Friday, March 29, 2013
The Legal Whiteboard: Losing the Law Business:
We are entering a period in human history in which we are going to need fewer lawyers, at least the traditionally trained variety. The world is becoming more interconnected, regulated and complex. Although regulation and complexity have historically been very good for the lawyer business, something very fundamental is changing. Clients are increasingly struggling to pay the bills of artisan lawyers who prefer to craft individual, customized solutions for each transaction and each dispute.
In essence, law is facing a productivity imperative. To cope with globalization, the world needs better, faster, and cheaper legal output. The artisan trained lawyer just can’t keep up. To address the productivity imperative – or, more accurately, to turn a profit from this business opportunity—a new generation of legal entrepreneurs has emerged.
Lawyers continue to have a lock on advocacy work and client counseling on legal matters. But an enormous amount of work that leads up to the courthouse door, or the client counseling moment, is increasingly being “disaggregated” into a series of tasks that does not need to be performed by lawyers. Indeed, it may be best performed by computer algorithms. Further, the entire process is amenable to continuous improvement, driving up quality and driving down costs. This is a job that is likely more suitable for a systems engineer, albeit one with legal expertise, than a traditionally trained lawyer.
Although this change may sound radical, it is actually the logical next step in an evolutionary progression that began in the early 20th century as the practicing bar transitioned from generalist solo practitioners to specialized lawyers working together within law firms. Now, as clients search out ways to stretch their legal budgets, specialization is losing market share to process-driven solutions, akin to how Henry Ford’s assembly line methods supplanted craft production....
Since 2008, revenues in large U.S.-based law firms have been relatively flat. A recent article in Managing Partner magazine acknowledged that law firms are losing market share to the [legal process outsourcers (LPOs] ... as general counsel are increasingly contracting with LPOs directly. The savings are perceived to be in the 50% range with no diminution in quality. According to the article, the LPO business is estimated to be a $1 billion per year industry that will double in size over the next two to three years.
Unlike traditional lawyers, the competitive advantage enjoyed by these new entrants is that they have learned how to learn. If law is like other industries, these companies will move up the value chain and find new ways to satisfy the needs of large corporate legal departments. Law is not just for lawyers anymore. This genie is permanently out of its bottle.