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Fresh thinking on the evolving BigLaw–NewLaw taxonomy

15 January, 2015

. Law. Strategy

January 22, 2015 revision. Based on public and private feedback from many sources, I have revised the title of this post by changing the notion of a ‘continuum’ to one of a ‘taxonomy’. No other changes have been made to the original post. As the conversation develops, I will add Comments to reflect the prevailing thinking where I discern a consensus.

Fresh thinking on the evolving BigLaw–NewLaw taxonomy is emerging as the legal services ecosystem evolves apace.

This post shares a synthesis and critique of views on a way of classifying legal services that seeks to elucidate the current status of BigLaw–NewLaw and some of the implications of this lens.

Why I have made this change. Wikipedia refers to the ‘principles that underlie such classification varying notions of the “core” and “penumbra” of the meanings of a concept’. The purpose of classifying in this way is to enable ‘the progress of reasoning (to) proceed from the specific to the more general’. While there are aspects of the differences in the types of legal services provider that may be regarded as a continuum, e.g. the extent to which a traditional firm chooses to ‘remake’ itself (how many things it changes), there is very little to no gradation between a BigLaw firm and a LPO. Their ‘DNA’ is different, hence they fall in different taxa.

Why fresh thinking is needed

In ‘How to recognise a NewLaw firm in December 2013 I quoted Mark Harris CEO and Co-founder of Axiom Law in an interview on Bloomberg Law “It’s a challenge to describe us when we’re creating a new category”. The ‘new category’ to which Mark Harris refers is now widely known as NewLaw (#NewLaw), the name given to it in a Beaton Capital post.

In the past year many forms of NewLaw provider have emerged and/or been recognised for what they are. These legal services providers are based on business models quite different to the business model of traditional law firms, known as the BigLaw business model (first described by me in September 2013 in this post).

Also, in December 2013 NewLaw New Rules was published with a foreword kindly written by Richard Susskind. NewLaw New Rules is an e-book I curated based on contributions from nearly 40 leaders of legal services providers, including traditional large law firms, analysts and observers in six countries.

In the book at pages 38 and 71, respectively, I set out the hallmarks of the business models of BigLaw and NewLaw firms, showing how much they differed. And, based on the NewLaw hallmarks, at page 73 I proposed a taxonomy of seven types of NewLaw firm.

The BigLaw–NewLaw discourse that ensued online and in conferences during 2014 was constructively vigorous. Thank you to the many people who have encouraged me to explore theses concepts more deeply and in the light of an evolving BigLaw–NewLaw taxonomy.

The value of the crowd

To maximise the quality of the thinking and speed-to-market of this publication I turned to the crowd in the first two weeks of January. Those who contributed are warmly thanked and listed in the Crowd contributors footnote. The views expressed here including the table are mine. I have sought to incorporate and reconcile those of all crowd contributors and added what yet others have written in the blogosphere. There is no singular consensus, but a very much clearer picture has emerged.

All readers are invited to comment on this post. Please also make the post known through Twitter and your other channels to maximise the diversity of views and debate.

Disclosure

Many, but no means all, know that with my Melbourne-based team I am writing Remaking Law Firms, a book on the re-invention of traditional larger law firms for publication by the American Bar Association later this year. The research for this post on ‘Fresh thinking on the evolving BigLaw–NewLaw taxonomy’ and a form of the table will be used in Remaking Law Firms. Full and grateful acknowledgement will be given to all those who contribute, as is the case with this post.

The BigLaw–NewLaw taxonomy

The table captures my interpretation of current thinking on the BigLaw–NewLaw taxonomy.

Based on six primary hallmarks (rows A through F) six types of legal services provider are identified (columns 1 through 6).

The rows and sub-rows are modified from the original hallmarks published in NewLaw New Rules (refer above). Little has fundamentally changed, save that the first row is new: A. Primary purpose and client base, to provide a frame of reference for rows B through F.

The columns are a fresh construction of types of legal services provider. I am most grateful to Liam Brown of Elevate Services and Ron Friedmann of Fireman & Company for a Twitter and email-based collaboration late last year that established the basis of this framework.

150114 BL-NL continuum table

Detailed explanations and comments

These notes seek to explain the rationale for the design and detail of the table. Inevitably, using only two dimensions and less than 2,000 words means there are simplifications and omissions. As one of the crowd put it beautifully, “Not surprisingly, I see more colours here than just black and white”.

In studying the table, please remember BigLaw refers to the business model of the traditional law. It is not intended to connote the size of these firms. That said, it is most applicable to firms of more than, say, 50 lawyers up to the largest in world. It does not apply to micro and solo practices.

Similarly, NewLaw refers to the business models (plural) that underpin the organisations described in columns 4, 5 and 6.

First, the columns are explained.

1. Law Departments. Clients are included because in-house law departments are very much a form of legal services provider. As such they are to varying degrees in direct competition with external providers of the BigLaw and NewLaw varieties. Since these are internal, or captive, organisations owned by their parent corporation, hallmarks B through F do not apply in the same way as they do for the external providers. This is not to say in-house counsel is not rapidly adopting technologies or in some cases behaving in entrepreneurial ways to sell its own services to outside clients. In the UK Kent County Council and BT are good examples of this. In other cases, groups of corporates are forming buying consortia, which include the future possibility of forming jointly owned captives.

2. Traditional BigLaw Firms. These firms currently represent 99% of the enterprises in the industry and probably have a similar share of clients’ spend on outside legal services. I say ‘probably’ because there is no data, public or otherwise, on this subject. Very recently Professor Bill Henderson published US data on market shares. Very worthwhile and commendable as Bill and his colleagues’ analysis is, it does go the level of market shares of types of legal services providers. Notably this group now also includes the law firms that are part of the Big Four diversified professional services firms; this post by Warren Riddell and this one by Eric Chin, both my colleagues in Beaton Capital, explore the resurgence of the Big Four in law

3. Remade BigLaw Firms. This is the most problematic of the groups. There are many ways to ‘remake’ a BigLaw business model firm (as my book Remaking Law Firms shall show). They range from the relatively small step of moving to AFAs from 100% time-based billing to full makeovers. To my knowledge no large traditional firm has undertaken a ‘full remake’. Why? Clayton Christensen’s innovator’s dilemma provides most of the answer – beautifully explained in a recent post on Bigger. Better. Both? by Eric Chin. As a result of this dilemma, all remade firms and those in the process of being remade are small by the scale of the BigLaw traditional firms with which they are compared. Therefore all are either start-ups or breakaways from much bigger BigLaw firms; both forms are increasingly common throughout the world

4. NewLaw Firms. Law is practised in these firms, but their approaches to their operating system and infrastructure make them quite distinct, hence being called ‘NewLaw’. A variant – known as a ‘virtual law firm’ or ‘platform play’ – is a form of chambers in UK parlance. Examples include Temple Bright in London and Paragon in San Francisco. Note that some firms in this NewLaw Firms group are also named in the LSOs and LPOs or Legal Staffing Providers groups; these firms offer services of more than one type

5. LSOs and LPOs. These are acronyms for legal services outsourcers and legal processes outsourcers, respectively. When this group started in the early 2000s these were all known as LPOs, but in reality the line between ‘P’ and ‘S’ has become so blurred as to make the distinction irrelevant. It’s hard to know, but there are at least 500 third party LPOs and LSOs that serve clients directly. Many also serve law firms, creating a form of co-opetition, the well known relationship that arises in complex ecosystems. Many BigLaw firms have set up their own, in some cases rapidly growing, captive LSO and LPO in lower cost jurisdictions like North Carolina and Ireland

6. Legal Staffing Providers. These were first established decades ago as independent third party providers of temporary contract lawyers – and now BigLaw firms are setting up their own variety. The name ‘Legal Staffing Providers’ is not intended to connote ‘recruiter’ or ‘placement agency’. One of the crowd suggested ‘embedded and outsourced legal counsel supplier’ – I regret I could make an acronym work along these lines, so for now the name is Legal Staffing Providers

Finally, there is no column for SaaS, EDD, document vendors, and online legal marketplaces. While I regard these as an important and growing strategic group the members are too diverse and different from the other six groups to include in what is an already busy table.

Turning to the rows, most of which are self-explanatory, and for which details beyond the scope of this post are available in NewLaw New Rules.

B1. Legal talent. This is a tricky area. I acknowledge that the distinction between ‘top’ talent and ‘requisite’ talent may in the opinion of some be one of semantics, not substance. ‘Top’ talent in traditional BigLaw law firms refers to the top law school graduates who in the majority join the so-called top tier law firms, and the entries in directories that are dominated by names of partners in these same firms. ‘Requisite’ talent refers to lawyers who are no less competent in the work they do, but are not interested in and/or able to be partners or secure employment in the top tier firms. For the record, the distinction I draw is not intended as pejorative

C. Technology. I distinguish between technologies that enable lawyers to practise more effectively and/or efficiently (colloquially described as ‘better, faster cheaper’) and those that substitute and reduce the absolute need for lawyers. The former, in Clayton Christensen’s way of thinking, are sustaining technologies, the latter are not disruptive. For more on this distinction, read Eric Chin’s Applying Clayton Christensen’s theories to BigLaw vs NewLaw.

In conclusion

This post is a contribution to fresh thinking on the evolving BigLaw–NewLaw taxonomy. It is the product of crowd collaboration and intended to help all in the legal ecosystem system challenge and refine their own views – and in turn add to the discourse.

Crowd contributors, January 6–12, 2015

Nicole Bradick | Liam Brown | Peter Carayiannis | Eric Chin | Ron Friedmann | David Goener | Alex Hamilton | Ken Jagger | Jon Kenton | Patrick Lamb | Jason Moyse

Other related blogs and thought leadership from Beaton may be found in these posts

+ The Big Bang in BigLaw – or how irreversible forces are changing law firms

+ The first anniversary of the start of NewLaw

+ How to recognise a NewLaw firm

+ The rise and rise of the NewLaw business model

+ Last days of the BigLaw business model?

 Author

George Beaton, a partner in Beaton Capital and executive Chairman of Beaton Research + Consulting wrote this post. You are welcome to connect with George on LinkedIn and follow him on Twitter at @grbeaton_law and @NewLawNewRules.

 

13 Responses to Fresh thinking on the evolving BigLaw–NewLaw taxonomy

Barry Wilkinson says: 15 January, 2015 at 8:31 pm

Brilliant simplicity. Well done.

My only quibble would be the suggestion that Human capital and Technology are not applicable issues to in-house Law Depts.

Reply
Dr George Beaton says: 15 January, 2015 at 9:32 pm

Thank you for being the first to comment and for the compliment, Barry. It’s a fair question you ask. Just to be clear, I mean these and the other hallmarks do not apply in the same way as they do in distinguishing the BigLaw and NewLaw types of firm from the in-house department. Apologies for any confusion.

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Peter Carayiannis says: 20 January, 2015 at 9:31 am

George –

Let me join the chorus of people congratulating you, your team and the other contributors on this terrific summary of the current state of affairs in the BigLaw / NewLaw discussion (and the continuum between these different types of providers).

In due course, I intend to leave a more detailed commentary. For now, I want to say that the idea of crowd-sourcing the effort is fantastic, and is truly a powerful leading indicator of the new way that law is practiced and that the legal business in organized.

Not only is crowdsourcing consistent with the modern approach, but it’s also interesting to note that even Clayton Christensen, whom we all know for his terrific writings on industries being disrupted, has crowd-sourced his book. For more information, click here https://hbr.org/web/infographic/2014/06/a-new-approach-to-research?utm_campaign=Socialflow&utm_source=Socialflow&utm_medium=Tweet

Hopefully you can find a way to reduce our contributions to a similarly interesting infographic (perhaps even with a geographic overlay showing the locations of the various contributors).

Congratulations on a job well done.

Best regards,
Peter

Reply
Dr George Beaton says: 20 January, 2015 at 9:38 am

Thank you Peter! Both for your contribution as a member of the crowd to which you refer, and for the kind words in your comment.

I love the idea of an infographic and a heat map; I will give it serious attention.

Kind regards
George

Reply
Graeme Wilson says: 20 January, 2015 at 6:27 pm

Dear George
I gained great insight from your e-book. This summary has again proved very useful.
As our firm adapts to new ideas and client needs I sometimes loose sight of our own evolution (and that of others) and NewLaws differentiating features. Your table provides a great reference point and context for the Legal Service big picture and the industry’s evolution.

Reply
Dr George Beaton says: 20 January, 2015 at 8:44 pm

Much appreciated Graham.

I am interested to know to what extent your agree with my (‘our’) taxonomy? It’s crucial that a consensus be built. As it emerges clients and providers will increasingly be able to make sense of the industry and better informed decisions in a complex dynamic.

Regards
George

Reply
Jeff Carr says: 21 January, 2015 at 2:19 am

George — the table embedded in your post suffers a bit from complexification – but it’s still an incredibly useful analytical tool.

This may, however, miss the point slightly. The future of law does not rest with handling legal problems but rather from preventing them. Beyond Old Law, NewLaw and Enlightened Law, there comes NextLaw. The NextLaw providers will of course handle and resolve legal issues effectively and efficiently because prevention at times fails. But NextLaw providers will create a holistic P3 ecosystem of prevent, perform, perfect. The middle ware – Perform – is where the industry is now focused (doing what it has always done more efficiently). That’s of course important and where project management skills, disaggregation, etc are critical. But the real step change occurs in the first and third areas: Prevention through better processes and procedures to avoid costly legal issues arising from failures; and Perfection in rigorous after action/lessons learned (A2L2) to improve the performance phase as well and the prevention phase.

NextLaw is very consistent with Ron Friedman,’s concept of “do less law” (#dolesslaw on Twitter) — but it takes it from the “de-complexification” concept to an actual business platform for the delivery of legal service to the customer. It’s holistic in that it encompasses what is actually delivered, how it’s priced and paid for, and the organizational structure to do do. It’s about the goal of prevention-focused, zero defect (ZD) capable legal counselling. Interestingly, ZD is a goal, an environment, a mindset – it’s not practically achievable.

Thus, NextLaw providers co-exist with old, new, and enlightened providers – it just uses less and less of their services.

Reply
Dr George Beaton says: 21 January, 2015 at 7:20 am

Jeff, we are honored to have our blog graced with your comment (for readers who do not know Jeff, he is a US attorney with 30 years of practice, 21 in-house, 13 as GC of FMC Technologies, a Fortune 500 public company, and also worked in law firms and as an investment banker).

You make many points; today I will respond to some:

1. Yes, I agree the chart is complex. I am working on a simplified, ready-reference version – thank you for the nudge.

2. Readers will notice that ‘old’, ‘enlightened, ‘new’ and ‘next’ are used in one of two ways different ways. Either as adjectives (‘old’ to describe the traditional law firms we all recognise), or as part of a neologism (‘new’ in NewLaw, where the capitalization and single word are deliberate). This distinction warrants further attention and elaboration by all those interested in the space.

3. I have little doubt that NextLaw, and Ron Friedmann’s #dolesslaw, will command increasing attention in practice. The concepts remind me of medicine, my first profession, where it is taking decades for all practitioners to adopt fully a ‘Next’ paradigm. The economics of private practice seem to have a good deal to do with the slow uptake of what is a good – and obvious – idea: prevention is better than cure. Hopefully law will learn a good deal faster and inappropriate economic signals will be removed.

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Jeff Carr says: 22 January, 2015 at 1:11 am

George — thanks for the kind words. My observatiions come from my experience as a lawyer, team leader, and an executive — thus essentially as a both provider to and consumer of legal services to a company — coupled with a passionate concern for the profession in both roles. The medical analogy is spot on — and obvious in both its complexity in application and resistance to adoption.

While there are many obstacles to adoption of NextLaw, two immediately spring to mind. First, our human wiring coupled with compensation systems in companies and law firms tend to favor heroes as opposed to those that prevent problems. We are drawn to and applaud the fire figther or knight that rushes in the conflagration to rescues those in danger — and have a hard time seeing the person who recommends automatic sprinklers or stocks the pantry to feed those kngihts in times of siege. Absent fires, what’s a fire fighter to do? Absent quests, how does a knight demonstrate chivalry and prowess?

Second, the structures we’ve built – both economic and governance – support preservation of system and indeed require the existence of those conflagrations. To paraprhase Machiavelli from The Discourses, “the advocate of a new order of things faces the most difficult of challenges for he finds active and passive resistance from all those that benefit from the status quo”.

So, while the solution to the problem is apparent and simple, those with the power to solve the problem find it quite difficult. I think this describes an environment ripe for disruption. While Mark Cohen has observed that we seem to be in the phase of Disruption Interruptus, that doesn’t mean disruption neither exists nor will prevail.

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Mark Cohen says: 24 January, 2015 at 1:43 am

Fine, thoughtful work, George.

Jeff, you are correct; legal disruption is in its infancy. But it will accelerate quickly and will–as you suggest–prevail. Even with the hubris so common to many in the established legal order, disruption will come as clients become more insistent upon bridging the cost:value gap. Regulatory change in the U.S. would help, too.

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Dr George Beaton says: 24 January, 2015 at 5:35 am

Thank you for chiming in Mark.

You use the word ‘disruption’ as do others in examining the long-established order of BigLaw business model (i.e.traditional) law firms.

The more I look at this (and I thank Ron Friedmann for the initial prompt), the more it’s clear there’s work to be done to build a shared understanding of what we all mean by ‘disruption’. Currently use ranges from Clayton Christensen’s new-to-the-world disruptions (that open new markets and put incumbents out of business) to mild inconveniences (where incumbents have to invest in technology or learn new behaviour to stay relevant).

I look forward to more contributions from members of the ecosystem.

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Eva Bruch says: 30 January, 2015 at 12:13 am

You have started an interesting conversation here George! It is so useful to have a first approach towards a taxonomy of legal business models.

I’d like to draw attention to the segment described as “remade law firms”. George Beaton quite rightly indicates that these are smaller firms or start-ups following the path towards transformation, applying new business models to their traditional structures, or starting out with differentiated, competitive, interesting approaches.

In the last two years or so, there has been much talk of NewLaw, new business models and the like. So much so that ‘NewLaw’ has even become a powerful sales message in the search for effective differentiation in the market – sometimes more than it should and not corresponding to reality. The asymmetry of knowledge and information on which the legal industry has traditionally been based, together with the intangibility of its services, is now once again playing an important role. This can also generate confusion and mistrust in the market while hampering the growth of true NewLaw.

This mistrust suits BigLaw down to the ground so it can continue with its traditional business model backed by what seems to be the start of a new upturn in the global economy. This, together with the risk felt by corporate purchasing departments when making certain decisions, means progress towards innovation in the legal sector is slower and more difficult than it should be. This innovation (disruptive in this case), apart from a few exceptions already mentioned in George Beaton’s useful table, is occurring in the lower cost segment of the legal industry that serves private individuals, although it has begun to touch the business sector in the form of Legal Zoom, Rocket Lawyer, Formal Docs and many others, as Jordan Furlong has described. It is absolutely consistent with some academics’ theories that disruptive innovation at law firms will begin in the end-consumer market, i.e. individuals, and gradually evolve upwards into corporate market.

It is also entirely consistent with Christensen’s theory of evolution of the value chain, brilliantly explained by Eric Chin elsewhere in your blog Eric Chin. The spread of disruptive innovation starts when a product (service) initially “isn’t good enough” for the high end or global markets – which is the very reason the leading firms do not pay attention to it – and in time displaces them from the market or at least takes a large slice of the cake from them.

Reply
Dr George Beaton says: 30 January, 2015 at 6:58 am

Too true Eva; thank you for your comment.

I find your vision of BigLaw firms being disrupted in keeping with Christensen’s concepts intrinsically appealing and believe the time is fast approaching when the buying behaviour of corporate clients will begin to demonstrate its validity, i.e. disruptive effects.

Best wishes
George

Reply

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