Law Departments Have Growing Choices – Should Law Firms Worry (More on Axiom Law and Other Alternatives)
Recent commentary suggests that large law firms have 10 to 15% too much capacity. If so, we can expect to see further BigLaw shrinkage. In contrast, alternative legal providers continue to grow and offer innovative services. What can we learn from these alternatives?
Last week, Lee Pacchia of Bloomberg Law TV interviewed Axiom Law founder Mark Harris in Axiom Law: BigLaw’s Friend or Enemy? (14 minute video). Though Harris declines to put Axiom in a category, some say it is a staffing company or a legal process outsourcer (LPO). He specifically declines the LPO label. Whereas LPOs typically focus on document review and rely heavily on offshore labor, only 3% of Axiom revenue comes from document review and he says the company focuses on technology investment rather than offshore labor. Much of Axiom’s recent $28M round of outside investment will go to technology to streamline legal work says Harris.
For me, the money quotes come right at the 10-minute mark:
“We are squarely not a law firm… Axiom cannot give legal advice.. can’t interfere in the independent judgment of our attorneys and their provisioning of legal advice… we surround the delivery of legal advice with a bunch of disciplines and methodologies and best practices.. that fundamentally improve the service experience for the client and deliver a completely different level of value… we have had to come up with somewhat creative ways to deal with the fact that we are not a law firm… has forced us.. to re-think how everything is done… that has translated into some pretty compelling advancements in the service delivery experience.” [I believe I correctly captured his words but I am not a transcriptionist.]
Whatever we may call Axiom, it seems very different from law firms yet appears to compete directly with them.
Other alternative legal providers continue to move forward as well. Mark Ross of Integreon recently was interviewed by Managing Partner magazine in How LPO providers will form ABSs with global law firms. Ross suggests that “Legal process outsourcing (LPO) providers will acquire the captive centres and high-volume practice areas of the world’s largest law firms in the next three to five years.” He also makes a compelling case for why law firms and LPOs will partner, noting that law firms typically do not invest in process or technology as LPOs do but that LPOs cannot offer legal advice. MP writes
“Ross anticipates that the lines of ownership of alternative legal services providers and law firms will quickly become blurred as different constituent stakeholders in the legal sector enter into joint ventures with one another and take each other over, and as high-volume practice areas merge and invest in one another.”
Another alternative player, Elevate Services says on its home page that it offers “corporate legal departments and law firms practical ways to improve efficiency, quality and outcomes. We provide consulting, managed services and technology solutions.” It recently gained recognition for its support of NetApps win as a 2013 ACC Value Challenge winner. I consult to Elevate as a subject matter expert in the company’s development of legal project management software (see January 2013 press release). So I have some insight into how its consulting and data analytics services address the key issues that both law firms and law departments face today. I also know that Elevate wants to work with law firms (and is doing so).
I include Elevate because I think its combination of consulting, data analytics, technology investment, and managed services represents yet another new set of services to address legal market woes.
What should law firms make of all this? If I were a law firm managing partner, I would worry. I’m not sure, however, how many do. Too many seem focused on cost cutting and re-allocating profits rather than fundamentally changing how they deliver legal services and advice. It may be that partners 50 and older do not need to worry; after all, change, to the extent it happens, moves slowly in legal. If, however, I were a newly minted partner or just in my 40s, I might be paying close attention to these alternatives – and taking action.
[Coda: I drafted this post on Saturday and let it sit until today so I could review. I would be remiss in not mentioning the released-on-Sunday The New Republic Article article, The Last Days of Big Law – Law Firms in Trouble: When the Money Dries Up. The title aptly summarizes a long article that focuses on one firm to describe the challenge of Big Law today. Clearly, alternatives to law firms are just one worry for managing partners.]
COMMENTS (comments feature seems broken so I am manually posting. e-mail me at info @ prismlegal dot com)
From Toby Brown of 3 Geeks and a Law Blog:
“Excellent analysis as usual.
As a former unified bar guy, I found his explanation of their business a bit curious.
‘We are squarely not a law firm… Axiom cannot give legal advice.. can’t interfere in the independent judgment of our attorneys and their provisioning of legal advice …’
An entity that employs lawyers to ‘provision legal advice’ IS a law firm.
In addition to managing partners, bar regulators should be worried – or at least paying attention.”
“At times it seems as if the debate over what to call an LPO or ABS is misguided. Perhaps the railroad barons of the 1800s lamented the incursion of “non-Train providers” invading their space by offering non-traditional Train services such as motorcars and flying machines. But in reality all are merely different flavors of transportation.
I feel the same way about these new entrants. Clients generally seek access to justice, insights on legal issues based on others’ prior experiences or assistance navigating complicated legal procedures. There’s no immutable law of nature that says a collection of (mostly) white males who have passed an admissions exam to enter a school they self-regulate, who have passed a credentialing exam to enter a guild they self-regulate, who bill clients in a manner that uniquely favors them, is the best and coincidentally only approach for clients to achieve these goals.
While it’s true that some consumer classes need extra protections, some consumer classes are sophisticated buyers and don’t necessarily need others to dictate the entire supply chain through which they’ll receive their legal counsel. Axiom and others like it, whatever we call them, provide a valuable service to clients AND to law firms, who may be forced to innovate to stay competitive.
Make no mistake, when the lawyers who have the most to protect figure out the new rules, they will be formidable entrepreneurs in the marketplace, but it may take, as Ron points out, a generational shift for the momentum to build.”
As always, insightful commentary Ron. The Weil layoffs are proof positive of the fact that BigLaw is above capacity. However, as I discussed in my own recent blog post, while the Weil cuts did directly address the overcapacity problem, the firm did not address the fundamental reason for the problem. Demand for legal services is not down, rather, lower priced competitors are rightfully taking that business from BigLaw.
This phenomenon is only going to pick up more and more speed in the next few years. Mark Ross has it right. Weil should have coupled its cuts with an announcement that it is joint venturing with an LPO to provide the value clients are demanding. Many of the attorneys who were laid off could have been offered work in this new joint venture. In the short term this may take away work that Weil has made big money on, but those days are long gone anyway. The firms that partner up with LPOs and their ilk will be the new players in the practice of #21stCenturyLaw.
“Spot on Ron. Over 30 years ago Harvard Business School’s Michael Porter wrote about substitutes his book Competitive Strategy. But it’s only now that law firms are realising the magnitude of the threat of substitutes. Substitutes offer clients the choice of how to solve a problem. It becomes a choice between conventional service providers and new ways of sourcing a solution. Consumer examples abound. Just think what CommSec did to retail stockbrokers. Or Amazon to the local book store. Or MYOB to bookkeepers. Let alone digital cameras to Kodak. The roll-call of the venerable departed goes on, and on. The main challenge of substitutes is the ceiling on the price a market and law firms in the market can sustain. As clients switch to the substitutes, the viability of incumbents declines. You can read more of my views on this subject here [No substitute for the real thing – or is there?, BRW, 4 July 2013]”
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