Dancing on the Cliff Edge

In the October, 2013 issue of the ABA Journal, there is an article titled “Who's Eating Law Firms' Lunch?” by Rachel Zahorsky and William D. Henderson. See http://bit.ly/171EhJe. A key point in the article is one we were making all the way back in 1997: Much of the work that lawyers think they should be doing does not require a law degree. One example in the article is Novus Law, a business firm that provides document review, analysis and management for the legal community; the article says that Novus' lawyers and staff can do 80% of what large law firms think they should do.

In another example from the same article, Vermont law professor Oliver Goodenough notes that at Legal Tech 2013, 35% of the “non-lawyer” service companies were offering legal-related services, 49% of them were offering products, and 13% were offering both. A real-world example is the UK-based firm, Linklaters, which created an expert system that can do the complex work of 17 to 20 lawyers in one-twentieth of the time. More importantly, the system, which they dubbed “Blue Flag,” can be run by client personnel. Finally, many large law firms are installing sigma-six systems that streamline project management in the delivery of legal services.

So what does this mean? As part of the futures conference mentioned above, a published report outlined the progression of sophistication in various professional service firms. Consultants led the way in the 70s by having to demonstrate a value proposition to their clients, who expected a return for their investment. Then came the doctors and hospitals in the 80s, who had to deal with insurance and government institutions putting operating regulations and restrictions on how much could be charged for a procedure. Then came the CPAs in the 90s, who had to justify value added and provide a fixed fee for an audit. And the next round has begun to hit law firms.

I was recently reminded by a friend of mine at IBM about its Jeopardy Grand Champion competitor, the supercomputer dubbed Watson. Back in 2011, Watson won by pulling in vast amounts of information and organizing it in order to be a winner. Now, IBM is using Watson to help doctors and financial institutions gather and process huge amounts of information from around the world to help them deliver their services. Case in point: Oncologists now have access to millions of documents and studies from around the world on cancer prevention and cures, all reduced down to what the doctor can use. Could lawyers use this in doing their legal research and discovery? Yes! How many lawyers will that eliminate from the profession?

Finally, a recent Kiplinger Letter (remember they are the ones who predicted the use of copiers and printers way back in 1959; and in 1963, predicted “pocket gadgets” that could “make a call from anywhere”) is now predicting enhanced artificial intelligence that can take data and create [legal] product or answer [legal] questions. On top of that scary news, here comes a study from Oxford University by Carl Benedikt Frey and Michael Osborn titled “The Future of Employment: How Susceptible Are Jobs to Computerization?” They say that 47% of current U.S. jobs will be replaced by computers and enhanced cognitive systems in software. What do these two things mean to law firms? Danger ' cliff ahead!

Implications

These trends have turned into a new reality: The old business model of law firms is not sustainable. That model, built upon “hours times rate equals value added,” is doomed. The guild, where each lawyer does his or her own thing, will evolve into multi-user, expert systems that provide services more effectively and efficiently. Lawyers who base their compensation on how large their book of business is will lose out to those who, through being more effective, more efficient and attaining a higher rate of return on their time and the other resources of the firm, will blow by them in compensation.

Whole new structures for delivering legal services must be built. Expertise will not necessarily reside with attorneys. In one intellectual property firm in Canada, there are already twice as many non-attorney experts than attorneys, and many of those people make more than the lawyers do. Legal service providers will have to solve client problems by bringing a “bundle” of services to the client. These bundles may include non-legal as well as legal services. The next question is where the capital is going to come from to invest in the systems that will support the future bundle of services. As is already taking place in the UK, outside investors and people without law degrees can take ownership of law firms, without all the doom and gloom that many predicted. It is going to happen here as well.

This means that lawyers must look at quality legal service in two dimensions. The first is the technical quality of the service. The second is timeliness. If the legal product has the proper technical quality but is delivered late, the service fails. Therefore, the lawyer and firm must build and sustain systems beyond lawyers to access accumulated knowledge and expertise, because the market will demand effectiveness and efficiency. That will create less dependence on human talent and more on the systems that support them. What in business is called “disintermediation” will occur in law firms. That is a condition in which entire groups of information gatherers and processors are replaced.

Adapting

The culture of the legal profession must change. Paraphrasing one general counsel's remarks to an audience of managing partners: Any primary reward system in a law firm that rewards hours worked and booked fees is going to be inefficient, which is intolerable in business. The new model is based entirely on collaboration. This requires a group of professionals accountable to one another for the accomplishment of a firm's vision and mission. There is no room in law firms today for pride, inflated ego, and greed.

When collaboration is truly in place, a sense of trust between lawyers exists based on a common vision for the success of the firm. People look for new ways of upgrading service for the sake of constant improvement. This builds a firm that allows experimentation and learning. With a learning environment, there are demonstrated benefits to attorneys and staff in terms of better organization, staffing, and management. Clients begin to recognize the improvements in the focus and service from the people in the firm. That recognition creates client loyalty and future financial rewards to the firm. Under the old model, focused solely on books of business, clients lose faith in the law firm and may end up taking their business elsewhere.

The migration path in facing this new era of the profession will require leadership and risk takers. Migration to a new path requires three concepts: 1) Belief in the firm's future; 2) Commitment to the firm's vision and values; and 3) A covenant to work collaboratively among the core group of leaders. Only the core leadership will succeed in bringing their firms into the new era successfully. When I ask my law firm client managing partners the question of who should be the next managing partner, the response usually is: “When I see a man or woman who cares more about the firm and its people than his or her clients, I have found the next managing partner.”

Warnings

There are some warnings about transition and change. An ineffective transition could cause a crisis through the loss of credibility of the leadership. A firm in transition cannot make a mistake due to the loss of credibility in leadership and the core coalition of leaders. There can be no models copied from other law firms. Each firm has a different set of values, a different vision, and different demographics. Given that caveat, here are the key steps in creating and sustaining change.

There are seven steps that change agents have found to be key to changing a culture in a law firm. Please go to the website http://www.cobb-consulting.com for an article titled “Taking a Law Firm from Good to Great” for more insight. In a nutshell:

1. A sense of urgency exists. This comes from the assessment of facts, and not feelings. The urgency may be due to the fact that the current leaders want to turn the firm over to a younger group. It may be that the firm is facing a move in the next three years. It may be that a few rainmakers are getting close to retirement or many other situations.

2. There is a common vision for the firm among a core coalition of leaders.

3. There is a commitment to creating an approach distinctive to the firm's vision, culture, values, demographics, clients and community.

4. There is active and ongoing communication with all the stake-holders about the purpose and goals of the approach. Go for facts only.

5. Remove or negotiate away the petty barriers. Identify the lawyers and leaders who will be the future “roaches” and “submarines” ' those will try to stop change. Roaches are those who feel they can bomb any change but still survive ' they have their own clients and hoard them. Submarines are those who appear to go along, but are still going to come back and say: “Whatever you do will not affect me or my practice.” Those people do not have the same values and vision for the firm, and are in it for their personal gain. Either cocoon them or get rid of them. They are a long-term cancer. You cannot tolerate them. See “Why Should We Tolerate 'Jerks' in Our Law Firms?” in the May 2012 issue of this newsletter at http://bit.ly/17IjgqR.

6. Have no victory celebrations, the change agents must have time to experience and learn. Small wins in profits or improved motivation can show progress, but that is not the end game. A firm can reward small wins through short-term rewards like bonuses and praise. But there is no end to constant assessment and improvement.

7. Anchor the organizational concepts of accountability and collaboration into the fabric of the firm. Make the changes part of the compensation system. Work on a quarterly system of stating objectives to each leader and negotiate the expected results.

Conclusion

Lawyers have heard this comment for years, but it applies more today than it ever did: “You may be on the right track, but if you don't move, you are going to get run over by the oncoming train.” There are trends out there that need to be assessed. If lawyers and firms are not looking at them, they are doomed to being left behind.

'

William C. Cobb, a member of this newsletter's Board of Editors, is the managing partner of Cobb Consulting'(WCCI, Inc.) based in Houston. He has been a consultant in strategic issues affecting law firms and general'counsel helping them improve their competitive positions since 1978. E-mail: [email protected]. Website: www.cobb-consulting.com.

Years ago at a conference on the future of the legal profession, the presenters made three salient points. First, an increase in computers in law firms would wipe out the middle information processing people. Second, the law firm business model of “hours times rate equals the value of services delivered” would result in ineffective and inefficient service. And third, what the printing press did to the interpreters of the Bible, i.e., the clergy, the Internet and technology would do to the legal profession. This “Seize the Future” conference, which took place in 1997 and 1999, focused on 2015. Now, the tipping point of change for law firms has been reached.

A New Era

Several recent events have led to the dawning of a new era. We all know that events over a period of time produce trends. And when trends began to come together, we have a new era. In the last five years, we have heard increasing chatter about the failed business model of law firms, new technology that is erasing the need for lawyers and other information interpreters, and enhanced cognitive systems that mine and interpret data. Let's look at some examples of trends that are leading the way.

In the October, 2013 issue of the ABA Journal, there is an article titled “Who's Eating Law Firms' Lunch?” by Rachel Zahorsky and William D. Henderson. See http://bit.ly/171EhJe. A key point in the article is one we were making all the way back in 1997: Much of the work that lawyers think they should be doing does not require a law degree. One example in the article is Novus Law, a business firm that provides document review, analysis and management for the legal community; the article says that Novus' lawyers and staff can do 80% of what large law firms think they should do.

In another example from the same article, Vermont law professor Oliver Goodenough notes that at Legal Tech 2013, 35% of the “non-lawyer” service companies were offering legal-related services, 49% of them were offering products, and 13% were offering both. A real-world example is the UK-based firm, Linklaters, which created an expert system that can do the complex work of 17 to 20 lawyers in one-twentieth of the time. More importantly, the system, which they dubbed “Blue Flag,” can be run by client personnel. Finally, many large law firms are installing sigma-six systems that streamline project management in the delivery of legal services.

So what does this mean? As part of the futures conference mentioned above, a published report outlined the progression of sophistication in various professional service firms. Consultants led the way in the 70s by having to demonstrate a value proposition to their clients, who expected a return for their investment. Then came the doctors and hospitals in the 80s, who had to deal with insurance and government institutions putting operating regulations and restrictions on how much could be charged for a procedure. Then came the CPAs in the 90s, who had to justify value added and provide a fixed fee for an audit. And the next round has begun to hit law firms.

I was recently reminded by a friend of mine at IBM about its Jeopardy Grand Champion competitor, the supercomputer dubbed Watson. Back in 2011, Watson won by pulling in vast amounts of information and organizing it in order to be a winner. Now, IBM is using Watson to help doctors and financial institutions gather and process huge amounts of information from around the world to help them deliver their services. Case in point: Oncologists now have access to millions of documents and studies from around the world on cancer prevention and cures, all reduced down to what the doctor can use. Could lawyers use this in doing their legal research and discovery? Yes! How many lawyers will that eliminate from the profession?

Finally, a recent Kiplinger Letter (remember they are the ones who predicted the use of copiers and printers way back in 1959; and in 1963, predicted “pocket gadgets” that could “make a call from anywhere”) is now predicting enhanced artificial intelligence that can take data and create [legal] product or answer [legal] questions. On top of that scary news, here comes a study from Oxford University by Carl Benedikt Frey and Michael Osborn titled “The Future of Employment: How Susceptible Are Jobs to Computerization?” They say that 47% of current U.S. jobs will be replaced by computers and enhanced cognitive systems in software. What do these two things mean to law firms? Danger ' cliff ahead!

Implications

These trends have turned into a new reality: The old business model of law firms is not sustainable. That model, built upon “hours times rate equals value added,” is doomed. The guild, where each lawyer does his or her own thing, will evolve into multi-user, expert systems that provide services more effectively and efficiently. Lawyers who base their compensation on how large their book of business is will lose out to those who, through being more effective, more efficient and attaining a higher rate of return on their time and the other resources of the firm, will blow by them in compensation.

Whole new structures for delivering legal services must be built. Expertise will not necessarily reside with attorneys. In one intellectual property firm in Canada, there are already twice as many non-attorney experts than attorneys, and many of those people make more than the lawyers do. Legal service providers will have to solve client problems by bringing a “bundle” of services to the client. These bundles may include non-legal as well as legal services. The next question is where the capital is going to come from to invest in the systems that will support the future bundle of services. As is already taking place in the UK, outside investors and people without law degrees can take ownership of law firms, without all the doom and gloom that many predicted. It is going to happen here as well.

This means that lawyers must look at quality legal service in two dimensions. The first is the technical quality of the service. The second is timeliness. If the legal product has the proper technical quality but is delivered late, the service fails. Therefore, the lawyer and firm must build and sustain systems beyond lawyers to access accumulated knowledge and expertise, because the market will demand effectiveness and efficiency. That will create less dependence on human talent and more on the systems that support them. What in business is called “disintermediation” will occur in law firms. That is a condition in which entire groups of information gatherers and processors are replaced.

Adapting

The culture of the legal profession must change. Paraphrasing one general counsel's remarks to an audience of managing partners: Any primary reward system in a law firm that rewards hours worked and booked fees is going to be inefficient, which is intolerable in business. The new model is based entirely on collaboration. This requires a group of professionals accountable to one another for the accomplishment of a firm's vision and mission. There is no room in law firms today for pride, inflated ego, and greed.

When collaboration is truly in place, a sense of trust between lawyers exists based on a common vision for the success of the firm. People look for new ways of upgrading service for the sake of constant improvement. This builds a firm that allows experimentation and learning. With a learning environment, there are demonstrated benefits to attorneys and staff in terms of better organization, staffing, and management. Clients begin to recognize the improvements in the focus and service from the people in the firm. That recognition creates client loyalty and future financial rewards to the firm. Under the old model, focused solely on books of business, clients lose faith in the law firm and may end up taking their business elsewhere.

The migration path in facing this new era of the profession will require leadership and risk takers. Migration to a new path requires three concepts: 1) Belief in the firm's future; 2) Commitment to the firm's vision and values; and 3) A covenant to work collaboratively among the core group of leaders. Only the core leadership will succeed in bringing their firms into the new era successfully. When I ask my law firm client managing partners the question of who should be the next managing partner, the response usually is: “When I see a man or woman who cares more about the firm and its people than his or her clients, I have found the next managing partner.”

Warnings

There are some warnings about transition and change. An ineffective transition could cause a crisis through the loss of credibility of the leadership. A firm in transition cannot make a mistake due to the loss of credibility in leadership and the core coalition of leaders. There can be no models copied from other law firms. Each firm has a different set of values, a different vision, and different demographics. Given that caveat, here are the key steps in creating and sustaining change.

There are seven steps that change agents have found to be key to changing a culture in a law firm. Please go to the website http://www.cobb-consulting.com for an article titled “Taking a Law Firm from Good to Great” for more insight. In a nutshell:

1. A sense of urgency exists. This comes from the assessment of facts, and not feelings. The urgency may be due to the fact that the current leaders want to turn the firm over to a younger group. It may be that the firm is facing a move in the next three years. It may be that a few rainmakers are getting close to retirement or many other situations.

2. There is a common vision for the firm among a core coalition of leaders.

3. There is a commitment to creating an approach distinctive to the firm's vision, culture, values, demographics, clients and community.

4. There is active and ongoing communication with all the stake-holders about the purpose and goals of the approach. Go for facts only.

5. Remove or negotiate away the petty barriers. Identify the lawyers and leaders who will be the future “roaches” and “submarines” ' those will try to stop change. Roaches are those who feel they can bomb any change but still survive ' they have their own clients and hoard them. Submarines are those who appear to go along, but are still going to come back and say: “Whatever you do will not affect me or my practice.” Those people do not have the same values and vision for the firm, and are in it for their personal gain. Either cocoon them or get rid of them. They are a long-term cancer. You cannot tolerate them. See “Why Should We Tolerate 'Jerks' in Our Law Firms?” in the May 2012 issue of this newsletter at http://bit.ly/17IjgqR.

6. Have no victory celebrations, the change agents must have time to experience and learn. Small wins in profits or improved motivation can show progress, but that is not the end game. A firm can reward small wins through short-term rewards like bonuses and praise. But there is no end to constant assessment and improvement.

7. Anchor the organizational concepts of accountability and collaboration into the fabric of the firm. Make the changes part of the compensation system. Work on a quarterly system of stating objectives to each leader and negotiate the expected results.

Conclusion

Lawyers have heard this comment for years, but it applies more today than it ever did: “You may be on the right track, but if you don't move, you are going to get run over by the oncoming train.” There are trends out there that need to be assessed. If lawyers and firms are not looking at them, they are doomed to being left behind.

'

William C. Cobb, a member of this newsletter's Board of Editors, is the managing partner of Cobb Consulting'(WCCI, Inc.) based in Houston. He has been a consultant in strategic issues affecting law firms and general'counsel helping them improve their competitive positions since 1978. E-mail: [email protected]. Website: www.cobb-consulting.com.