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Recently I participated in a think-tank discussion about how the law firm business model is broken. I kept quiet for the first part of the discussion (for those who know me, this was not easy). People in the room attacked most aspects of how law firms are run, which is popular and fun these days. Truth be told – I partake in it as well on this blog. But at a point I couldn’t hold it in any longer and blurted out: The business model is not broken.

Everyone turned and gave me the ‘who farted’ look (HT to Lincoln Mead for that descriptive phrase).

Which brings us to the question: What is the law firm business model? As I see it, it’s a
professional services firm in a partnership (or partnership-like) model where the owners actively participate in the delivery of services. Law firms sell the time and expertise of their people at a profit. Firms utilize various pricing approaches, more heavily focused on a time and material approach (a.k.a. the billable hour).

So in the conversation, I put forth the statement: What is broken about that?

One example thrown out was how the billable hour was broken since it motivates bad behavior. As in it motivates lawyers to spend excessive time performing various tasks.

My counter: the billable hour motivates hard work. What is wrong with that? Last time I checked, most ‘business models’ reward hard work, whether it’s spending extra time working or driving more value through creativity.

I suggest the billable hour is not a bad or broken aspect of the business model. But there is something missing: Leadership and Management. By this I mean that firm management has not done a good job of setting expectations around how hours can be accumulated. At the truck assembly plant, workers can increase their comp by taking extra shifts. However they are not the ones deciding how much effort they can apply to each task. If they take twice as along to install a wheel, instead of getting twice as much work credit, they probably get a reprimand since they are slowing down the assembly line.

Law firms need to adopt such an oversight function into their processes and practices. Many firms are pursuing project management as a means to accomplish this.

The point here is that although law firms are under increasing pressure to lower the cost of delivering their services, the basic business model is fine. What is needed is adoption of more business-like practices within that model. In the 70’s and 80’s the business model of American car manufacturers was not ‘broken.’ Instead they needed to adapt the practices and process to an increasingly competitive market. They installed automated assembly equipment to cut their cost of producing cars. They did not change their basic business model. They are all still corporations, designing, building and selling automobiles.

I’m not sure exactly what type of business model law firms would adopt if the current one is broken. Maybe we should set up a dealership network and offer incentives at the end of the year to clear inventory. Or not.

The model is not broken. Firms just need to evolve into a mode where they continually adapt to a changing market.

And if you are wondering; No – I did not break wind.