In about 10 days, I will be presenting as part of a panel at the Thomson Reuters 24th Annual Marketing Partner Forum. The session I will be presenting will be focused on differentiation in a highly competitive market. Aside from being a hugely important topic at this moment in time generally as we usher in 2017, the topic is a reaction to the 2017 State of the Legal Market Georgetown/Peer Monitor Report which is now available. The report tracks firm financial and other performance metrics in the US over the course of the last decade since the “Great Recession”. Not surprisingly, the report paints a somewhat bleak picture of the current state of legal services – from an operational point of view. I will leave you to read the report, but the Coles Notes (Cliff’s Notes) version indicates that:

  • demand growth is flat;
  •  there is declining productivity;
  • firms are experiencing growth in expenses, and
  •  increasing cost of leverage; despite
  •  ability to raise rates 2 to 3 percent a year, which is countered by;
  • steadily declining realization rates. 
Much of which can be attributed (in whole or in part) to:
  •  a buyer’s market;
  •  death of the billable hour pricing;
  •  erosion of the traditional law firm franchise;
  •  declining effectiveness of traditional leverage; and
  •  growing segmentation within the market for law firm services

It’s a bleak and scary picture, one that in my mind doesn’t even take into account the effects and affects of technology on the profession, in practice and in operation. 

 
The report, does offer a couple of rays of sunshine – the silver linings if you will for those of us not on the practicing side of the equation. The first quote that animated me was this:
 
“If the large firms in the middle cannot offer sufficient differentiation for their services, clients will have little incentive to change this behavior.”
 
Differentiation is largely the work of marketing to articulate, even if KM, Pricing, Library, and others are doing the executing. This provides huge opportunities for marketing departments and agencies who work in this space. It is getting harder and harder for firms to differentiate themselves in any meaningful way, but we know that each firm is special or unique in some way. The challenge is in figuring out how to illustrate each firm’s unique value proposition in RFP responses, pitches, branding efforts and pricing mechanisms. The crucial bit for people like me, is how do we use this statement as a catalyst to bring about the cultural and operational changes required for firms to make a discerning mark. Defining what a firm does differently is a hugely difficult and exciting task, one that requires those in firms who are not necessarily practicing law to break silos and work together to shape a new reality to law firms (see the last 3 Geeks post on libraries-marketing-money-credit). Which brings me to the second point in the report that buoyed me. 
 
“broader reimagining of the overall model for legal service delivery, one that includes paraprofessionals, technologists, information specialists, process managers, and others – in addition to lawyers – as part of an integrated system for the delivery of legal services
 
 Law firms, much like many other businesses from insurance to retail, education to food services are being forced to rethink their way of earning profits. The industry is under pressure from clients, suppliers, and staff to meet technological, social, financial and other impacts head on. Law firms have been long insulated by established protocols and relationships, both of which are now vulnerable to market conditions. Its time, as the report says to lean on others in a truly collaborative partnership to boost client service and in turn, revenue/profit. There are all these fabulously smart people in firms who are limited in their ability to contribute by virtue of their non lawyerlyness. Imagine the impact a firm could have with all of its intellectual capital playing a more active role, that could (should!) be the new road to competitive differentiation.
 
So while growth is relatively flat, and realization rates may be low, the opportunity to find new roads, and new open spaces to drive the legal business in 2017 are endless.
Image [cc] – Tomozaurus

Jane: The billable hour is dead, Dan. It is the sad and lonely remnant of an era when clients were to stupid to realize they were being fleeced by outside counsel. I for one can no longer, in good conscience, blatantly steal my client’s money. I officially declare the billable hour six feet under, pushing up daisies, defunct, deceased, kaput. Never to be heard from a…

Dan: OK, OK. I get it. You do realize, Jane, that repeating something incessantly doesn’t make it true, it just makes you slightly more annoying than usual. Also, as a graduate of North Tuvalu Online Law School, I’m pretty sure you’re stealing your client’s money regardless of the billing arrangement.
Jane: Woo hoo! Go Land Sharks! I choose to ignore your petty insults, Dan. They are nothing more than the last dying gasp of a big dumb lizard.
Dan: What is that supposed to mean?
Jane: It means that you, my unfriend, are a post-asteroid BigLaw Dinosaur. Desperately grasping at the last lingering rays of light before the sun is forever blocked out, the plants all die, the critters that eat the plants pass away, and your BigLaw Tyrannosaurus — still billing by the hour — ignominiously starves to death.
Dan: OK, first of all, paleo-breath, the dinosaurs that survived evolved into birds not reptiles.  Secondly given your ridiculous scenario, my Tyrannosaurus would die of dehydration or disease long before it starved to death. And finally, you’ve taken this metaphor waaaaay too far. I have no idea what your original point was.
Jane: My point IS that the billable hour, by its nature, creates terribly perverse financial incentives for the attorney and provides absolutely no value whatsoever to the client.
Dan:  I have no idea how that relates, but let’s move on. Perverse financial incentives?
Jane: By rewarding the total time spent working, rather than the actual work completed, the billable hour incentivizes attorneys to either do more work than is necessary, or to work more slowly. Either way, the client is paying more for less relevant work product.
Dan: I’ll keep this really simple for you Jane; the method of billing doesn’t incentivize anything.  The structure of attorney compensation is the problem. Take for instance the guy that changes the tires on your pickup truck. He doesn’t care whether the garage charges you for parts and labor (hourly billing) or a flat rate. He only cares how HE is compensated. If he is paid based on how long it takes him to change the tires, rather than the number of tires he changes, then he’d be a fool not to double tighten your every lug nut and thoroughly polish your rims.
Jane: You pig!
Dan: What?
Jane: I… don’t know, but it sure sounded… Anyway, your argument fails to take into account that by artificially increasing revenue, the billable hour incentivizes the owner to create those bad compensation structures in the first place. Any way you look at it, the billable hour amounts to little more than institutional theft and I, for one, am shocked that you would defend, even advocate for such chicanery!
Dan: I’m not advocating for anything! I’m saying that, as usual, you have entirely missed the point! For certain engagements, certain clients will always be best served by aligning effort and outcome, not just focusing on the outcome. Your attempt to prematurely bury the billable hour is severely hampered by the fact that it is still the most prominent method of billing for legal services. I’m not saying it is the greatest thing ever, or even appropriate most of the time, just that the problem for clients is that the cost of legal services has steadily risen, while the value they have received in return has stagnated. This is not a problem of billing practices; this is a lack of management oversight. Law firms need to completely rethink the way they manage their practices, the way they compensate their attorneys and, yes, the way they bill their clients! But even if the billable hour as a concept were to completely disappear from the face of the earth tomorrow, the vast majority of the problems facing BigLaw and their clients would remain entirely unaffected!
Jane: ….
Dan: C’mon, Jane! No snappy comeback? No witty repartee?
Jane: The last dying gasp of a big dumb turkey.
Dan: I’ll take that as a no.

Please submit topic suggestions or make your own arguments at dandj3Geeks@gmail.com.