It is well documented that clients are asking for more value. In many instances, they're also asking for innovation. Yet most of these requests are general in nature and vague in outcomes. For example, most outside counsel guidelines ask firms to "be creative" when it comes to pricing, but provide very little guidance on what that means.
This is completely understandable on one level, since they are in fact our clients. The law firm, as provider, has an obligation and opportunity to drive change. However, from experience it is difficult to get clients to embrace that change. Too often when presented with a change, clients respond, "No—not that one."
For example, at a former firm one client stated the need to reduce legal spend by 10%. An option was presented to the client that included utilizing contract lawyers alongside associates that would lower the cost of transactional matters by 10%. The client declined this option, but did not give much feedback as to why. This and many other examples demonstrates the disconnect between law firms and clients in driving real change.
What is real change?
The elephant in the room, in my humble opinion, is driving change in the way lawyers work. We need to develop methods that require fewer and cheaper hours, but that provide the same or better outcomes. The challenge is that lawyers are change-averse, and will leverage their deep subject matter expertise to fervently defend the status quo. This challenge exists both within law firms and legal departments.
Both sides of the market need to change. An obvious path to innovation is having both law firms and legal departments collaborate on change. In this way, firms can develop real change that clients will adopt. Some firms have begun moving this direction, often in conjunction with the client's legal operations team.
And what will this collaboration look like?
For both sides, conversations have tended to focus on vague possibilities with minimal connection to specific work. For instance, someone might suggest document automation for a type of work. This leads to conversation on whether that type of work is best suited for such technology, followed by which documents should be automated. And finally, in a long, circular conversation about which language should be used in the documents. The result takes months to achieve, if it ever actually culminates. Similar conversations occur on the client side. Ultimately these efforts fail or produce minimal value, as they inevitably hit the lawyer-change challenge noted above.
Change projects can take a variety of forms, well beyond simple document automation. I say simple, because document automation is a relatively simple approach that has been around for decades. However, it includes a measurable investment of non-billable lawyer time—and the more complex the documents are, the more time needed.
This raises another set of challenges. The first is the lack of available time from the lawyers in question. Law firms and clients are busy. On the law firm side, there is the additional pressure of billable time, which will always take precedence over a project like this. The billable work directly meets client needs—not to mention contributes to the lawyers' bonuses. On the client side, legal departments (being cost centers) have very limited resources, and less support for their lawyers as compared to law firms. With aversion to change, a lack of urgency, and insufficient resources, we shouldn't expect much change to happen. Lawyers will inevitably resort to their known ways to respond to immediate demands.
What is needed to overcome these challenges is to bring some practicality to the situation. By that, I mean tie a change project to a specific type of matter (or set of matters) with a specific outcome identified. Do so with the involvement of both law firm and client. For instance, they can sit down and mutually identify a type of matter that will benefit from some specific innovation. This means they also need to agree on what that innovation will be. Positive results for both sides need to be built in to the approach, including cost savings for the client and profitability for the law firm. Absent mutual benefits, the change will not be sustainable.
The value of using a specific matter type to drive successful change may sound obvious, but there are different aspects to consider. Having actual work product involved (versus potential) for instance, is a value position, as change efforts would have immediacy and practicality. This helps ensure everyone's efforts are focused on real outcomes which in turn brings urgency to the project. And since real work commands attention, resources will be committed.
Finally, changing the way the matter is handled becomes part of the engagement. Aversion to change is put aside out of necessity. There is a presumption based on the project that things will be worked differently. To illustrate this idea in action, let's walk through a scenario:
Type of work: Acquisition deals
Goal: 10% cost savings
The client and law firm meet to mutually identify methods for reducing the cost while improving the quality.
The first part of the conversation focuses on which segment of the deal is best suited for cost savings and innovations. Diligence is chosen, given the high volume of document review and the subsequent costs associated with that. Negotiation and documentation may be explored at a later date once the diligence aspect has been addressed.
With diligence selected, the conversation shifts to opportunities for innovation. Since diligence is similar to discovery, the teams look to innovations in that area. Technology Assisted Review is identified. This technology "predicts" the nature of documents (i.e. responsive) and is already being used for diligence in the market. Next up is the use of alternative staffing in discovery, where contract lawyers are utilized for first review. It is decided that in the first instance, the teams want to use higher-level lawyers. So nonâ€“partner track lawyers are identified as the best option. Finally, someone suggested the use of legal project management as a means for managing the matters to a budget. It was agreed that the idea made sense.
Here we should pause and reflect on each proposed innovation and its impact on the client and the law firm. For the client, all of these ideas can lead to cost savings or cost management at a minimum. However, the client must be comfortable employing all of these. It must: a) be comfortable with the accuracy of the predictive nature of the technology, b) be comfortable using a new category of lawyers, and c) be willing to pay for project management functions, be they from lawyers or project managers. Absent the client's comfort with all of these changes, they will not be sustainable.
The law firm must be willing to invest in each of these ideas. It will need to purchase the technology, recruit nonâ€“partner track lawyers, and employ project management resources. All of this begs the question of how the firm will be profitable after making these investments. Traditional hourly billing will lead to less income, and lower margins. So part of the new arrangement will need to include non-hourly billing—most likely utilizing some type of fixed-fee arrangement that is perhaps based on the volume of data involved in diligence (or some other factor that can be clearly scoped).
This scenario illustrates that innovation is more than selecting options. It must include a conversation around 1) a willingness to try new approaches, and 2) a willingness to adjust the structure of the fee deal so that both parties benefit. It also demonstrates that real change in the way legal services are delivered will benefit greatly from client/law firm collaboration. Win-win outcomes will be significantly more difficult to reach absent this combined effort.
The emerging legal operations roles are excellent points of contact to begin these conversations. Their jobs are very well aligned with the outcomes of this approach and their skill-sets are often equally aligned (i.e. project management, pricing, etc.). All of the necessary conditions exist for such collaboration to be possible. We just need law firms and clients to come together to drive the functional changes that the legal market needs.
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