For many years, many law firms and some general counsel argued that “law is different.” Different in that you can’t treat legal services like any other component purchased by the enterprise. Procurement people should steer clear, and don’t you dare let the supply chain management types near my hand-picked law firms.
Last week, Bloomberg reported that Toyota is seeking price concessions from suppliers. For years, Toyota has been unique in the global automotive sector in that it had long-term arrangements with suppliers, particularly those based in Japan. Some in a special part of its so-called “keiretsu” network have been supplying Toyota since 1943.
Now the word is that Toyota is telling these suppliers to cut prices or risk being replaced by overseas competitors. The reasons for this move are many: the strength of the Yen, challenges posed by the earthquake and tsunami, and the strength of a resurgent GM, a nimble Ford and the globally-sourced Nissan and VW.
Are law firms directly part of these supply chain cost control efforts? I’m not sure. But apparently some suppliers are being asked to cut costs by up to 50%.
So what does this have to do with corporate legal services? I see three things to watch:
1. Even the largest companies are cost-conscious. Toyota was a global juggernaut, and prided themselves on doing better for suppliers and nurturing long-term arrangements. Now we see that loyalty has its limits, and incumbency only means that you get into the first round of the RFP. Are law firms less fungible than auto parts suppliers? Maybe a bit, but I’m betting far less than some think.
2. Value and quality can co-exist with lower costs. Another hallmark of Toyota’s approach to paying more for components was that they saw it as essential to maintaining quality. Now many competitors have closed in on Toyota in some quality measures, while cutting supplier costs. Note also the recent claims of unintended acceleration that resulted in the recall of over 10 million vehicles. Law firms that assert their higher prices are a sign of more value better be really sure about it. There are probably 20 other good firms that would do similar work for less.
3. Toyota pioneered lean, and corporate legal is going there. The Toyota Production System is a big reason why the company has bested the competition for decades. It was the “secret sauce” that allowed them to spend a little more on component X, yet still be competitive on price and in the lead on quality. The TPS is a big part of the “lean manufacturing” movement. These principles are moving into the services sector with a focus on attention to detail, data-driven decisions, involving workers in efficiency initiatives, and eliminating waste. Indeed, under lean, more efficiency, less waste and increased speed are seen as parts of quality, not governors that limit it.
If the biggest companies are obsessive about costs, you can only image what smaller companies are thinking. And if we think corporate legal services are somehow different, we are increasingly mistaken. Hope for the continuation of the status quo is not a strategy.
All those hours on Toyota matters get crammed together and are right there on the dashboard, if you look really closely. Heck, they are even there in a Wendy’s chicken sandwich, or in those nuggets offered by the competition.