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Changes in the market for legal services, their impact on strategies for Law Firms and what it means for customer orientation
Stephen, you overlook an amazing 30 years of development in the law firm business. What was the law firm world looking like when you started your career and how has it developed?
In the 80’s the law firm market was still fairly homogeneous. Most firms were operated more or less in the same way, distinguished only by size and territory they covered. Lawyers did not yet address strategic issues. When I talked to colleagues within our own firm or to partners from competitors at that time about more business minded ways to lawyering they generally were reluctant to change. “We are different, professionals, autonomous, regulated, not commercial, …” was all I heard. In the 90’s the partner perception of managerial thinking altered. It was the early phase of globalization. Big law firms opened up offices “overseas” and grew, mostly by merging with other firms. Increasing size led to governance, marketing, leadership, financial control, and risk management issues. Thus, the demand for management structures and strategic decision processes rose. Today most law firms, not only the big ones, embrace strategic management. They appreciate the work of their own management people and of external management advisors. Law firms are finally realizing the importance of proper management in order to overcome the challenges arising from ever-increasing demands from clients and growing competition.
After the recent fundamental shifts in the market for legal services, will the law firm business move back to a calmer pace in further development?
I do not know – but I would not bet on a standstill. Pressure from clients on prices and therefore to reduce cost in law firms, growing competition from alternative legal services providers, the trend towards more in-sourcing of legal work by in-house legal departments, and more globalization in the legal markets will keep the market moving rapidly on towards yet more change. This “new world” for law firms will require creative strategic decision-making. The law firm business model is going to be entirely reinvented. It is not about finding the other way of doing law but about exploring many others. We will see a great variety of legal services providers in the future. There is no one right way for every law firm.
What is in the core of all this change?
Fundamentally it goes back to value creation for the client. Today, the value of legal services rendered is often less than the cost of time invested by lawyers. Not surprisingly, clients complain about the amount of money billed to them. They do not necessarily understand (or always need) the full value of what they are getting.
Do you see ways to any remedy here?
At the beginning of a project, clients do not necessarily know about the value a lawyer’s work is supposed to generate. But by the end, they will know. So, developing a sense for the value of legal work is a journey the client is on. Lawyers have to be supportive to their clients while they are on this journey. It is crucial to discuss their expectations with them in every stage of the process. Elements of value often are not technical but subjective, emotional, even irrational. By just communicating to clients in the usual analytical way lawyers do, they will not respond properly to their clients’ needs.
So, is it all about soft factors and communicating? Do clients not care about results?
Of course clients still want results! Law firms must carefully discuss and understand a client’s expectations along the value chain of a project. This can involve bringing in other, better suited providers for portions of the work, really understanding the client’s business, delivering real-time reports in mission critical stages of the project, extended partner attention instead of the partner operating by remote control, making the client look good in the eyes of his or her superior, and adding the right amount of service quality. Lawyers are not usually trained for many of these client-oriented aspects of their work.
Would this have an impact on the resources a law firm must be able to rely on?
Yes! It may be important for law firms to hire people who understand how to handle client relationships. Maybe the partner structure does not make much sense any more when firm-wide consistent ways of relationship work are in demand. It may well be that portions of the work are no longer performed by lawyers, but by paralegals or otherwise qualified staff. IT and new communication technologies may become more important in order to satisfy clients’ needs. Incentives and rewards within law firms might have to be adapted to this new way of doing business. All in all, the value discussion will eventually challenge the traditional law firm business model. So, value creation in its core is a key part of strategy building of law firms. Lawyers have to come to understand that value is not only a question of applying legal skills, but also a question of service quality and utility of advice, all being part of the creation of measurable benefits for the client.