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June 14, 2017

New research on how to improve legal efficiency, and much more

According to Altman Weil’s recently released 2017 Law Firms in Transition (LFiT) survey the top two trends that are transforming the legal profession are “More price competition” (95% of the 386 managing partners and chairs who participated in the survey said this is a permanent change) and “Focus on improved efficiency” (94% said this is permanent).

So what are law firms doing about these fundamental changes in the marketplace?  Not nearly enough. 

When the LFiT survey asked “Has your firm significantly changed its strategic approach to the efficiency of legal service delivery?” only 49% said yes.  (20% said it was “under consideration,” and the remaining 31% replied with a flat no.)  These proportions have been surprisingly steady for the five years that Altman Weil has been asking this question.  It seems that about 20% of firms have been considering change since 2013, but they still haven’t done anything about it.  

Could the slow rate of change reflect the fact that clients don’t really care about efficiency?

No, that’s not it. In Altman Weil’s most recent Chief Legal Officer survey, the number one service innovation that clients wanted was “greater cost reduction.”  There are only two ways to meet this fundamental requirement:  become more efficient, or cut into your prices and profits with discounts.  (These days, most firms seem to be choosing deep discounts, sometimes to the point of what consultant Bruce MacEwen has called suicide pricing.”) 

Could the failure to act reflect a belief that the pace of change will slow down, or that it doesn’t matter? 

No, that’s not it either.  In fact, 72% of the LFiT respondents believe that the pace of change in the legal profession will increase (p. 2).  The fact that more than half of all law firm partners are “not sufficiently busy” (p. 36) also suggests that the forces of supply and demand will continue to put downward pressure on prices. And in our research for the book Client Value and Law Firm Profitability, 85% of AmLaw 200 leaders said that firms will have a competitive advantage if they change more quickly.

When LFiT respondents were asked “how serious are law firms about changing their legal service delivery model to provide greater value to clients?” the median rating was just 5 on a scale from 0 to 10 (p. 11).  If that’s not bad enough, clients think it’s even worse.  When clients were asked the same question in the Chief Legal Officers Survey, their median rating was a distressing 3 out of 10 (p. 23).

When directly asked “Why isn’t your firm doing more to change the way it delivers legal services?” the number one answer was “partners resist most change efforts” (65%, see p. 14).

Summing it up: Clients want lower prices; more than 9 out of 10 law firm leaders believe there is a need to become more efficient; but less than half of law firms are doing anything about it.  These results may be alarming, but for grizzled law firm veterans, they are not really surprising. 

As Eric Seeger and Tom Clay, the authors of the LFiT, noted on the first page of their report (p. i) “Law firms are slowly changing [but]… we see firms making only cursory investments where they should be aiming for broader, deeper transformation.  And still many partners resist change in all its forms.”

But wait, the slow pace of change is not the only problem.  It gets worse.  When law firms do try to change, they often employ the wrong tactics. 

This year, for the first time, Altman Weil listed eight of the most common tactics to increase efficiency, and they asked which ones each firm was pursuing. More importantly, they asked which tactics “have resulted in a significant improvement in firm performance?”  The graph below (adapted from p. 57) summarizes their findings:

LFiT_Graphic_DSJ2

Note that the two tactics that firms are using most often (knowledge management and using technology tools to replace human resources) are among the least likely to actually improve performance. And the two that have had the greatest impact (shifting work to contract lawyers and to paraprofessionals) are among those least used.  Clearly firms should reconsider their priorities.

If you study the graph above closely, you may also notice another fact that supports an argument we’ve been making for years:  project management training finished dead last in effectiveness.  In 2010, many firms first became aware of LPM when one AmLaw 100 firm got a lot of headlines by training every partner in their firm.  Lawyers love precedent, so that led to a fad of LPM training.  As explained in a post in this blog we here at LegalBizDev refused to participate in this fad, and declined to bid on RFPs that took this approach.  We knew from our two decades in the training business that it would simply not work.  As noted, in our recent posts on the “Top five ways to increase LPM results:   

It is not exactly news that education does not necessarily lead to behavior change. Taking a workshop about how to lead a healthier life by exercising regularly, losing weight, and eating more vegetables does not mean that you will actually do any of these things.

That’s why for years we have recommended that firms start with one-to-one coaching to solve problems that lawyers care about and to produce behavior change and quick wins.  These tactics have been proven to overcome the partner resistance which is slowing so many firms.

While this post focuses on efficiency data, that’s just the tip of the iceberg of the 124 page, free 2017 LFiT report.  The report provides a gold mine of additional data on the key topics that law firms need to focus on to prosper in the current climate, including profitability, staffing, and growth.

Many of these findings should affect your strategy.  To cite just one example, the tactic that law firms rely on most to improve pricing – developing data on the cost of services sold – is also the least likely to improve firm performance (p. 62).  The tactic that is most likely to improve performance is also the one used least often:  adding a pricing director or assigning pricing responsibilities to a current staff member.

As Seeger and Clay summed it up (p. iv): 

Firms that pursue thoughtful efficiency initiatives and stick with them will improve internal performance and add value for clients.  Firms that do not will experience competitive disadvantage over time.  It can cost very little to test-run pilot programs in these areas, and we believe it is an investment worth making.

 

A free copy of the 2017 LFiT can be downloaded from the Altman Weil website

Full disclosure:  LegalBizDev is a strategic partner of Altman Weil, and we specialize in the very types of pilot programs they recommend.

 

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