Published for Thomson Reuters Legal Executive Institute on August 11, 2015
Today I will examine in more detail the five dimensions of change I believe are likely to characterize the new model.
The Drivers of Change
The factors that will drive change are clear:
- Clients are demanding more for less;
- Manifest inefficiencies in the traditional law firm model create opportunities for improvement;
- Advances in technology and process design enable materially better ways of delivering legal service;
- New entrants in the legal service market create new alternatives for clients;
- Incumbent firms are beginning to adopt new methods and tools to drive their costs and prices lower;
- Competition among law firms increasingly turns on price; and
- Clients are changing their buying practices to take advantage of new options available to them.
Roadmap to a New Model
The drivers of change suggest a roadmap for a new model. It must:
- Enable ever-better service at ever-lower cost;
- Embrace design, technology, and collaboration;
- Foster innovation; and
- Price in ways that meet client demands, while generating sustainable profits.
Five Dimensions of Difference
As I wrote last week, the question is how the future law firm model will differ from the traditional model. I believe there likely will be five recognizable dimensions of difference.
- Service Model
The future law firm will base all service on an examination of the optimal way to deliver it. It will not be sufficient to deliver the service successfully. Instead, the firm will determine to do it in the best way, taking all relevant factors into consideration.
The future firm will adopt the approach for each matter that best fits the stakes and best addresses the clients’ objectives, including, specifically, maximizing efficiency and otherwise controlling cost, without sacrificing quality.
As an element of its service model, the future firm will establish protocols and controls to assure an appropriate plan is in place for all engagements, monitor compliance with the plan, and distill learning over time to inform planning for future engagements.
2. Resource Model
The future firm will have a materially different make-up. The resources will fall into three categories: people, technology, and collaborators.
On the people front, the firm will have fewer “partner”-level lawyers, fewer on-track-to-partner associates, more career associates, and more “other professionals.” The other professionals will include people who deliver elements of legal service that do not require a lawyer and who implement planning, legal technology, and R&D functions. This configuration will reduce cost, ensure the benefits of the service model, and increase job satisfaction.
On the technology front, the firm will employ technologies that deliver portions of the service previously done by lawyers and other professionals, which I called “Legal Tech 2.0” in an earlier blog post. As data analytics, machine learning, and artificial intelligence progress, more and more data-oriented and routine tasks will be done by technology. Using technology in this way will improve quality, while increasing efficiency and reducing cost.
On the collaboration front, the future firm will partner actively with third parties who can provide elements of client service at the necessary quality levels more efficiently than the firm itself can. The firm will establish relationships with such third parties, which will change and evolve over time as the firm’s practice evolves, the third parties evolve, and the technology advances. Such collaboration will further improve efficiency and reduce cost.
3. Financial Model
The future firm will base its financial model on the actual value and cost of the services it delivers. It will develop a cohesive framework which assesses the fees the market is willing to pay, the cost it must incur, and the profit margin it needs to achieve to sustain its business.
The billable hour will no longer be central to the financial model, as service will be delivered in a variety of ways, by a diverse set of resources, including technology and third parties. The future firm will measure its performance with metrics that focus on actual productivity (output rather than input), quality, efficiency, expense, and return on investment.
4. Pricing Model
The future firm will express all fees with reference to the services delivered, rather than the hours or other resources required to deliver it. What is now called a “fixed fee,” will be the predominant model, as it is with the pricing of most other services. The notion of “alternative fee arrangements” will expire, as the hours-times-rate model will no longer be the standard.
The more service that is delivered by resources other than partners and associates, the less viable the billable hour model will be. Meanwhile, the optimized planning process and the use of technology to capture and analyze cost data will enable the firm to express its fees in concrete terms based on units of value delivered.
This change, of course, will be welcomed by the market, giving it the transparency and predictability it long has sought, enabling it more readily to compare price among law firms, and otherwise enabling it to make better decisions about its legal service solutions.
5. Investment Model
The future firm will invest in research and development. It will recognize that process design, technology, and experimentation can produce material improvements in its service delivery model, increasing quality while reducing cost. It will set aside a reasonable portion of each year’s income to invest in such improvements, will integrate the cost into its financial and pricing models, and will measure the return it enjoys from those investments over time.
This change would be much more likely were the law to permit outside investment of capital. Even without such a change, the future firm will see adequate return to warrant investment of after-tax dollars in improving its service model.