The Law Firm Model - April Fool?
April 1, 2010 | Filed Under Pricing, Law Firm Trends
No, it’s not a joke: it’s an appropriate day for some law firm leaders to speak candidly.
In the New York Times, what starts out as another look at associate pay actually gets to the root of the problem.
Rather than the usual platitudes provided to the press, we have two insights on the traditional law firm model:
First, Douglas Cogan of Fenwick & West says it was:
“…invented by lawyers who were not very good at business.”
Ouch.
Next, Robert F. Ruyak of Howrey goes further, admitting the underlying “talent” fallacy (based upon the pretext of partners hiring associates who would work toward partnership on an eight year track):
“But they weren’t really selected for that purpose,” he said. “They came in and did rudimentary work for two or three years. Clients were overpaying enormous amounts for that work.” He added: “Associates were thrown in to sink or swim. Maybe they got good work, and maybe they didn’t. Maybe they worked for partners who cared about their advancement, and maybe they didn’t.”
Double ouch.
So 20 years of the BigLaw model are effectively demolished in two paragraphs.
The cherry on top of this upside-down cake is provided by Cisco GC Mark Chandler:
“…the attitude at firms has always been, ‘We can have every cost we want and simply pass it along to the client, then rely on our leverage model to produce the profits we need.’ ”
The NYT writer, Dan Slater, summarizes how this is playing out in some circles:
When the recession pinched corporate budgets, in-house legal departments were told to cut costs. Chief legal officers, in turn, called for reform at law firms.
To be clear, however, GCs have been focused on costs for the better part of the last decade. It’s just that all the low-hanging fruit was grabbed years ago. To keep costs in line with competitive pressures, GCs have to look hard at long-standing law firm relationships, improve some and end others. This opens the door for different firms, new service providers, and creative process improvement.
The first part of change is admitting you have a problem. While some firms “get it,” you can’t under-estimate the challenge in changing a culture. And it’s more than that. Most large law firms will have to change their business model.
And that’s the hardest thing: it has to be done on the fly, with a bloated cost structure that has staffing, offices and other overheads better suited to 1980 than 2010. And through it all you need to keep productive partners in the fold (who are weighed down with all the overhead) and valuable associates in the queue (who see little chance of “partnership” in the historical meaning of the term).
That’s change you want to believe in.
So give a kind word today to your friendly neighborhood managing partner. He or she will appreciate it.
Law Firms: Beware the Middle Market
March 23, 2010 | Filed Under Pricing, Change
Trying to be all things to every client may result in being few things to none.
Last week, I wrote in Why Value is not a Virus that I thought corporate legal work would diverge into lower-end, more commodity-like work and higher-end, larger risk/reward work. Both would be priced accordingly. There were some great responses, that I note in an update at the end.
Three observations follow for me:
1. Any size firm can work profitably in either market.
2. Since costs are crucial (particularly at the low end), few firms will be able to properly bundle lower- and higher-value work.
3. All firms will have to be experts in managing projects, collaboration and using technology and newer service providers.
So when I try to step away from the legal reading, something seems to pull me back in. This time, it’s an article by James Surowiecki in the New Yorker. He focuses on companies like Apple and Acer that price products either at the premium end or the low end:
These two strategies may look completely different, but they have one crucial thing in common: they don’t target the amorphous blob of consumers who make up the middle of the market. Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market.
For my argument, “middle market” doesn’t mean the size of the client. It means the approach toward the market. Then Mr. Surowiecki brings up what is really different now:
The boom in information for consumers has also severely weakened middle-market firms. In the past, these companies were able to charge a premium price because their brands were taken as signals of reasonable quality and reliability.
For some law firms without a focused strategy, the middle market may become the muddle market.
This is why things like the ACC Value Challenge and other legal rating or cost/service information is so important. It is why the state of the economy is not what is driving change. As researchers like to say, it is a correlation but not the cause. The cause is the global competition that clients are facing. This cause was there before the downturn, it is here now, and it will accelerate change even faster when economic activity rebounds.
Since so much is happening right now, and much of it doesn’t fit in this space, I set up lawriver late last year. It’s just a simple site that’s easy to check from your desktop or mobile.
Wired GC Big 3 - #1: Value is a Starting Point
December 29, 2009 | Filed Under Pricing, Change
Rather than follow the popular Top 10 format, I thought I’d streamline. Face it, in any Top 10 list, numbers 7-9 tend to flag a bit.
So I’ve done the Wired GC Big 3 for 2010. Here is #1, the other two will be rolled out in the first full week of 2010.
You know value is everywhere: in today’s Chicago Tribune, and a key point from ACC’s Fred Krebs throughout his look at in-house trends for 2010.
A vital premise I operate under: the focus on value has very little to do with the current economic downturn. It just happened to coincide and it made things move faster. But it was not the cause, and so an uptick in GNP will not solve the issue for law firms or make clients less demanding. (If you don’t agree with this, you can probably stop reading now).
The problem with looking at value as a standalone concept is that it makes it sound like a communication problem, not a cost issue. If only law firms show clients more clearly how much service X is worth, they can keep charging those historical effective rates with associated profit margins. The marching orders to key client partners and legal marketers become: sell better!
That would work in a time when (a) general counsel weren’t under ongoing cost pressure, (b) they really didn’t know what firms Y and Z would charge for X, and (c) there wasn’t new service providers beyond large corporate law firms for many legal matters.
Once GCs show progress in reducing legal costs, it isn’t the end. CEOs, boards and CFOs say something like “great, how about another 10-20% next year.”
The focus on value has been essential to reframe the debate and get clients and law firms talking. I think where GCs were at the end of 2008, most managing partners have arrived as we close out 2009.
My History of the Billable Hour 101 becomes: what was the cost-plus model is now moving through value-minus on the way to something else (I covered phases I and II in February 2009 at the 1:30 min point of the video).
While value is a starting point, I am about done fleshing out a more robust way of looking at legal costs. I’ll save that for the second week of 2010, as this is (hopefully) a week of some reflection, resetting, and renewal. (And college football.)
I want to end the year on a lighter note, and will offer up tomorrow one phrase I would like to ban in 2010.
Of Lawyer Ratings and Value (Wine) Pricing
December 11, 2009 | Filed Under Legal Ratings, Pricing
Sometimes you get tired of hearing about legal change, alternative billing, and those emerging lawyer ratings. So let’s talk something fun and tasty. Like wine.
One of the emerging social media superstars who is making wine more popular is Gary Vaynerchuk of WineLibrary TV. A recent video episode covered Robert Parker’s Master Wine Tasting at Wine Future in Rioja, Spain. It sounds slightly more fun than LegalTech.
Here’s the link to the episode. And darned if Mr. Parker (an attorney and former in-house counsel), talking to international wine buyers and distributors, doesn’t inform us about legal change in the process.
Here’s a few tasty samples to swish around a bit:
@ the 6:00 min mark:
– the wines that will do well will be the wines that offer the best value.
– one of the good things in this world recession is that consumers are searching out value.
– and they are discovering how many wonderful wines there are at lower price points.
– the age of speculation is not completely dead, but you must over-deliver in terms of value for what the price is.
– what will do well is good wines at reasonable prices.
@ 7:20 min mark:
- we look at wine from a global perspective.
- I am optimistic about the future of wine, making it accessible and friendly.
- value wines, education and interacting with your client base is everything.
Oh, and what does Mr. Parker offer his readers? Ratings.
Mr. Vaynerchuk also took this a bit further recently in a private briefing (for customers of this membership plugin for WordPress users). He is going multimedia and is the author of the current New York Times business books bestseller Crush It. He concluded with his thoughts on customers and reputation:
Word of mouth is what builds businesses. Word of mouth is now on steroids. And if you don’t give customers service, they will tell their friends. Period.
Oh, and what does Mr. Vaynerchuk offer his viewers? Ratings.
So feel free to sit back this weekend, turn off your computer, set your BlackBerry to quiet mode and pour yourself a glass (or two):
Both Messrs. Parker and Vaynerchuk rate it highly.
Alternative Billing Hits the Road
September 17, 2009 | Filed Under Pricing
Some enterprising lawyers in the Motor City are taking alternative billing directly to the consumer:
If you click on the picture, you’ll hear that these attorneys guarantee a specific outcome or they waive their fee.
Perhaps one way to approach alternative billing discussions with clients is to make your proposal fit on a small sign that’s visible at 200 feet when driving 60 mph (in a 45 mph zone).
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