James Jones took us through a summary of recent history, from 2007 to the present. After the economic crisis, in 2010 we started to see some return to stability although not growth in law firms. Firms were starting to see the benefits of significant cuts in 2009 since you typically do not see benefits of cuts in the years they were made. In 2011 you would not see the same benefits as you could not make the same cuts, and expenses previously delayed would have to be paid. As well, firms that made too deep of cuts to associates would be hiring some back at increased cost.
In 2011, legal business will stabilize although not at the levels seen in years prior to the economic downturn in 2008.
As we see more competition in the market, firms are going to need to spend money and start investing resources to compete in the new market place. He sees this as a delicate balancing act. He predicts firms will see modest profit (in the single digit range). He sees 2 to 3 years of ongoing "slugging it out" before we start to see recovery by firms. As well, some things will not come back to where they were.
Other factors:
Aside from the economy, there have been other driving factors for changes to U.S. law firms:
Availability of information
Notably, more competitive information has started becoming available. Jones theorizes law firms were not a proper market because market information was not available for clients; "law firms controlled the whole scene." This started to change in the past three decades with publications such as The American Lawyer and LExpert. A lot of information started coming from the trade press. A lot of effort has now gone into rating firms such as with Chambers ratings. As well, the courts have had an effect; any time the bar associations have tried to put anti-competitive rules in place they have been struck down.
Drive toward customization
He referred to Richard Susskind's The End of Lawyers? - Rethinking the Nature of Legal Services.
Most lawyers see themselves as doing "bespoke" work; they see the other option as commoditized ( such as downloading your will). However, most law is done somewhere in a range between the two:
- standardized - form file developed by individual lawyers
- systemized - form files developed between lawyers, rudimentary knowledge management systems
- packaged - starting to make some of the forms available to clients to fill out
Services typically work their way from bespoke to commoditized.
Lawyers typically don't like this model; however, quality with packaged and commoditized is typically higher than bespoke work because the lawyer has been through the type of work many times and builds in responses to many types of problems. Bespoke work is typically from the first time a lawyer does the work.
Growth of enabling technologies
UK firms are ahead of US firms in this area:
- Clifford Chance Online Services
- Linklaters blueflag
- BusinessIntegrity
- Newchange Document from Allen & Overy
- Practical Law Company
There is an emergency of new service providers that are not law firms:
- CPA Global
- Pangea3
- Lawscribe
- OCS - Outside Counsel Solutions
- Morgan Lewis (a law firm)
- Integreon
Some are basing the work out of India, but not all. They are doing work previously done by associates in firms e.g. discovery.
Lopsided Economic Model
Boom of law firms in the past was their ability to raise rates 6-8% every year. So now it is difficult to maintain this in these economic times. "Client push back became inevitable." He showed us in graphic form how law firm rates increased right through to 2008, whereas the economy turned down in 2008; "this was not a sustainable model."
New competitive models drive new strategies
When demand exceeds supply, prices go up. Before 2008, even firms that had no strategic focus could easily make money. Post-economic crisis, supply now exceeds demand. There is now huge pressure on prices to reduce. For a firm to grow, it now has to take market share away from another firm. "Firms that don't have clear strategies are going to be losers in this market."
In the past there was no incentives in the system for efficiencies. First were all about expansion and growth; nobody talked about efficiency.
The new world is different: it is a buyer's market, driven by the clients. Clients are looking for efficiency and cost-effectiveness. Quality is still important, but all the firms clients are looking at provide quality. Differentiating factor is the cost.
This is now driving new strategic directions:
- client models
- service delivery models
- talent models
Should firms run with a talent model? Or do you get rid of 16-18% of associates every year? (As often happens now).
In the past when firms looked at strategy, they only looked at positioning strategy. Firms are still going to need this, but "this isn't enough." What type of technology, infrastructure and processes are you going to need? If you move to a different model that doesn't fire 16-18% of people each year, you need to look at hiring in the first place.
Some firms are seeing more demand, some are seeing a lot less. We are starting to see a segmentation in the law firm market.
7 questions
Seven questions posed to us by James Jones with respect to the role of law libraries in light of these trends:
- How will these likely changes in law firm management models impact traditional library/information services?
- How will this drive for efficiency and cost-effectiveness impact ways in which legal research is undertaken?
- How might librarians/information specialists help in partnering with clients and in supporting "one-to-many" knowledge sharing models?
- In an age of "disintermediation," how can information be rendered more useful and actionable? (Trends we have seen in other industries, we will start to see the same thing happening in law...lawyers will no longer be gatekeepers of esoteric information)
- What roles might librarians/information specialists play in the management of new firm "products" - e.g., various tools for on-line guidance and services?
- What roles might librarians/information specialists play in the development of "just-in-time" training resources.
- How might the growing importance of information management impact the roles that executive librarians play in their firms?
Q&A
A: Firms should be sitting down with their 10 biggest clients. The number one thing clients want is to have their general counsel sit down and talk with them; very few lawyers do.
Q: Are clients not unique, wouldn't commoditization be a problem?
A: There are ethical concerns about one-to-many systems; however, the market is driving it and these concerns will need to be worked out. E.g. Linklaters system available only to existing clients - there is a client-lawyer relationship.
A: There are ethical concerns about one-to-many systems; however, the market is driving it and these concerns will need to be worked out. E.g. Linklaters system available only to existing clients - there is a client-lawyer relationship.
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