One thing about change in the legal industry: it is happening everywhere, popping up globally in much the same way at virtually the same time.
John Chisholm writes in the New Lawyer about the status of the billable hour in Australia, capturing the universal tipping point rather succinctly:
Sure, it probably annoyed some clients that whatever their legal spend was they couldn’t actually budget for it accurately, but this was a small price to pay for the benefits they were getting out of their firms. And there was no alternative anyway. Most law firms were offering the same rates, and it wasn’t as though any firm could give them a fixed price.
Since clients are becoming enlightened everywhere at once, it’s clear that value isn’t a virus. No amount of marketing or sales tactics will inoculate clients against it.
So what’s the new reality if clients are infected with new knowledge and increasing support (i.e., motivation) for change? It’s simple: there’s no going back. Fully 80-90% of corporate legal work will be priced to market. My real takeaway is this:
only top end work will be value priced.
What’s this “top end?” Think of things like deals, major disputes, key regulatory matters. Law firms will hope this is 10-20% of work. For many clients in normal years, it may be less than 10% (although more than 10% of the outside counsel budget since it will be priced at a value premium).
For the remaining 80-90%, it’s good work, but most of it will be seen by clients as what it is: a commodity. Law firms will struggle to differentiate and clients will know more precisely over time what a 10-site package of commercial leases in the Northeast costs. More pricing knowledge for clients equals easier shopping between firms and quicker switching if you need to. Bundling commodity work may get a slightly higher effective rate, but nowhere near that for top-end work.
Thus the fundamental strategic question for major law firms: can you do both (value work and commodity)? Should you? To do this, a firm would need two of everything: pricing structures, staffing models, talent pools, comp plans. It’s like merging Wal-Mart with Tiffany: I’d really like to see that ad copy.
Clients are coming off a 20-30 year bout of the billable hour flu. For a lot of corporate legal work, “value” is not a panacea, it may be something else.