I recently finished reading George Beaton’s and Imme Kaschner’s Remaking Law Firms: Why & How (ABA Press: 2016) (George, who I’ve known for years and count a friend, was kind enough to have the ABA provide me a pre-publication copy) and I’d like to share my thoughts.
First, for those of you who may not be familiar with the authors (I do not know Dr Kaschner and have not met or talked with her), here are their capsule bio’s:
Dr George Beaton MD MBA PhD has guided clients through a wide variety of business and strategic decisions in his 25 years as an advisor and researcher working with law and other professional services firms. George’s practice is focused on corporate advisory, client-centric performance improvement, and trouble-shooting engagements.
George’s background in teaching business strategy in the Business and Law Schools of The University of Melbourne, where he is a Senior Fellow, combined with his advisory work give him deep knowledge of the challenges and opportunities facing law firm leaders and their firms.
Dr Imme Kaschner JD MD was admitted as an Australian lawyer in March 2015, following her graduation from the Melbourne Law School JD program in 2013. Her interest in how complex systems, including the legal services industry, work and change, led to the cooperation with George, first project managing the compilation of the e-book NewLaw New Rules: A Conversation on the Future of the Legal Services Industry, and now coauthoring Remaking Law Firms: Why and How.
Besides the authors, the book includes contributions—mostly in the form of quotes from emails and phone interviews—from no fewer than 40 other people, drawn from BigLaw leadership, consultancies, academe, and the various new entrants into Law Land (Axiom, Deloitte, PwC, Elevate, Lawyers On Demand, etc.)
George is a hands-on consultant and his background clearly shows in the book. A simple glance at the Table of Contents tells you as much:
1> Introduction
2> The Legal Services Industry Today
3> Porter’s Five Forces and Maister Maxed Out
4> Clients of the Future
5> The 2025 Kaleidoscope Scenario
6> Diagnosing Your Firm’s Readiness for Change
7> Designing the Busines Model
8> Brand, Marketing, and Business Development
9> Pricing and Fee Arrangements
10> Sourcing and Outsourcing
11> Legal Project Management and Process Improvement
12> Technology, Knowledge Management, and Analytics
13> Partners, Innovation, and Change
14> Outlook
Other reviewers of the book have picked up the same theme of a same practical approach. For example:
[The book] offers law firm leaders a comprehensive and pragmatic examination of the present and future legal landscape and what firms can do to make the most of it. As the title suggests, Beaton believes law firms must remake themselves. He provides very valuable counsel on how they should do it.—Ralph Baxter, Former Chairman & CEO of Orrick, Herrington & Sutcliffe LLP
George Beaton and Imme Kaschner build a compelling case for change with this accessible, research-based, and remarkably wide-ranging resource for building the future of our profession and practices, inside firms and in-house. —Fred Headon, Canadian Bar Association: Chair of the Legal Futures Initiative and Immediate Past President | Air Canada: Assistant General Counsel, Labour and Employment Law
The book begins from the premise that changes in client demand are driving deep changes in the legal services industry which law firms will have to adapt to by remaking their own business models including learning from and joining forces with other legal service providers that aren’t law firms. It proceeds to discuss the key engines behind the changes that are underway including digitization, a heightened focus on delivering commoditized services efficiently and reliably and a decreased focus on bespoke and artisanal work, client buying power, and the emergence of substitution and disaggregation.
The book then walks us through the application of two all-time classic strategic models to BigLaw: Michael Porter’s Five Forces, and David Maister’s profitability analysis. For those of you rusty on your Porter, here it is in summary visual form:
Applying this model to BigLaw (I’ve done it myself; it’s a classic, as I said) does not generate warm and fuzzy results these days:
- “New entry” is not even a “threat;” it’s a current and growing reality.
- “Supplier power” (that would be talented partners) has never been greater, nor the competition for them greater; and law firms will never have a “substitute” supplier.
- “Buyer power?” What more needs be said?
- As with new entry, “substitution” is not even a “threat” these days: From Axiom to in-house departments to Practical Law to simply doing without, clients have more options than ever before.
- Finally, “competitive rivalry” has rarely before been so powerful. With globalization, firms from all over the place can invade your market (with or without bricks and mortar), tasty boutiques spin out of BigLaw all the time, and the war for talent means today’s satisfied incumbent can find its oxygen cut off without warning. Another word about “competitive rivalry” before moving on. I have heard evidently sober-minded and indisputably senior law firm leaders pronounce, with a frequency both shocking and dumbfounding, that their firm “has no competition.” That can only be true in the rarest of cases where no other law firm can do what yours does. If other firms provide comparable services—or assorted mixtures of quality, price, and service such that, on the whole, clients are indifferent between your firm’s offering and other firms’, then I have bad news for you: You do have competition.
Maister’s analysis of profitability levers may make for even more depressing viewing for those sitting in the BigLaw seats.
In this formula, the key variables and where the dials for them are pointing on most of our dashboards, are as follows:
- Leverage: the number of fee-earners for each equity partner. In many firms, this needle is pinned at or near the max, particularly as the ranks of non-equity partners have exploded in the past decade or so (to the point where they outnumber associates at a surprising number of firms) and particularly in a world where discerning clients increasingly prefer and demand the hands-on attention of the senior-most equity partner in lieu of ranks of juniors.
- Utilization: How many hours a year can a human being bill? Does demand support keeping every one busy all year long, working flat-out? The answers are: (a) there’s a humane limit; and (b) at the vast majority of firms, no.
- Blended billing rate: How high can rates really go? And what are the consequences for realization with every new rate hike? On this note, many firms stoutly maintain that although their realization keeps sliding year over year, their rate increases more than make up for it. We decided to test that assertion using Thomson Reuters PeerMonitor data (as published in Georgetown’s 2016 “State of the US Legal Market“) and adjusting the ten-year data series for inflation, while standard “rack” rates have indeed gone up in constant dollars, ultimate collections have lost ground. In other words, on average across all the firms in the PeerMonitor database the happy-talk assertion that rate hikes have more than made up for erosion in realization is false. If some firms are indeed doing better, than it’s an arithmetic tautology that others are doing worse.
- Total expenses: The biggest components of law firm expense are compensation and benefits, occupancy, and then a host of miscellaneous factors such as professional insurance, marketing, and IT, which aren’t substantial enough to move the needle. For the big two (comp and office space), how much more juice can be squeezed from the lemon? Comp for lawyers and staff is pretty much set by the competitive market and staff-to-lawyer ratios are at all-time lows. As for your gorgeous offices? You cannot, realistically, move to the warehouse district in town; it’s Class A space for you, pal.
Here’s the PeerMonitor data series I referred to:
Remaking Law Firms proceeds to discuss and analyze the increasing sophistication and discernment of clients (and yes, they talk about the dreaded “procurement” department), before moving on to what the authors call “the 2025 kaleidoscope scenario.” I take that to mean that by 2025 in their view the sources of supply for legal services—of which law firms are a subset only—will be multifaceted and include a heterogeneous array of companies and providers.
The remainder of the book surveys and provides concrete guidance on:
- assessing how prepared for change your firm is (including a diagnostic tool)
- ways to design or re-design your firm’s business model
- brand, marketing, and business development, premised on client relationships and service
- pricing and fee arrangements
- sources of supply for law firms and outsourcing
- legal project management and its slightly newer cousin, process improvement (which, they suggest, must be combined for optimal results, but which is also no small task)
- technology, KM, and analytics
- and finally the all-important and over-arching impact that partners’ hands on the tiller of management exerts. Here the language is along the lines of “negative emotions,” “the change monster,” the “quest for perfection” which is at odds with the market’s demand for a variety of experiments.
All in all, Remaking delivers thoroughly, solidly, and comprehensively on its promise of providing a roadmap to the why and how of the way ahead for law firms that believe the forces of change outlined in the beginning are real and are going to gain force. You could say that the title, combined with George’s sterling background and credentials, deliver what’s promised in spades.
Truth in advertising, after all!
