Thomson Reuters today released its annual law firm report, 2020 Report on the State of the Legal Market, prepared with Georgetown University Law Center, suggesting law firms disrupted. I agree in part with its conclusions but disagree that large law firms are at a unique turning point or face disruption. I summarize key points from the report, then explain my views.
Report Highlights re Law Firms Disrupted
In the past year or so, this evidence has grown to the point that it seems apparent that a fundamental shift is now well underway.
“Shift” refers to how large law firms operate. The report opens with a secton called “Incremental Improvement vs. Radical Change”. Its sports analogy suggests that this shift will be transformative, a “periodic disruptive change”. It says we have seen “undercurrents of change evident for some time” and that in the last decade, law firms “adjusted and readjusted the existing model sufficiently to sustain respectable — though certainly not extraordinary — performance”. At the same however, it points out, plenty of evidence suggests
[The law firm] model itself is changing, that clients, non-law firm competitors, and even many law firms are now operating with very different assumptions about the role law firm services should play in the legal ecosystem and how such services should be delivered.
To support the idea of “radical change”, the report cites multiple recent trends:
- Clients Have Gained Power. Post the Great Recession, the market shifted from a seller’s to a buyer’s market. Clients now dictate engagement terms.
- The Rise of Non-Law Firm Competitors. Alternative providers / law companies have grown and the Big Four have made major moves into legal. (The report cites an early 2019 TR study here, which I questioned in my Feb 2019 blog post, The State of Alternative Legal Service Providers.)
- Big Law Responds with Innovative Service Offerings. There are “clear indications… that many law firms are adjusting to new ways of doing business.” The report cites
- increased reliance on allied professional to deliver legal services;
- improved internal systems such using legal project management (LPM), and knowledge management (KM);
- the rise of pricing professionals;
- data analytics for profitability;
- expanded partnering with alternative providers and/or outsourcing of services;
- creation of low cost captive centers for legal-related services; and
- more tech to improve legal work processes.
It concludes that these trends mean “alternative” no longer suffices to describe non-law-firm competitors – a whole new way of working lies at the doorstep. My words for the key report conclusion are that the legal market will become much less of a monoculture (client and law firms) and a more diverse ecosystem of many multidisciplinary legal advice, service, and delivery providers. Though law firms have responded to the challenge, “moving toward an integrated solutions model for most firms will not be easy.”
I Agree About Change But Not Radical Change
I agree with the report about the legal market’s direction. Indeed, I see large law firms adapting to a new environment of intense competition both within Big Law and against non-law-firm providers. But I disagree that the market stands at a point of inflection or other turning point.
The changes the report describes have been occurring for years. For example, in 2012, Law Practice Today, an ABA e-magazine, published my article The Impact of Legal Process Outsourcing (LPO) You Might Not Have Noticed. I said that law firms were adopting the approaches of what we then called legal process outsourcing companies (now ALSP, alternative providers, or law companies). And the year before that, in 2011, I blogged Will Legal Outsourcing Drive Large Law Firm Innovation? More recently, and mainly at Twitter, I repeatedly contest commentators predicting disruption by ALSP, pointing out that Big Law is responding quite nicely, thank you.
I would love to see a sudden and dramatic change. But where is the data supporting that view? As I observed in my March 2019 post The Big Law Service Delivery Curve, we can visualize change along many different growth curves. TR suggests a curve with a kink in it, that is, a sudden shift – think of a point at which the curve does not bend, rather it kinks downward abrutly.
TR could list even more sources and trends than it does but I doubt it can find any data that supports sudden and abrupt change.
What I would love to see from TR and others who forecast sudden change, is just what does it look like? The large firm dissolutions we have seen in the last decade, by and large, turned on bad management decisions, not failing to innovate or improve service delivery. In the future, my guess is that firms that miss the boat on making changes fast enough will simply merge with those that do go fast. And organic growth in the total number of lawyers in the Am Law 100 may slow (or go negative). That’s my picture of the future. What’s theirs?
My comments notwithstanding, I do think that TR’s conclusions serve as an excellent and compelling message for managing partners. My message is not “act now or dissolve within X years.” What I can say and what seems reasonable is “now is the time to act and remember, it’s more fun to be the acquiring firm than the one that’s acquired”. Perhaps that will motivate some more incremental change.