Archive for the ‘Law Firms’ Category

Survival of the Fittest

Tuesday, January 12th, 2016

Survival of the Fittest: The impact of Value Migration on lawyers

 In 1864, British sociologist Herbert Spencer read Charles Darwin’s On the Origin of Species and drew parallels between his own theories and Darwin’s. In his book, Principles of Biology, Spencer noted, “This survival of the fittest, which I have here sought to express in mechanical terms, is that which Mr. Darwin has called ‘natural selection’. Darwin later used Spencer’s new phrase “survival of the fittest” in the fifth edition of On the Origin of Species and meant it as a metaphor for “better adapted for the immediate, local environment”. In today’s legal environment, lawyers learning to adapt to new paradigms are creating success.

The impact of value migration

Value migration is the shifting of value-creating forces in a market. Value migrates from outmoded business models to those that are better able to satisfy customers’ priorities. The legal profession is experiencing a renewed priority by clients on value. The business of law is becoming similar to other professional services such as finance and engineering where efficiency is increasingly rewarded as much as skill and success. Clients now expect their lawyers to proactively look for ways to be efficient and offer those options. They want any lawyer pitching for their business to be ready to propose alternative billing or fee arrangements without needing to be asked. To maximize their value to clients, lawyers now need to utilize both prior work product and their own experience to create efficient solutions for clients.

Setting cost according to value

Many lawyers represent individuals and small business owners. For these clients, a statement of the lawyer’s hourly rate is not sufficient information. What the client really wants to know is “How long will this take and what will my total cost be?” Not all legal services are equally important to clients. Understanding what client’s value and providing solutions for the right cost are key to getting and keeping their business. Some services will be worth much more to the client than others, and certain outcomes will be more important than others. In most transactions for example, the client really does not want the perfect job. You may need to focus more on providing real value from the client’s perspective as opposed to creating the perfect legal result. Above all else, no matter what your practice area is, what you do and how you do it must provide the best results for the best value to your clients.

Client expectations

Business clients are cutting their legal budgets and consumer clients are seeking low cost alternatives. Both types of clients believe that lawyers and law firms don’t operate efficiently. They want their legal costs to be predictable and are very interested in how cost-effective their lawyers are being compared with the perceived value they are getting. Following their initial visit with their lawyer, a client develops certain expectations that impact the client’s thinking as the matter proceeds. While these expectations should be based on what the lawyer actually said, in reality, the expectations are often based on what the client thought they heard. These expectations include how long the legal process will take, the strategy for addressing the legal issues, the range of likely results and the overall cost of the legal services. The client’s value paradigm is based on the combination of these factors.

“It’s not the big that eat the small.”

“It’s the fast that eat the slow”. This phrase was originally developed by Jason Jennings and Larrry Haughton to describe the impact of technology on business growth. The same concept of faster transactional speed, primarily through technology, has changed the modern practice of law. The increased pace of legal practice has directly impacted both client service and training.  Today you just don’t need the amount of lawyers and resulting hours to get answers any more. As one example, E-Discovery tools have eliminated the need to review boxes of documents. Knowledgeable clients are no longer willing to pay law firms for reviewing boxes of documents which technology can evaluate with equal success. For large specialized projects outsourcing is also a trend and may help create value. Law firms and lawyers will need to focus more on creating efficiencies in their internal processes, as well as sharing information and best practices across practice teams, offices and regions. Many recent innovations continue to commoditize legal work and there are already online products for things that would have routinely been drafted from scratch.

A growth opportunity

Many of your clients are facing pressures to do more with the same or less investment. Legal expenditures are being scrutinized like all other costs. Even if your client has not specifically asked for alternative fee arrangements, you will not remain competitive if you ignore more creative billing methods. This creates an opportunity for you and your firm to be pro-active and innovative in solving this economic problem for your client.  Client are examining how they buy legal services and consequently changing the nature of their relationships with their lawyers. Alternative fee structures can be both a business development opportunity and an opportunity to cultivate stronger relationships with existing clients, gain new clients from more rigid competitors and even increase profits.