Resolve to evolve
26 February 2001
People who call for revolution are often in the minority and are easily dismissed by the majority, who are comfortable with the status quo. But when the status quo is less profitable, less efficient and denies opportunity, those who call for revolution may not be in the minority for long.
It is probable that during the next five to 10 years we will see a revolution in the way we market, sell and deliver legal services.
There is a feeling that lawyers have always understood revolution to mean "going round in circles" - when we hear that information technology is revolutionising the way we work, it seems to send many of us into a flat spin. But technology only gives us the potential to be outstanding. To realise that potential we have to rethink everything about the way we work. In short, the legal profession must revolutionise its concepts of "product", "service" and "channel distribution" if the technology is to be truly valuable. Simply applying technology to the old ways of working misses the point.
In fact, today seems just like any other yesterday. Imagine you are the head of an important legal department conducting a high-profile litigation case against an IT supplier for failing to deliver a new IT platform on time or with the promised functionality. Your chief executive officer (CEO) has a personal stake in the matter. At the annual general meeting he promised his shareholders new levels of customer service on the expectation that the new platform would be in place. The financial director (FD) wants his £5m back and all the legal costs. The IT director fears for his job and believes that too many lawyers getting involved at this stage will spoil any chance of an agreed solution. The share price is wobbly and customers are getting restless.
So, no pressure on you then.
You have instructed a top firm - the board, of course, have not heard of it but you know it has all the expertise needed. The firm has agreed a non-binding budget for the first three months but will not budge from hourly rates. It will not tell you how long the case will last, except to say roughly 12 to 18 months, and it positively snorts at the idea of telling you how much the case will cost unless you are happy to deal in units of £500,000.
As the months roll by and with the board making your life more and more uncomfortable, what examples of outstanding customer service can you expect?
Increases in the hourly rates because of US competitors? A change in key personnel because US firms have poached the best lawyers? Armies of junior lawyers and paralegals crawling disruptively over the business, printing off mountains of emails because even now we need to see everything for discovery? The lead partner going off to Malaysia because he has been hand-picked by its government for a very important case and therefore had to drop you like a stone? The QC who you were advised to hire early to ensure continuity uttering the immortal pre-trial mantra: "Of course, it will all depend on the judge"? And to cap it all, you will have no clear idea, at any stage, as to when it will end, what impact it will have on the business or what it will cost.
So, in this world where you are having your life made a misery by the CEO, the FD and the IT director; where you are paying for a never-ending service of dubious value by the hour at rates which can be hiked to pass on the law firm's increased overheads; and where the barrister who will present on the case has no idea whether you will win (but will, of course, get paid anyway), you may seriously wonder if law firms and the bar have the faintest idea about anything except how to screw their clients in the most charming manner possible.
This is not an extraordinary scenario and this is not service in a sense that any other industry would understand it. It is self-serving, self-perpetuating, inefficient and exploitative. It has to change.
But where to begin the revolution? Hourly rates must die. They must be killed, burned and their ashes flung to the wind.
How can it possibly be justifiable to pass the entire economic and litigation risk to the client; give no contractual commitment on the totality of costs; be unable to set anything more than an indicative budget; have no stake in the outcome and have carte blanche to run a case with in-built inefficiencies which can only increase the profitability of the lawyer?
There is no good argument which supports the concept that hourly rates are suitable for clients. It is not that the overall amount charged may be unreasonable, but that you have no way of knowing until you get there whether it is reasonable or not. All the risk is with the client. It is a fundamentally flawed model that antagonises rather than supports the client.
The problem, of course, does not begin or end with hourly rates. Hourly rates are a symptom of a flawed business model and it is the business model that must change if hourly rates are to go.
The profitability of a law firm depends on the ability of individuals to generate billable time. The only way individuals can increase their profitability is to work more billable time, or to be paid more for the billable time worked. Such a model is inherently restrictive. It encourages overpricing, a tendency towards quantity not quality, and rewards delay. It works against the interests of the firm as it grinds staff into the ground and it obviously works against the interests of the client.
Financial services, for example, is an industry not without problems, but what sort of service would a bank's customers get if the only time they could buy anything was from a named individual in a particular branch during office hours?
Law firms have got to see that their product is not the lawyers they employ. Their lawyers are simply a distribution channel for their product. Until firms grasp this point and start to develop other means of distributing their product, we will continue to see the over-reliance on individuals, on their time and, therefore, on the cost of their time.
To take the financial services analogy further, law firms need to develop their product so that it can be distributed online through the web, through interactive TV,
via call centres, through specialist advisers, on CD-Rom and through a branch network. They need to commodify their expertise so that they can sell 'off-the-shelf' or offer a bespoke service. They should franchise their brand and their expertise so that others can sell their products too. They need to diversify into property, training, publishing, consultancy, risk management and, yes, financial services. In fact, anything at all where the ability to be a creative problem solver is valuable.
Law firms have to break free of their self-imposed constraints so that their clients in turn are not constrained by the old way of purchasing services.
Law firms should make money, lots of money. They should be so profitable that they start to scare the accountants. They should invest profits in their communities, in their staff and in developing even more opportunities to make money. But they should also provide a world-class service, on the client's terms, within its budgets and on its timescales. They should give access to knowledge databases, access to the client's preferred distribution channel when it wants it and it should feel in control.
But when will this all come to pass? Some firms will be doing some of this already but none of them are going far enough.
It is possible that the pace of change will only truly accelerate when law firms can incorporate or even float. Then they will have investors demanding innovation, a healthy return on capital, and for waste and inefficiency to be driven out of every process. Then management will be forced to focus on clients not partners. And, just perhaps, in-house counsel will be courted as potential non-executive directors for the new plc law businesses.
The law firms of the future will be unrecognisable from the law firms of today - the ones which get there first will make more money than they ever dreamed possible, and their clients will not begrudge them a single penny.
Paul Gilbert is legal director at Lawbook Consulting