The Legal Services Industry:

Transcription

1 The Legal Services Industry: A Profession In Need of Project Management A White Paper By: Larry W. Bridgesmith, J.D Chief Relationship Officer, ERM Legal Solutions 1 of 10

2 The Legal Services Industry: A Profession In Need of Project Management The current state of the legal services industry is one of fear, denial, distrust and unmet expectations. Lawyers are asking if they ever thought law practice would reveal such fault lines in purpose, mission and economic opportunity. Clients are asking why law firms have so little skin in the game. Massive job losses, significant declines in legal service revenues and increased hostility toward the business model on which legal services are based are mere warning signs of a tsunami of change rapidly approaching the shore. 2 of 10

3 The Origins of the Problem Some criticize the billable hour as the downfall of legal professionalism. Others blame Big Law as the culprit which brought down the law as a noble profession. Still others fault the legal education system in the U.S. as the major causal disconnect between the promise of professional satisfaction and the business of law. In reality, no single source can be identified as the cause of a decline in the opportunity, fulfillment and appeal of the legal profession as a high calling and the esteem with which clients are inclined to view their lawyers. What remains beyond debate is that the business of law has lost its luster and the legal industry landscape is littered with unmet expectations on the part of clients and lawyers alike. The collision between expectations and reality was apparent for many years. However, denial is a powerful force. As American business experienced a 20% increase in the costs of doing business in the first decade of the 21 st Century, legal costs skyrocketed 75%. Over the same time frame, law firm profits were reported to rise at the same level as legal costs to the client. Sophisticated clients picked up on the correlation just in time to encounter the largest economic downturn in the U.S. economy since the Great Depression. As a result, during 2008 and 2009 the irresistible force met the unmovable object and something had to bend. Law firm profitability was the victim as large corporate clients demanded law firms to put skin in the game and provide efficiency and certainty of pricing as a value proposition in the client relationship. The traditional firm growth and profitability strategy of raising rates ran into a brick wall. Clients refused to pay increased rates and began to demand rate reductions, some as large as 25%. 3 of 10

4 Attempted Responses Against this backdrop law firms are struggling to create fixed cost strategies and alternative billing. In a recent Fullbright survey on litigation trends, 52% of US respondents, and 50% of UK respondents indicated they are using Alternative Fee Arrangements. ( However, clients see through the tactic and recognize that fixed fees are merely a method of predicting law firm profitability on a given engagement. No real efficiencies have been created. To the contrary, clients distrust alternative fees as a device to maintain the status quo. Many clients insist on negotiating legal project budgets, which determine the time to be billed on discrete segments of the engagement and attempt to control costs on the front end. There is increasing evidence of clients even implementing weekly fixed fee contracts with firms, and insisting on weekly reviews to determine if they will renew the next week s contract. More sophisticated clients are searching for commoditized legal services. They insist that not all Matters, or even segments of many legal projects, amount to bet the company concerns. For these clients, the engagement of different lawyers or law firms who provide different levels of expertise at varying level of costs will solve the efficiency problems. However, transparency of legal costs, utilization of resources and management of activities are problematic because lost they get lost in the law firm s maze of time and billing and delay the law firm s ability to recognize revenue. System solutions have been unavailable to manage the engagement, matter pricing and resource management of legal services. Commoditization has proven unattainable. 4 of 10

5 Point solutions have surfaced as law firms, consultants and providers attempt to bring legal services into the same business model most other industries have already discovered. Price, cost, time and billing software are emerging to address the client s need for certainty and the law firm s need to insure profitability. Law firms are sending their lawyers to be trained in cost estimation and professional estimators are being hired by law firms to provide expertise in project pricing. Segments of legal services are obviously appropriate for technology solutions. Computer based legal research has long become the norm in legal education and law firm practice. Similar digitization occurred in electronic discovery. E-discovery point solutions provide significant advantage in litigation to the law firms able to computerize the discovery of computer data relevant to the litigation dispute. Other industries have already discovered the power provided by technology tools which manage activities and resources needed for project completion in efficient, cost effective and high quality fashion. Engineering, computer assisted design/manufacturing (CAD-CAM) and high-skill manufacturing processes such as tool making and patternmaking all found that reliance on human effort to manage the details of project completion will be better performed by software applications which free the skilled artisans to do what they do best. Many industries have relieved the high value performer from the mundane management of processes through technology. Cost and time efficiencies result and quality output is increased leaving the professional with more time to perform more productive and satisfying work (or enjoy more leisure). 5 of 10

6 Legal project management is one of the newest means to provide law firms and clients with a predictable assurance of quality management control over legal services delivery systems. Law firms are now sending lawyers to receive project management training in order to acquire process management skills in order to assure the clients expectations of quality management and process expertise are satisfied. Some law firms are spending millions of dollars and investing years of time in Six Sigma training for lawyers and law firm paraprofessionals. Clearly Six Sigma process approaches to law firm practice activities provide measureable cost improvements with no sacrifice of quality. Repeatedly these quality management systems (QMS) generate 20 to 25% reductions in the cost of providing legal services. The law firms and the clients benefit and the quality of legal services actually increase. However, the time lawyers are spending on learning how to perform responsibilities unrelated to the practice of law create even greater dissonance between the reason they went to law school and the appeal the practice of law holds out to them. Lawyers who are becoming cost estimators, process engineers and project managers leads to even greater disaffection and loss of enthusiasm for what has become drudgery (or administrivia ) as opposed to professional achievement. These point solutions generate greater work and time demands on lawyers and lead to less integrated solutions which satisfy the clients expectations. Client needs are not being met. Lawyer de-motivation is growing. Law firm growth and profitability continues to plummet. At the same time, the aggregation of the expense of point solutions increase the financial cost to law firms without improving profitability, productivity, client satisfaction or lawyer fulfillment. 6 of 10

7 Despite all these recent approaches and methodologies, enterprise solutions have evaded discovery. Firm wide integration of processes, solutions and management of activities and resources are not addressed by these many unrelated efforts to move legal services into a business model worthy of emulation. Systems which do the work of resource and activity management are missing from the equation. Lawyers and legal assistants are not being freed up to do the work they enjoyed when times were good. The enterprise wide solutions being sought by lawyers, law firms and clients are not to be found in the many single solutions being adopted. The Enterprise Solution An enterprise solution is one which incorporates technologies, protocols and work flow procedures into a cohesive firm-wide application of proven best practices. Most importantly integrated enterprise solutions are minimally disruptive to the law firm. Lawyers do not need to learn how to become cost estimators or process engineers to do the work they enjoy and have been trained to do. High cost technological point solutions do not have to be jettisoned. Time and billing, conflict management, calendaring, legal research, document management and trial technology software solutions that work successfully for a firm can continue to work just as they have in the past. An enterprise solution incorporates each successful technology and established best practice into a seamless whole that works for the firm rather than in opposition to it. With a minimal investment of productive lawyer time to learn new skills, the firm can generate significant cost savings at a modest expense. Significant investment in disruptive processes, 7 of 10

8 technology and learning new skills can be avoided. An effective enterprise solution takes what the firm does best, focuses on achieving the firm s business goals and objectives and automates them across the firm or practice group which chooses to adopt them. A properly conceived enterprise solution respects the autonomy of the lawyer while advancing the profitability of the firm and the level of client satisfaction with legal service efficiencies. It may sound like magic but is has been done in many industries before now. An Enterprise Legal Solutions Approach At less cost investment by the firm than many point solutions require, enterprise solutions assess the law firm or practice groups work processes. Best practices are identified and systematized for the firm or practice group in ways which integrate the firm s other point solutions (time and billing, conflict management, project cost estimation, legal research, document management, trial technology etc.). An enterprise solution emerges which is unique to the firm and the way its best lawyers practice their craft. The solution becomes a transparent tool which lawyers readily utilize from their desktop, IPad, netbook or smart phone to access and plan for resource utilization three months in the future or more while the system manages the administrative activities of the legal project automatically. The net effect of an enterprise solution is cost and time saving on the part of the firm, retention of the lawyers interest and engagement in what they do best and incentivizing the attainment of efficiencies and quality to the significant satisfaction of the client. All this can be done in real time and transparently to law firm management, lawyer and client. 8 of 10

9 Saving as much as 25% in legal costs (in many cases as much as 35%) and work efficiencies provides the law firm, practice group and practicing lawyer greater latitude to do the same amount of work at greater profitability, less amount of time at the same profitability or invest the saved time and expense in expanding the work of the firm at no loss in profitability or productivity. Simultaneously, the clients receive greater value at less cost with the same or improved levels of quality. Why Now? The legal services industry is facing unprecedented stresses on its current business model. The most recent recession was the first time in modern history that law firms did not profit from a recession. The normal litigation bounce did not materialize. Corporate clients actually spent less on legal costs over the last two years rather than more. Law firms are contracting or going out of business. Lawyers are leaving Big Law in unexpected numbers to open small firms which offer greater value than the current business model can generate. Law students are suing for a return of their tuition dollars because the promise of lucrative and satisfying career has not been delivered. Most law firm leaders believe the good old days will never return. The use of enterprise technology solutions in other industries (such as engineering, computer assisted design/manufacturing (CAD-CAM) and highly skilled professions like made to order tooling) provides predictable profits on an ongoing annual basis. Bidding on work can be done with greater certainty and less risk. Competitors cannot provide the level of cost and profitability capable of being achieved by firms using enterprise technology solutions. On time delivery of services at greater quality and 9 of 10

10 cost assurance has been realized. Customers and service providers have real time and transparent access to project completion progress. Trust in the delivery of service quality, timeliness and cost certainty leads to customers who will to pay a premium for this level of service excellence and reliability. Ultimately, the use of enterprise technology tools creates greater financial reward to the owners and cements client relationships in highly competitive industries. Under the current legal services business model higher profits to the law firm means higher costs to the client. Using an efficiency model empowered by enterprise technology, higher profitability is the reward for greater efficiency and predictability of cost and quality. Without a significant shift in the methods of legal service delivery, the status quo is simply inadequate to meet the challenges of the economic tsunami law firms, lawyers and their clients face today. Enterprise solutions will prove be the differentiator for the law firms of the future. The firms that choose not to change will be mere shadows or even ghosts by the year Visit ERM Legal Solutions at for the Solution Your Firm Needs 10 of 10