23 March 2015

A new elephant in the room?

There’s been considerable furore about technology and legal process outsourcing (LPO) in the legal services market in recent years and rightly so.

In 1988, William C. Cobb (of the acclaimed Value Curve) estimated around 60% of legal work is at the commodity end, i.e. bought on price. Even assuming this percentage hasn’t increased in the intervening 25-plus years (unlikely), technology and LPO are set to make a material dent in a global legal market now estimated to be worth around £500billion.

As for the other 40% (the higher value work), law firms rest easy knowing that technology and LPO present no material threat. Smart people will always be in demand.

But who said the law firms will retain a monopoly on the smart people?

A General Counsel (GC) with a team of 30 lawyers (conservatively costing £3million each year in salaries, benefits and indirect costs) is not going to want to spend more money with a law firm. However, she knows she will inevitably need to, if her team lacks the available expertise to meet the requirements of the business.

She has a choice. Increase the skills within her team or pay the law firm. How she makes that choice depends on cost-benefit analyses and, of course, urgency.

Significantly, law firms often assume the GC will undertake a simple ‘buy v rent’ analysis, i.e. do I (or can I) hire another lawyer, or do I engage a law firm? 
But is this assumption not increasingly flawed?

The current generation of GCs have substantial teams. Their goal is not to scale but to optimise; not to ask ‘can we do this?’, but rather, ‘how can we do this better?’

Yet the law firm solution in both cases remains ‘we can do it for you’ and therefore implicitly, ‘better than you’. Is that what GCs want?

Put another way, if law firms do legal work and clients do legal work, are they not actually competing with one another, with only one obvious winner?

How unassailable does the law firms’ high value 40% look now?

But of course, the law firms that can give those GCs what they want will thrive.

Increasingly, firms supporting GCs will need to move away from doing legal work and towards upskilling in-house teams to do the work themselves. Technical legal expertise will undoubtedly remain crucial, but clients will seek out the skills to apply broader business and commercial experience; not just to apply the law to their businesses, but to materially improve business performance. For the many leveraged pyramid partnerships, with all their associates, this could be particularly challenging. What will those associates do?
Steve Jobs famously said “if you don’t cannibalize yourself, someone else will”. Law firms are on the menu, but it’s definitely not technology and LPO providers they need to worry about most.

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