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The Clock is Ticking: In Five Years, Traditional Law Firms May be Extinct. What Are You Doing to Avoid Being an Artifact?

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                                                                                                Jerome Kowalski

                                                                                                Kowalski & Associates

                                                                                                September, 2011

We recently warned that traditional law firms were in danger of being replaced by Internet based providers of legal services, unregulated entities not owned or even having lawyers perform the legal services. We also addressed the issue of unregulated LPO’s, similarly not owned by lawyers and often heavily populated by lawyers not even being educated at an American law school and certainly not being admitted to the bar in the United States.

On the heel of those reports, Paul Lippe, founder and CEO of www.legalonramp.com wrote a compelling piece in the ABA Journal entitled “The Rise of the Non-Firm Firms.”

Paul posits, quite correctly I would say, that entities that he calls “Non Firm Firms”  (“NFF’s”),  namely the group of vendors that compete with traditional law firms for providing legal  ervices, have five distinct advantages over law firms, with which traditional law firms (“TF”S”) cannot compete.

First, Paul notes that the “non firm firms” “do a few things and only those things: typically e-discovery, due diligence, contract review and management, research, and other high-volume  ctivities.”  They are pointedly not full service law firms.  They recognize, as Jeff Carr the voluble distinguished general counsel at FMC has long noted, that legal services can be into four buckets: counseling, advocacy, process and content. Paul goes on to note, “Counseling and advocacy work is the true province of lawyers and requires specialized expertise and judgment; process and content work is generally repetitive, information processing work. Because the process and content work has been “bundled” with the TF’s bread-and-butter advocacy and counseling work, it has been delivered and charged as if it were high-value work. But it’s not. So clients will start to unbundle some of the process and content work to the NFFs, and it is likely that large companies will pick one NFF to work with directly, and then tell all their TFs (or at least their TFs who haven’t figured out how to work with NFFs) to work with that designated NFF.”

Next, Paul notes that the NFF’s are designed from the ground up, engineered with a view towards providing efficient services, not hidebound by any pre-existing norms, giving them enormous pricing advantages. Their owners are investors who seek out a profit from their investment, not from their labors, as is the case in the TF. Paul goes on to note that since these NFF’s are the new kids on the block, they are far more receptive to feedback from their clients. Then, assuming that the market for legal services is a total of $50,000,000,000 annually, Paul estimates that the NFF’s will grab 10% of that market by 2016 (current reports suggest that NFF’s will gross $2.5 Billion by next year, up from $500 Million only two years ago).  Paul suggests that for every dollar the NFF’s grab, TF’s will lose between $1.50 and $2.00.

Paul’s solid advice to TF’s who want to survive is:

A. Do a rigorous inventory of your process and content Work. Don’t just sit around and persuade yourself that everything you do is advocacy and counseling: Do a force-ranking of your time from five largest recent matters and characterize at least 25 percent as process and 15 percent as content. Then look at that work and ask yourself the Jack Welch question: If you were starting a new business to do that better, faster and cheaper, how would you do it?

B. Study the methods of the NFFs. Go to websites for Integreon, Axiom and NovusLaw and others and really understand what they’re saying. Don’t dismiss it as “jargon” or “buzzwords.”  (What do you think nonlawyers think of words like indemnification or disclosure? All specialized language sounds jargony to the nonspecialist.)

C. Develop an alliance with an NFF. Pick one and do a project with that firm.

D. Ask your clients for systematic feedback, and discuss with them how to do process work more efficiently.

Adding to this discourse, the eminent Sir Richard Susskind just announced that there is a five year expiration stamp on traditional law firms.  Sir Richard said that by 2016, both law firms and corporate general counsel  “will embrace legal process outsourcing, off-shoring, de-lawyering and agency lawyers.”   Susskind observed, “the endgame will not be about labour [he is British, you know] arbitrage: ‘I predict that the third phase, from 2016 onwards, will involve great uptake of information technology across the profession, such as automated production of documents and intelligent e-discovery systems – these are applications that will be staggeringly less costly than even the lowest-paid lawyers.”

There is truly not much air that separates Lippe’s and Susskind’s prognostications, views and recommendations.

Professor Susskind highlighted four main strategies GCs could embrace – driving down law firms’ prices, reshaping the in-house department, combining the two, or starting with a blank sheet of paper and undertaking a comprehensive legal needs analysis for the business. “Once these requirements have been identified, the task then is, dispassionately, to identify how best to resource the full set of needs, drawing not just on conventional lawyers but on the new legal providers too.”

Describing this last option as the most ambitious, he said it will “deliver the most cost-effective and responsive legal services for large businesses in the future”. It ties in with his vision of “legal process analysis” and multi-sourcing, where the legal requirements of an individual matter or a whole business are analysed to determine the most efficient way of sourcing each element of it.”

And that, as Sir Richard previously observed will be the end of traditional  law firms.

Few have the ability to start with the blank piece of paper and focus on “faster, better, cheaper,”  a daunting challenge for traditional law firms. Some, such as www.Clearspire.com and www.rimonlaw.com   have started on that path and their models seem to be gaining impressive traction.

The point is that the clock is ticking. It took over a century for the traditional law firm to evolve. Susskind and Lippe are warning us that we are five years away from extinction.

What will you be doing to avoid being the T-Rex in the museum display case?

© Jerome Kowalski, September, 2011.  All rights reserved.

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17 Responses

  1. I hadn’t thought of it this way before, but in light of this cogent analysis, it seems fair to describe the departure of senior partners from BigLaw to set up boutiques as part of the unbundling of counseling and advocacy from the commodity process work. “Let’s dump all this overhead, i.e., all those lawyers and paralegals grinding out diminishing hours for process-driven legal tasks, and the organization required to recruit, train and manage them, plus the cost of providing work space and operational support (facilities, IT, etc.).

    Clearly, counseling and advocacy are the only two value propositions for lawyers, as well as the only parts that most lawyers with more than ten years experience enjoy.

    Not to diminish him in any way, but it may be that Jeff Carr’s most important contribution may in be defining the four buckets, which really facilitates a long-overdue discussion.

  2. I always enjoy your take on the future of the legal industry. In my opinion, the legal industry, unlike other industries, has been historically sheltered from the ramifications of technological innovation. Given the size and inefficiencies that are inherent within the legal industry, we are now starting to see some innovative models emerge that are capitalizing on the transformational power of technology. We are dealing with similar challenges on the ediscovery front as most of the “commodity” work is being automated by well funded and highly innovative competitors. I agree with you that there will always be room for highly specialized work (in our case digital forensics and consultation work). Hopefully, firms will recognize the warning signs that are on the horizon and adjust their projections, cost structure and market position before it is too late.

  3. Thank you Derek.

    It is certainly noteworthy that even in your space of ediscovery, the transformational power of technology coupled with client demands and competition from lower cost offshore service providers has affected price. Jack Welch’s admonition of “quicker, better and cheaper” is a universal business driver.

  4. I am a solo in Owen Sound Onatrio Canada, and looking to build relationships with my client’s and build our practises. I am one of a group of lawyers that have begun a new project in real estate putting us as the center of the deal and giving new value added services to our clients. Have a look at http://www.propertyshop.ca for a new alternative to traditional real estate model which save client’s thousand of dollars and increases our fees, The real estate industry is in change also and we have to find new opporuntiies to survive and grow our practises it is not the same old any longer.

    • Mike, I visited your site. Pretty fresh concept. I wish you great success with it. How do you drive traffic to the propertyshop.ca website to create exposure for the homes? Obviously, MLS has been around forever, so they “own” the relationships with the massive R/E sales force.

  5. […] There are other significant factors in the marketplace, not specifically addressed by Citibank which must further dampen any enthusiasm:  First, law firms have too long delayed making needed investments in infrastructure.  The need to make these investments is becoming increasingly crucial, indeed vital,  as alternate vendors of legal services continue to gain market share.  One of the only ways to meet this competition is through acquisition of state of the art technology.   Failure to meet this challenge, these alternate vendors will eat many law firms’ lunch within fi…. […]

  6. […] initially entered the market by focusing on the processing end of legal work.  As Jeff Carr, general counsel of FMC Technologies, has frequently noted, legal work falls into one of four buckets:  Processing, counseling, advocacy and content.  […]

  7. I agree with Jerome’s points. NFFs are not only affecting the corporate market but the consumer market as well (LegalZoom, Rocket Lawyer, etc.). Paul Lippe recently wrote about the site that I co-founded, attorneyfee.com, which I regard as the lawyers’ response to Legal Zoom. In order for us to stay relevant in the consumer market, the way we price legal services has to be just as transparent and definitive.

  8. […] Law firms will also be required to collaborate more regularly with non-traditional and less expensive providers of legal services, again, a matter about which I previously wrote. […]

  9. […] My expectation is that the next step in the evolution of  law firms will largely continue to evolve and form significant joint ventures with non-traditional providers of legal servi… […]

  10. […] sometimes called “non-traditional law firms”  have watched their gross revenues increase almost ten-fold over the last five years, to an […]

  11. […] kowalski-the clock is ticking in five years traditional law firms maybe extinct  […]

  12. I’ve learned a lot from your blog regarding law firms. I agree with you. NFFs are not only affecting the corporate market but the consumer market as well. Thanks for sharing this blog.

    Wilmington nc attorney

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