A few weeks ago I ran a column about “ReInvent Law,” an event in Silicon Valley in the first half of March, which presented some views about possible futures of BigLaw, most of which were, uh, challenging to those who think business as usual is a strategy. My column wasn’t so much about whether I thought ReInvent Law was on the right track or otherwise, but it was about asking your opinions on what the ReInvent Law event hypothesized in a survey.

Well, now you have spoken, and in combination with an interview on Bloomberg Law by the masterful Lee Pacchia (Bloomberg also provided the graphic charts below), I’d like to discuss the results.  First, here’s my conversation with Lee:

Now, to more about the results:

Caveat: Although nearly 200 of you were moved to respond in whole or in part, this survey shouldn’t be confused with rigorous quantitative research.

And what do I think overall?

The strongest message is that we have achieved consensus that the world has changed. I have felt this as a growing awareness for quite some time now, but the debate is over. The issue is not whether “growth is dead,” but “now what?”

bruce-survey-slides.p1

As I read the responses to this question, 12% (round it to 1 in 10) are fatalists; There’s nothing meaningful to be done. But 88% think we need to invest, and of that group those who think the “fundamental premise of our partnership model” needs to be re-examined outnumber those who think we can create retained earnings and investment capital in a law firm partnership by two to one. I find these results sobering and bracing at once.

First of all, pretty much 9 in 10 of us think we need to invest. This flies in the face of conventional wisdom that partners want to “strip-mine” the balance sheet of cash at the end of every year for distributions. Maybe we’ve all been wrong in making that assumption all along, although the question pointedly did not ask what percentage of income partners would be willing to forego this year, and the next, and the next, in order to fund these hypothetical investments. Still, I consider this a very positive straw in the wind that dedicating real resources to change may not be a non-starter.

But second, and for my money far more importantly, those who think the fundamental premise of the partnership model cannot support investment outnumber those who think it can by 2:1. Truth be told, I think this cohort has the better of the argument.

So, if you agree that investment is needed (90%) and that our structure can’t support it (2 out of 3), we have some serious self-examination in our future.

bruce-survey-slides.p2

The big news here is that 85% think we have to compete on legal expertise and effective business process management and design. Barely 2% think expertise alone cuts it any more, while 13% think optimized process alone will win the day. Think about that for a second: Although the absolute numbers are small, when asked choosing between expertise and process as “absolutes,” process trumps expertise by a ratio of 6:1. Imagine forecasting that result five years ago; I would not, I confess, have had the perspicacity to do so.

Whether the business process expertise should be managed by lawyers (41% of those who think expertise and process both matter) or by businesspeople (59%) means that by a ratio of 3:2 we already are at the point of accepting that businesspeople can do some things better than lawyers. Since when has anyone been able to do anything better than lawyers?

And here’s a prediction: that ratio will top 90% in three to five years. C-suite professionals should be running business operations—and getting the respect and compensation they deserve—and lawyers should be serving their clients. I ask you, folks, what on earth is so hard about this Management 101 premise?

bruce-survey-slides.p3

Breaking this down, about one-third think law firms can innovate if they so choose, over 40% think it’s not going to happen under any circumstances, and the final one-fourth think outside investors won’t touch us because our business model is so perverse.

For my money, the two groups voting “innovation’s not happening here” and “no investors are coming near us” (about 65% in total) have history and clarity of vision on their side. To the remaining one-third thinking we “can innovate today if [we] choose to,” I’m tempted to say: Show me, don’t tell me.

The ball is in your court.

bruce-survey-slides.p4

Wow.

99.4% say that LPO’s are a force to be reckoned with, split about 50/50 between “they’re coming” and “they’re already here,” with a small tail (<6%) saying they’re not yet visible but soon will be. I don’t know who the lone respondent was predicting it will never happen, but if there’s such a thing as reincarnation I’d like to come back living in that person’s world. (Actually, I wouldn’t, but that’s a conversation for another day, with a psychiatrist in the room, not lawyers and economists.)

If I were on the LPO side of the market, I’d take this news triumphantly (“Resistance is futile”), and if I were on the BigLaw side of the market, I’d start planning my response (“Denial is futile”). Which brings us to the final question, “What’s to be done?”

bruce-survey-slides.p5

Here we split 60/40. The 40% say we can “fight back [by] honing our conventional model” while 30% say we can fight back by emulating LPOs and creating our own captives, and another (nearly) 30% say we “have no credible or effective defense in the long run.”

Before I tell you what the comments reveal, let’s take the numbers at face value.

As I read it, 60% of us concede that LPOs have a business model with which conventional law-firms-as-we-know-them cannot compete effectively: We either have to build our own LPOs (half of that group) or give up (the other half). These are eye-opening numbers which, I respectfully submit, would have been unthinkable even half a dozen years ago. Speaking of LPO’s, permit me to restate a projection I saw late last year, courtesy of a Magic Circle firm’s internal study:

  • Total global LPO revenue 2011 (most recent reported year): US $640-million
  • Projected for 2014: $4-billion
  • Compound annual growth rate: 85%

A CAGR of 85% is petri dish territory; this is astonishing growth. Pretend they’re over-optimistic (over-pessimistic?) by half and that it will be only a 40% CAGR; it would still be nearly $2-billion next year. And I vividly recall the CEO of one such market-leading LPO telling me that “for every $1.00 in revenue we get, BigLaw loses $3.00.” So that’s a dent of somewhere between $6 and $12-billion.

Now, to the comments. Here are some highlights (quoted verbatim) that I took away, with my thoughts as appropriate:

  • The bonus question seems a bit too broadly phrased; it seems likely that some law firms (e.g. top-end boutiques) will be able to glide along nicely by sticking to their current model, albeit tweaked a bit when necessary. By contrast, those firms outside this charmed group will really begin to struggle as their business model falls apart at the seams for all the reasons you set out in Growth is Dead, and it’s not clear to me that they have any realistic prospect of re-inventing themselves. [This posits what I’ve called the “Hollow Middle,” which forecasts very challenging times for firms not delivering utterly superb top-of-market service (think Audi/BMW, or even Ferrari/Bentley) or else unquestioned value for money (think H&M or Zara)–Bruce.]
  • I don’t think any of the answers to the last question really capture my view. Law firms’ response will depend on how they are positioned and which market segments they serve. There will be room for high-end advisory services which can evolve from the existing model of delivering legal services, but there will also be volume plays for lower complexity work where LPO, technology and process will form part of successful business models
  • I do believe law firms can fight back (not sure they “will be able to,” but they “can” if they want to) and that it won’t be by honing their conventional model. I’m not sure, though, that law firms will only be able to fight back by creating their own captive LPOs. There will be lots and lots of trial and error on this score (can be through a combination of captive LPOs, in-house R&D, shifts to non-legal project managers, etc.) but the one thing that is clear is that the only firms that will make it intact will be those with the most progressive-minded management (and partner base, since they, too, need to support and get with the program). “Innovate or Die” could never be truer than it is now with the legal profession. [This is indeed the key challenge I see: the difference between “can” and “will be able to.”–Bruce.]
  • Culture within big firms will be a barrier to change. If you want real innovation then you have to do it outside of the walls of a large law firm and start with a clean slate and hire people committed to the new vision. You will never get the majority of the partners in a large law firm to commit to serious change. As the rise of LPOs will be gradual, the level of urgency for change will not be sufficiently felt to implement radical change within law firms. [This is the “boiling frog” metaphor—Bruce.]
  • Law firm clients will continue to demand change to a model in which they believe they are paying excessive amounts for juniors undertaking work of limited value. However, clients and LPO firms alike, NEED the risk assurance and advisory expertise of established law firm brands. Established law firm partnerships are, by nature, short-termist in thinking / reward structure. The future is a global superset (a la consultancies) who can provide the expertise PLUS process efficiencies, together with niche sector-oriented specialty firm branded operations. Fascinating times. [Brand recognition strikes again—always a very durable model, but query how many firms can benefit from it?—Bruce.]
  • This survey pits good vs. evil. The more likely future is that there will be hugely profitable law firm partnerships and there will be very successful non-traditional models as well. The question isn’t which model is going to win – it’s knowing where to be standing as this market changes. [Basically could not agree more, but the limitations of 2-minute, 5-question surveys are apparent—Bruce.]
  • It really friggin’ sucks to be a young lawyer right now. [Heartbreaking. True. May the Force be with you, dearest reader—Bruce.]
  • Lawyers are stumbling toward the recognition — forced on them by the most sophisticated clients — that clients need big and sophisticated firms only for the big and sophisticated transactions and the big and sophisticated litigation. Clients may also want big firms for large volumes of repetitive work, but those firms don’t need to be sophisticated, only big. The run-of-the-mill big firms priced themselves out of the market for repetitive work, the stuff that isn’t exciting but that comes in volume and pays the bills, by charging for it as if it were sophisticated work. Law firms that can deliver volume efficiently are getting that work, and BigLaw isn’t going to get it back, because a Wall Street BigLaw firm can’t be Saks and Sears under the same roof. [“Can’t be Saks and Sears under the same roof” is hard to argue with, no? Yet we all know there’s demand in the market—healthy demand—for both Saks and Sears. This commenter may be trying to tell us something about the virtues of strategic clarity, discipline, and the power of being able to say “no.”–Bruce]
  • Asking law firm lawyers about the future of legal services is like asking dinosaurs about whether those pesky little mammals might ever amount to anything. It’s all happening elsewhere, and by the time those at law firms perk up it’s pretty much going to be over. Law firm lawyers won’t go away any more than big lizards have, but the new world coming will not be the one they have dominated.

So what do I conclude?

If we can prevail by “honing” what we do, I have yet to see much concrete movement in that direction. This is the interesting part of Growth Is Dead: Now What? That is to say, the “Now What?” part.

You can draw your own conclusions from our readers’ invaluable comments in full, which you can read here.

 

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