.”
In general, firms seem to recognize that they can no longer cut their way to profitability. Whether that recognition spares libraries future cuts, however, is not yet clear.
I enumerate below some of the results I find most interesting. Before doing so, however, I offer my usual caveat about ALM surveys. Year over year comparisons are most likely not reliable. Unless the same 86 firms replied in both 2009 and 2010, inter-temporal comparisons are risky at best. For example, in answer to “What other departments within your firm are you responsible for?” knowledge management rated 19% in 2009 and 40% in 2010. That is not consistent with anecdotal data I hear and I suspect a good part of the seeming shift reflects changes in the respondent mix year-over-year.
So, for my interesting finding, I focus only on same year data:
I definitely blog less since I started Tweeting 18 months ago. Articles I read or ideas I have that, in the past, might have led to a blog post now end up as a Tweet. Also, before I started Tweeting, I used Roundup posts to cover several short items, none of which seemed worthy of a stand-alone blog post. Tweeter has also assumed that function.
While I welcome additional followers @ronfriedmann, I don’t expect all blog readers to get into Twitter. So I reproduce here highlights of recent Twitter posts (in this instance, over the last six weeks). I try to make my Tweets interesting; when I cite an article or another Tweet, I try to add a “NanOpEd", which is short for nano opinion editorial, that is, a very short comment. It’s been a fun challenge to add a thought having only 20 to 80 characters!
]]>Are any law firm Tweets interesting? I follow a few - all boring. Is that b/c I don’t practice? Or
explanation? Would a futures market for future success of BigLaw help us understand current market direction?
BigLaw move to budgets, AFA, + greater transparency may foster explicit price competition? What of value and outcomes?
Business Week on superstar athletes (LeBron James) and lawyers (eg Fred Bartlit) http://bit.ly/aKVE5Y || when stars can’t get enuf comp
Dechert Trades Help Desk for Keno Kozie LTN http://bit.ly/9XNmX1 || More BigLaw help desk outsourcing. Troutman Sanders earlier in June
RT @pwoldow Calling all General Counsel - Legal Project Management Moves In-House http://bit.ly/am53OV || common sense at last?
NY State Bar Launches Task Force to Examine Changes in Legal Profession NLJ http://bit.ly/d4h059 || NYSBA release http://bit.ly/9A1p5K
Reading LawShucks: Eversheds Lays Off 60 in Outsourcing http://bit.ly/dkFRDN
RT @reesmorrison Codean software maps + links defined contract terms http://bit.ly/aFNmWg || pr rls http://bit.ly/aSn364 | Like DealProof?
RT @AmLawDaily: Risky Business: What Law Firms Can Learn From Airlines and Hospitals http://bit.ly/db31Vu || #KM Value after action reviews
http://www.fronterion.com launches http://lpoethics.com/ || Good compilation of US and UK ethics rules and docs re legal outsourcing (LPO)
ALTI reports NetDocuments now has multiple large law firm customers. Will DMS cloud take over from enterprise systems?
RT @PosseList: Contract lawyer sues NYC law firm for not paying overtime http://sn.im/z6qiz || exempt v non-exempt. hmmm
The most recent evidence of the ‘new normal’ is the Altman Weil Law Firms in Transition study. This ‘Flash Survey’
“found a clear consensus emerging among US law firms regarding changes… Over 75% of firms… believe that more price competition, more non-hourly billing and the use of project management to improve efficiency of service delivery will be permanent changes in the legal landscape. The primary impact… will be a greater focus on efficiency and productivity driven by client demands for cost control.”
Nonetheless, the study found that firms expect to maintain profitability by controlling cost. Of course, lawyer compensation and partner profit are the biggest cost items. Though profit is not usually considered a cost, doing so is a useful construct. First, profit per equity partner is the economic cost required to attract and retain a key factor input (economist-speak for the services a partner provides). And second, by re-classifying partners from equity to non-equity status, firms control the cost of that key factor input. Altman Weil found that firms will make fewer partners and rely more on contract lawyers (presumably in lieu of hiring associates).
The legal press focuses on what happens with lawyers; I focus on staff. On the staff side, the study found that two-thirds of firms cut staff in 2009 and 20% expect to do so this year. Altman Weil also asked about outsourcing: “Did your firm do any of the following in 2009? Will you do so in 2010? Outsource non-lawyer functions. Offshore lawyer functions.”
For outsourcing staff, 15.7% of firms said yes for 2009 and 13.8% for 2010. These results seem low. Already in 2007, the International Legal Technology Association (ILTA) staff survey found “37% of Large firms and 19% of Very Large firms obtain [various IT] services outside of the firm”. Further, in my day job at Integreon, I see growing interest in staff outsourcing in 2010 among large US law firms. For offshoring staff functions, the survey found virtually no interest in 2009 or 2010.
Outsourcing is not just about lower cost labor. It’s also about improving process and more favorable economics. I explain this rationale in some detail in my paper Outsourcing as a Strategy to Manage Support Cost and Variable Demand. It was first published in fall 2009 as a chapter in Implementing a Successful Legal Outsourcing Engagement, an Ark Group study by Michael D. Bell of Fronterion, an LPO analyst firm.
For a specific example of how outsourcing can control cost and improve law firm profit, see my Integreon blog post today, Middle Office Outsourcing Improves Law Firm Profit, which discusses an article in The Lawyer last Friday. That article explains that staff outsourcing helped UK firm Osborne Clarke improve profit in the face of flat revenue.
]]>Paul Steep is an analyst at Scotia Capital. Reproduced here with permission is his June 29th analysis of Bloomberg law.
Paul’s analysis is consistent with the anecdotal data I hear from my law librarian friends. Do not read too much into the fact that Reed Elsevier’s LexisNexis is mentioned only in passing. This is a financial analyst’s report focusing on the potential impact of a new entrant on a company he tracks; it is not intended to be a comprehensive analysis of the competition.
Comments on Bloomberg Law welcome.
]]>I have not heard PSLs discussed much lately. So at a recent knowledge management meeting, I asked each attendee to report his or her firm’s number of PSLs. We had 10 large, US-based law firms attending, with the number of lawyers ranging from about 200 to well-over 1000. Assume that this group is not representative; by definition, these firms self-selected for above average interest in KM.
The PSL numbers are low:
However we slice it, the numbers are so low that normalizing for firm size does not even pay. And these reported numbers might even be bit of a stretch. Of the reported PSL, not all have that title or exact function. A few of these PSLs are staff attorneys who function as PSL. A few were simply characterized as “like PSL.”
Based on my KM experience over the last decade, these numbers were only a little bit lower than I expected. It’s not that the recession or Practical Law Company (PLC) did in PSLs, they never caught on in large numbers in the US or at that many large firms.
It will be interesting to see whether the alternative fee arrangements (AFA) become big enough to change the economics of employing PSL.
]]>The article reports that
“In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient…. Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings.”
What disturbs me most is the perhaps not so subliminal message that lawyers can fix problems simply by changing appearances without changing substance.
The schools argue that the grade adjustment is a competitive responsive. Inflating grades changes nothing except appearance. How about competing by changing the curriculum so that graduates are more valuable to employers?
With law schools saying, in essence, it’s OK to fake grades, surely it’s OK for lawyers to take other short cuts and ignore inconvenient facts or whole areas of knowledge.
With law schools ‘adjusting’ grades to make them look better, no wonder clients fear that alternative fees are just papering over old fashioned bill by the hour.
If it’s OK to paper over grades, then it’s OK to paper over ignorance of key aspect so law practice. (See, for example, Craig Ball’s excellent commentary on lawyers failing to understand digital data in Show No Fear - Lawyers need to — and can — learn the language of e-discovery, Law Technology News, 1 June 2010).
It’s OK for law schools to adjust grades to look better. After all, there’s no law against it. So it’s OK to advise clients to take imprudent and immoral course of action; after all, there’s no law against it.
Or perhaps by “adjusting” slightly what words really mean, it’s OK for lawyers to advise that acts long-considered torture are really, after all, not torture.
The public view of lawyers is already bad. The practitioner’s view of the academy is already bad. Gimmicks like adjusting grades can only contribute to cynicism.
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