30 Apr 2018  | 
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The signal through the noise

A plethora of commentators have emerged since the global financial crisis in 2009-10, predicting the imminent demise of Big Law. The crescendo peaked perhaps following the collapse of Dewey & LeBoeuff LLP, with articles such as ‘Last Days of Big Law’ (Scheiber 2013 ) in ‘New Republic’ and ‘The Death Spiral of America’s Big Law Firms’ (Weismann 2012 ) in ‘The Atlantic.’ Richard Susskind’s book ‘The End of Lawyers?’ (2010 ) remains widely quoted (and frequently misquoted by convenient omission of the question mark in the title) as another source pronouncing imminent doom for large law firms. Books with titles like ‘Death of a law firm’ and ‘Way Worse Than Being A Dentist’ and ‘Declining Prospects’ all add to the litany of woe about what ails Big Law, some more thoughtfully and constructively than others. Most are good at pointing out problems and why things need to change, but poor at identifying good, workable solutions.

Those with longer memories could point back to similar pessimism a decade earlier, when books like ‘The Lost Lawyers: The Failing Ideals of the Legal Profession’ and the somewhat juicier ‘Double Billing: A Young Lawyer’s Tale of Greed, Sex, Lies, and the Pursuit of a Swivel Chair’ received similar attention. A decade before that, the spectacular implosion of Finley Kumble in 1987 led to similar cautionary tales in books like ‘Conduct Unbecoming: The Rise and Ruin of Finley, Kumble’ and ‘Shark Tank: Greed, Politics, and the Collapse of Finley Kumble.’ At its peak, Finley Kumble was the second largest law firm in the world, behind only Baker McKenzie.

To this can be added a host of think tanks, task forces, conferences and forums. These include the Harvard and Stanford Law Schools’ Centres on the Legal Profession, the International Bar Association (IBA)’s ‘President’s Task Force on the Future of Legal Services’ and the American Bar Association (ABA)’s ‘Commission on the Future of Legal Services’ and ‘ReInvent Law’ in Germany and ‘The Hague Institute for Innovation of Law’ (HiiL) in the Netherlands, to name just a few. Also a multitude of blogs and media articles ranging from the thoughtful and prescient to the downright nonsense.

Will today’s leading law firms still lead tomorrow?

Much of the current discourse appears to conclude that many of the existing leading law firms will disappear and be replaced by new forms of legal service provider. Some scholarly justification exists for this view. In his seminal work on disruptive innovation ‘The Innovator’s Dilemma’ Clayton Christensen describes why it is so difficult, when an industry is disrupted, for market prevailing leaders to defend their positions against new competitors with technologies and business models that clients prefer. So, a very plausible scenario can indeed be constructed where the future global legal services market is dominated by the ‘Big 4’ global advisory firms and/or technology platforms, alternative or virtual service providers like Axiom and Elevate and other new legal service providers with business models as yet unknown.

However, an equally plausible scenario can be constructed where a significant number of existing law firms successfully retool their business models and continue to thrive in this new, digitally driven world. Sophisticated, premium legal advice is very different to the technology products that underpin much of Christensen’s thinking. A customer contemplating the purchase of music does not, when choosing between a CD or buying a track from the Apple Store, consider the importance of their relationship with the musician or record label. She knows that exactly the same quality of music will be delivered by both. Buying a track from the Apple Store though means she has to pay only for the hit single that she wants, and it is delivered directly to her phone. Even more radically by comparison, subscribing to Spotify means receiving a steam of music curated to her taste, for a single subscription fee.

Consider how different buying music is to buying legal services that clients perceive to be complex, bespoke and of crucial importance to their businesses. The depth of skill and judgement involved in such legal services will always probably be heavily dependent on skilled, experienced lawyers. Consider then that law firms are not hampered by massive legacy investments in factories, manufacturing equipment, business systems and suppliers in the value chains of their products and services. The text box on page 14 shows how difficult it was for industry to transform business models to capitalize on the invention of electricity. Law firm balance sheets are very thin, at least so far as tangible assets are concerned. So too, interestingly, are those of modern tech companies. A lack of assets can be a benefit.

The most important issue in transforming a law firm business model is to gain consensus across the business owners (who are typically the partners) and getting people to change the way that they think. This is no trivial matter, but surely easier than it would be, were it to be accompanied by difficult decisions about writing off expensive, defunct assets and financing new ones. Most obstacles in law firms (and other professional services firms) are self-inflicted. It should be far easier for law firms to transform their business models, than it is for many of their clients.

 

Figure 27

 

We are already seeing great progress in digital transformation in due diligence, contract review, legal research, eDiscovery, prediction technology (which helps forecast litigation outcomes) and document automation. Tools such as client portals and intranet-based collaborative platforms are becoming more sophisticated all the time. All these are exerting inexorable pressure on law firms’ models to evolve, and one only has to look back over how much change has occurred over the past decade to see that evolution is indeed occurring.

Emerging literature about business model transformation and digital transformation across industry sectors is beginning to yield useful guidance. The same drivers of change in the legal sector are driving change also in client industry sectors

Law firms are “predominantly responsive institutions rather than proactive institutions, as they react to clients’ demands instead of supplying their own initiatives to clients” (Flood 2013) so the best source of market intelligence of all is the firm’s own client base. How can law firms be more proactive in utilizing that source?

How will client legal needs evolve?

It does not take much inquiry to discover that most client executives and in-house lawyers themselves understand very little about how their legal needs are likely to change over the next three to five to seven years, in response to the impact of these same emerging digital technologies. At a workshop on ‘AI, Blockchain and the Future of Legal Services’ held at the MIT Media Lab in Boston in October 2017, one speaker commented that helping clients to understand their own emerging legal needs may be the best business development opportunity to emerge in decades. It is also probably the best opportunity that exists for law firms to find the knowledge that they require in order to correctly calibrate their strategy development and business transformation efforts.

The core proposition of this chapter is that the voyage of discovery into the client needs of tomorrow is something that needs to be tackled iteratively and collaboratively by clients and their external legal advisors, together. The benefit for clients is the opportunity for proactive input into their own strategic planning and risk management processes. For law firms, the knowledge also of how they need to allocate their investments in technologies, train their people and develop new competencies.

Tools for engaging with clients

We strongly recommend that such exploratory exercises be undertaken in a structured, properly planned process that is designed in collaboration with the client/s that you invite to participate. A number of approaches might be adopted including design thinking workshops, charrettes and / or sprints. Each situation is slightly different but, in our view, a good approach that meets most situations is a combination of scenario planning followed by more focused examination of the issues that the scenario planning yields.

Scenario Planning

When thinking about the future, we tend to extrapolate our current reality and what we believe already to be true. This makes it very difficult to conceive of futures that are radically different to our experience of the past. Yet even with the most agile of business models, one needs to be able to make reasonable assumptions about the future if one is to develop sensible strategy and make sound investment decisions.

The worst that one can do is assume that business-as-usual will continue, yet to do so is very human. Even when considering radical change, it is very difficult to conceive of outcomes that are not simply extrapolations of what we are already used to.

The history of business is full of examples of businesses that failed to anticipate the future and ceased to exist, as a result. For example, in mobile-telephony, Nokia were established market-leaders and in a seemingly unassailable market-dominating position circa 2005. Yet less than a decade later, Nokia no longer exists. They failed to envisage that the mobile-phone could be something more – a ‘smart phone’, or miniature computer, to be used for multiple purposes beyond simply making calls, or sending-and-receiving messages. Apple’s ability to envisage this possibility sooner, ultimately put Nokia out of business.

Without uncertainty, there can be no opportunity. All would know in advance which future business model is best, what innovation to adopt and what forthcoming changes in trends and fashions will ensue. This would render these useless as sources of profit and competitive advantage.

Traditional tools for thinking about the future, such as forecasting and risk-analysis, can exacerbate uncertainty by causing us to focus on only a very limited range of possibilities. This is most obviously true in single-track forecasting, as it assumes only one possible future – an assumption which is quite clearly ridiculous. And even techniques which assume several futures are possible, such as risk-analysis, only acknowledge a very bounded range of future possibilities, since these future possibilities are based on what has occurred previously. As a result, these standard techniques provide little opportunity to grapple meaningfully with the real issues and potential causes of futures that are very distinct from the present. They make us feel we have given due diligence to uncertainty but in reality, they just make us more vulnerable to it.

The secret to defusing this is to switch from attempting to predict the future, to creating a number of plausible views of what the future might be, instead. Rather than trying to forecast what future client legal needs will be, scenario planning considers what they might be. While this approach does not uncover all possible futures, it does a better job as a platform for discussing strategy and creates a portfolio of possible outcomes that are truly distinct from the present, against which the firm can bench-test its strategy and its likely responses. It also defuses debate about whether a particular future will actually emerge. Almost inevitably, a well-executed scenario planning exercise yields opportunities and threats that have not yet been considered and other areas of improvement for the firm’s business. It also allows one to make assumptions about the general characteristics in common across the scenarios that are more likely to emerge. One can then plan in a way that addresses those characteristics.

The outcome of a scenario planning exercise is a detailed understanding of what the firm would need to do in order to optimize its business under a range of possible futures. Where the actions are common across multiple scenarios and otherwise make sense, they can be executed anyway. Where they make sense under some but not all scenarios, they can be filed as contingency plans.

Defining the Scope

Scenario planning is quite flexible in nature and several well-proven methodologies exist. In defining the scope of the exercise, one needs first to understand the opportunities and challenges that the exercise is intended to explore and the outcome hoped for. Bearing in mind the complexity shown in Figure 2, the tighter the scope can be defined and clearer it can be articulated, the more likely that the exercise will yield valuable intelligence.

Identifying the key drivers of change

Some change drivers are highly visible, others less so. This paper covers a range of the more obvious technological drivers, but others not covered might also be relevant. A range of non-technological drivers will almost certainly be very relevant, too. Part of the actual scenario planning process involves prioritizing the drivers and deciding which one will be used to construct the scenarios, so the list of drivers identified at the outset can be quite comprehensive. There is no need to omit any that might be even remotely interesting. Enough information is required on each for the team to be able to allocate relative importance to each, so a degree of research may be required.

Constructing the scenario matrix

The most commonplace approach to construct the scenario matrix is to select two clusters of driving forces that are deemed to be the most uncertain as variables and then constructing a 2 x 2 matrix around them. An alternative methodology (developed by Royal Dutch Shell) is better in cases with three clear drivers, but is more complicated. The scenarios are constructed by the team itself. This is a deeply interactive and creative process, good also for cementing professional relationships between the participants.

Creating the scenario narratives

In the penultimate step, the team creates a narrative of the key characteristics of each scenario for the client’s business, focusing on those aspects that are likely to most influence business strategy and legal needs. The exercise should focus as much on uncovering opportunities and identifying possible threats. The narrative is likely to be richer and more varied, hence comprehensive, where diverse perspectives are included in the team, from different client departments and different legal practices and even perhaps third-party specialists. It is important at all stages to continually emphasize that the intent is not to try to forecast what will occur in the future, but to create a set of plausible narratives about what the future might hold, based on drivers that are accepted as important.

 

Figure 28

 

Benchmarking perceived future legal needs against the scenarios

In this final step, the group assesses how the firm’s legal needs would be different under each scenario, and what actions would be required to meet them. This could take the form of a discussion about how the client’s in-house legal capabilities would need to evolve and what role the firm could play in supporting them in that – including which services would best be provided by external counsel. Ideally, the discussion should also include quantifying where possible, the risks involved in the new set of legal needs.

Properly executed, this delivers a robust and detailed understanding of how client demand for the range of legal services that the firm provides will evolve and how the relationship with that client needs to be managed, to optimize mutual benefit.

This, in turn, provides a very solid foundation from which to consider how the firm’s model transformation should proceed.

 

Sources and references

Scheiber, N., 2013. The Last Days of Big Law. The New Republic. Accessed at: https://newrepublic.com/article/113941/big-law-firms-trouble-when-money-dries

Weismann, Jordan. 2012. The Death Spiral of America’s Big Law Firms. The Atlantic. Accessed at: https://www.theatlantic.com/business/archive/2012/04/the-deathspiral-of-americas-big-law-firms/256124/

Susskind, R., 2010. The End of Lawyers? Oxford University Press.

Bosman, J and Hakanson, L., 2015. Death of a Law Firm: Why Many Business Law Firms Will Collapse in the Next Five Years. JBLH, The Hague, Netherlands.

Meyerhofer, W., 2011. Way Worse Than Being a Dentist: The Lawyer’s Quest for Meaning. Mill City Publishing, Minneapolis

Trotter, M.H., 2012. Declining Prospects: How Extraordinary Competition and Compensation are Changing America’s Major Law Firms. CreateSpace.

Kronman, Anthony T. 1995. The Lost Lawyers: The Failing Ideals of the Legal Profession. Cambridge, MA: Harvard University Press.

Stracher C., Double Billing: A Young Lawyer’s Tale of Greed, Sex, Lies, and the Pursuit of a Swivel Chair. Quill, New York

Kumble, S. and Lahart K.J., 1990. Conduct Unbecoming: The Rise and Ruin of Finley, Kumble. Carroll & Graf Publishing