9/13/12

Commodity Doesn’t Mean What You Think It Means

As law firms look for opportunities to grow revenue, there really is only once place to look: Down. By down I mean further down the food-chain of legal services. Most lawyers and firms like to hold themselves out as a unique brand: a brand worthy of only the highest levels of legal work.

Even in the old days, that probably wasn’t true. It was just the case that big-name clients gave all of their work to big-name firms. So firms were actually getting a broader spectrum of work, across the value chain.

Not anymore. Clients, whether explicit or by accident, are redefining their legal market spend. First, they are shrinking that overall number, but more importantly they are classifying their work in to the traditional three tiers. Tier One – is the high-end work all firms think they are doing. Tier Two is the mid-level, day-to-day kinds of work that needs good lawyers but is not pushing the envelope of legal thinking. Tier Three is the ‘nuisance’ work, that can’t be ignored, doesn't hold much value for the client, but must be addressed. And clients are sending Tier Two and Three work to lower priced providers.

So with a shrinking pie, and a greatly diminished Tier One layer, where can firms grow their revenue? Whatever the answer is, it is not Tier One. The competition for Tier One work is heavy and getting more intense. Any firm that wants to expand in this layer will need to do so at another firm's expense. And displacing incumbent providers in a highly competitive market is an extreme challenge. This leaves Tier Two and Three as the only viable options. But this fact challenges a core reputation factor for lawyers, as anything off of Tier One is presumed to be commodity work. And who wants to do commodity work?

Whenever I hear a lawyer use that term, I am forced to bite my tongue. Because as an economist, I have a more precise understanding of that term.

Commodity (from About Economics):
  1. Usually produced and/or sold by many different companies
  2. Is uniform in quality between companies that produce/sell it. You cannot tell the difference between one firm's product and another.
In English, this means if a client can go to another firm or lawyer and obtain the same level of service, then it is a commodity. I would argue 99% of services any law firm provides meet this definition. I realize many lawyers might try to argue the “quality” angle about their services, however, from a client’s perspective, that kind of quality is a given and not a differentiator.

So the real issue for lawyers when it comes to this subject is not ‘Commodity’ but is instead ‘Reputation.’

Smart lawyers will set this aspect of their ego aside and focus instead on a better question: How can I help my client?

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2 comments:

Kate Simpson said...

Excellent post!
Creating commoditized legal services (particularly along Susskind's (scary?) evolutionary five steps) is also the definition sometimes given to 'transformational' or 'disruptive' innovations in industries outside of our own:

"transforming the expensive and complex into the affordable and simple".

That's got to be valuable to clients!

Chris S. said...

I too was confused by the loose use of the term and take great solace in your point that it was confusing for good reason. You crafted the perfect ending: focus on the client's needs. I too believe that that is a key differentiator.

 

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