More evidence has come in that the new normal for large law firms looks bad: the Hildebrandt Baker Robbins Peer Monitor Economic Index (PMI).

This index is a function of demand (billable hours), productivity (hours per lawyer), rates, direct expenses, and overhead expenses. The 2010 Q1 PMI, released last week, is at the same level as 2009 Q4; three index components were down, two were up. But the up components are not good news. Rates were up but reflect only a change in mix, meaning lawyers with higher rates did a bigger percent of the work. Productivity was also up but reflects fewer lawyers doing what work is available; Hildebrandt reports that, on average, for each 10 departing lawyers firms are replacing, only 8. Hildebrandt concludes,

“It is increasingly apparent that the fundamental economics of legal practice are undergoing a significant and permanent shift…. With slow revenue growth, firms will continue to focus on cost‐cutting to bolster profitability, and consequently aggressive cost controls are now the norm, no longer simply a short‐term response to weak demand and pricing….. The strategic emphasis is shifting toward a different imperative: the need for greater efficiency in the delivery of legal services.”

The need for ‘aggressive cost control’ and ‘greater efficiency’ should drive more firms to study carefully WilmerHale’s recently announced cost-saving and efficiency initiative. WilmerHale announced at the end of April that it will soon move about 200 staff positions to a low cost operations center near Dayton.

In my Integreon blog post on this move, WilmerHale Reduces its Middle Office Costs, I argue that “centralizing support in a low cost location is a a key part of the answer” to how firms will control cost. The question seems less if large firms should centralize and more how to do so. And how to improve workflows and processes.

While the WilmerHale move is primarily about staff support, it also encompasses a more cost-effective approach to high volume, routine legal support. WilmerHale moving support staff to Ohio in the Washington Post (3 May 2010) reports that the “business center will develop the resources to provide on-site document review as well. ”

I am surprised that WilmerHale’s announcement has garnered seemingly little attention from legal media or bloggers. My Google search yesterday on “WilmerHale dayton ‘business services’ ” yielded only 37 hits, few of which comment on the firm’s move. That’s not much discussion about what strikes me as a momentous decision. If Hildebrandt is right about the new normal, it seems more firms should be considering this type of move.

How many more quarters of bad index readings will it take before we see more bold announcements?