The Big Bang in BigLaw – or how irreversible forces are changing law firms
15 October, 2014
I was recently at a public lecture on the expanding nature of our universe. Whether we like it or not, the universe is being torn apart from a singularity creating space, time and all the other forces we take for granted from constants like gravity to uncertainties like the weather.
Listening to the erudition, it struck me that there are parallels with the universe that is BigLaw (that is, the business model of almost all major law firms in the world) and the natural universe.
The cosy power of the BigLaw business model has been irreversibly reduced. Some firms, a smallish minority it seems, are embracing the change and capitalising on its forces as an opportunity. But many are still to recognise the Big Bang in BigLaw has happened. For those firms still to spot the signs and symptoms, here are the more obvious ones.
The end of asymmetry
Pre-Big Bang, law firms were probably the last professional organism to hold the power of monopolistic and effectively omnipotent knowledge. The asymmetry of knowledge – i.e. the lawyers had the ‘definitive’ answer and the client could not access it another way – created a dependence and trust that generally gave power to the law firm, and more often the individual partner, resulting in sticky clients and high fees – a really neat singularity. But just as the expanding universe is affected by multiple, immutable forces, so is BigLaw.
Over time the relationship between the firm and individual partners has become contentious as partners used their personal power, derived from the commercial strength of their client constituents, to challenge the collective in which they exist. This is not new, most firms have experienced partners quitting and ‘taking clients with them’ for a long time. However, the rate of change of partners moving between firms is increasing – in response to systemic market changes, and as a result generating greater change. This force of change proved to the shrewd clients that they did have power in the relationship, it also proved that the supply of legal knowledge was transportable and fungible – and did not need to come from an old trusted source. True, effective choice had arrived. It is now a true buyers’ market.
A homogeneous market for knowledge transfer
The shift from analogue to digital knowledge, where there are few barriers in transmitting that knowledge, is proving that law at its core is a homogeneous market of knowledge transfer. Rational economists love this stuff since it goes a long way to prove a perfect market, and as we have seen areas of law are now being commoditised, and the forces of demand and supply are driving down prices, as law is oversupplied.
Economics 101 should not be lost on law firms, persistent over-pricing (relative to real value delivered) as an economic force attracts new entrants and more particularly substitutes, seeking to arbitrage opportunities and this has proved so true in areas of LPO most notably in India, Ireland and South Africa, and in the basic provision of resources as witnessed by the growth of Axiom Law.
Add to this the disruptive impact of “The Cloud” and not only is knowledge availability driving the end of asymmetry, but also practitioners are becoming virtual, skimming the market of high value work by making themselves available to the new generation of GC.
A generation ago GCs were seen as those who could not cut it in private practice. The forces of change have reversed this stereotype. The new generation of GCs, poachers turned gamekeepers, control budgets and are driving law firms to adopt commercial accountability that has been standard practice in other professions for decades. The upshot is the irreversible shift from a sellers’ to a buyers’ market, the asymmetry advantage has been put through the shredder.
Clients’ demands are changing law firms
Clients are also demanding greater integration of law within their operations. The legal process can highlight operational issues, but historically an operational schism existed between external lawyers and their clients, matters were generally discrete and there was no incentive for a law firm to correct any process issues in their clients. The digital age of knowledge sharing and value add creation has changed all this.
Smart clients are demanding insights from their legal provider, the quid pro quo for law firms is being able to embed themselves with their clients to provide a long term service that actively improves their clients’ operations – this is one of the offerings from Riverview Law, a NewLaw firm established on business principles.
I could go on citing examples of how the Big Bang in BigLaw has set a pattern of irreversible change in the legal services sector, but at its core the asymmetry of knowledge and its provision has ended for good.
Yes there will always be leading experts in specialist fields, and it is this race to be seen as a leading expert that is the new battleground to establish meaningful differentiation. But clients will be the final arbiter, giving permission to firms who seek that competitive advantage.
Other related blogs and thought leadership from Beaton Capital can be found here:
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4 Responses to The Big Bang in BigLaw – or how irreversible forces are changing law firms
This is certainly happening in the technology space. Many small law firms are moving up-market, facilitated by collaboration tools and a network of focused firms.
This link is to a recent article by Ed Reeser in the Los Angeles/San Francisco Daily Journal. Ed summarises some of the similarities, and important differences, of lateral partner hiring and sports athlete free agency.
Ed’s insights help explain some of the causes of the Big Bang in BigLaw to which Warren refers.
It is interesting to look at this from a buyer’s point of view.
The “cosy” legal services category has traditionally been seen as a category with “strong supply power” … and “weak buyer power”. Not a good place to be for a buyer.
Therefore when good procurers look at this category, their basic strategy will be to reduce the risk of being – and using ATKearney’s words – “change the nature of demand”. And this is just what they are doing by moving the category along the journey:
– Initially pushing down supplier power so that legal services is seen as having “weak supply power”, but at this point still remains with “weak buyer power”. Procurers with categories such as these have a basic strategy of “managing demand”.
– But not stopping there – it would never be that easy!. As buyer confidence and power increases, their strategy changes again … to the dread of all law firms …. Moving to “leverage competition among suppliers”.
For the buyers, a homogenous market …. Wonderful …. This is where the fun starts …..
Thank you Paul.
What we are seeing is a discernible change in buyer behaviour towards procuring legal services, this is based on many factors but importantly buyer experience in other markets is now being applied to law. Simple questions are being asked by clients, such as “is this a strategic need, or a tactical one?” “Is it high value or low value?” “Where do we position this service relative to the risk in our business?” And your point regarding clients managing demand is profound, clients are asking themselves not just why do we need an external lawyer at all, but why does this issue need to go to law at all if it is low value and tactical.
We are certainly seeing the more sophisticated law firms re-segmenting the way they position and price their services to match the internal process of their clients.
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