Research update: How to gain a competitive advantage
Regular readers of this blog know that for the last few months, I have been interviewing managing partners, chairs, and other senior decision makers at AmLaw 200 firms for our study of Client Value and Law Firm Profitability. An updated description of our research approach is now on our web page, including a list of the 50 firms that participated in 30-minute in-depth confidential interviews.
Now that the votes are in, we are starting to analyze several hundred pages of typed transcripts. The complete report will be published in May.
As far as I am concerned, the most interesting question in the study asked participants whether there was an advantage to moving more quickly than competitors to increase client value and to protect profitability with initiatives such as legal project management, knowledge management, hiring pricing directors, and using contract attorneys.
Every respondent said yes, speed matters. Being lawyers, a third of them carefully qualified their answers to apply only to certain types of clients and situations (such as commodity work), but not a single person in our survey said no. Here are a few of the more forceful confidential quotes from these senior partners and executives:
I think the market’s going to shake itself out. I think firms that can’t deliver more value will fail.
Lawyers are about as dumb as you could possibly be about understanding how our product is made. The lawyers who understand how to make it, and the components that go into making it, and can manage that process efficiently are going to be the winners.
I know that the cynical view would be this is just “the flavor of the month.” But just from a pure business and economics discipline standpoint, it only makes sense that of course they will have a competitive advantage.
I think the firms that are most effective are going to do well, and I don’t think everybody will survive. In the last several years, there have been several firms that went away. And I believe that’s going to continue.
It’s all about differentiation. There are lots of lawyers out there who can do great legal work. But the real issue is, how do we deliver better value to our clients?
If lawyers think speed is so important, are most moving quickly? No. In our sample about half have not started moving at all.
When I asked the question: “In the last five years, what percent of the lawyers at your firm have started to change the way they practice law to provide more value while maintaining profitability?” the average answer was that 51% have started. The other 49% are still operating exactly the same way they did in the very different legal marketplace that preceded the great recession of 2008.
More interesting than the average was the variation between firms. At one end of the continuum, the lowest reported that only 5% had started, and at the other end, two firms reported 100%. But the key word here is “started.” As the managing partner of one firm put it:
I think 100 percent of them have started to change the way they practice, because we make it such a feature in everything we do and everything we talk about that it’s sort of impossible for anybody to be here and not have changed somewhat. I think, however, that the upside is still very high, and very few, have changed enough that they can fully meet client needs. I think probably a few have, but less than 10 percent.
To sum it up: law firm leaders believe that moving quickly to implement legal project management and related changes will provide a valuable competitive advantage in a very challenging environment. But most are moving slowly. Why?
Anyone who has ever worked at a law firm knows the answer. The very organization of law firm partnerships and committees makes it hard to act quickly on anything.
One of the firms that is most widely recognized as a leader in the “new normal” is Seyfarth Shaw. In 2012, several years after starting their SeyfarthLean initiative, chairman Steve Poor wrote in the New York Times DealBook: “Never underestimate the resistance to change from lawyers… The continuous move forward takes persistence and, perhaps, a bit of stubbornness.”
So far, firms that are making any progress at all have already seen the competitive benefits. Two years ago I wrote in this blog about the experience of one of the first clients for our LPM just-in-time training program. She reported that change had been much slower than she had hoped, but it was leading to new business, because “If you move like a turtle but you're racing a bunch of snails, it all works out in the end.”
As legal competition continues to intensify, the pace of change is accelerating and being as fast as a turtle may no longer be enough. The good news for lawyers is that to succeed in developing new business, you just have to be a little better than your competitors. A few years ago, most competitors were not even trying to deliver more value or increase efficiency, so they were easy to beat. The bad news is that law firms have increased the pace, clients are watching, and the competition is getting tougher:
Clients are getting smarter. They don’t just ask, “Are you doing anything on project management?” They’re asking, “Tell me what you’re doing in project management. Have you hired anybody? Are you training? Are you working with clients on it?” They’re asking much more detailed questions now. And if your answer is yes in general but you can’t provide details, they consider your answer to be no.
As one of our research participants summed it up:
We’re still in the beginning of the process. Some famous economists have talked about disruptive technologies and disruptive business processes. I think there’s a lot of evidence out there that the legal profession is being subjected to those pressures. Five years from now, if I turn out to be wrong, that will be great. But if I’m right, then I have to believe that those firms that adapt more quickly will have a competitive advantage, and the firms that don’t adapt quickly enough will be out of business.