Law firms are from Mars, customers are from Venus

By Karl Chapman, CEO, Riverview Law

Smiling, the Chairman at a recent conference introduced me as a representative of “the barbarians at the legal gate”. I hope he smiled even more when I explained our surprise and pleasure to find that when we got there the gates were wide open, business customers were beckoning us in, and law firm competitors were fighting amongst themselves.

At another conference, not that I speak at many, the Chairman described Riverview Law as market disrupting and innovative. Flattering as this is, in its proper sense I don’t think it’s true. Riverview Law only looks disruptive from the perspective of the legal market. All we and some other businesses are doing is applying common sense, low risk, proven business principles to a sector which quite frankly should have done it many years ago. For example, we’re using “innovations” that we’ve deployed in our other advisory businesses over the last three decades.

Put another way, I don’t think that the legal market is seeing a bow wave of real innovation and creativity, whatever lawyers and commentators think. In reality it’s just in catch-up mode when compared with other sectors. However, it’s a catch-up that will probably only take five years not 30 given the changes in technology since the 1980s. This catch-up will change the shape of legal service delivery forever and customers, whether businesses or consumers, are the winners.

This has made me reflect on why the supply chain in legal services is so far behind other areas of the economy, and why it is relatively immature when compared with other sectors. Of course, there’s not one reason. However, at the heart of any explanation is one reality – law firms (and its partners) have been protected for far too long by myth, regulation and a lack of real competition.

While the regulatory changes are significant and should not be under-estimated, even if they still have some way to go (ie proper de-regulation not re-regulation), it is the absence of real competition that has damaged law firms most. It has made many lawyers complacent, satisfied, and overpaid. It has helped perpetuate supplier not customer business practices such as the hourly billing model, the unhealthy pre-occupation with Profit Per Equity Partner (PEP), and using lateral hires as a mechanism for growth.

It has also created a law firm financial model that has opened the gates even wider for new entrants and competitors with normal business models and access to capital. I’m delighted that each year law firms focus on income, not capital growth, distribute their profits to partners and do not invest surplus capital in their business or pay down debt. To business people and entrepreneurs this approach is perplexing – and I am being polite! No wonder law firm balance sheets are typically weak.

But it is the lack of proper measurement that has been the biggest surprise. I am stunned at the lack of relevant management information and trend data in the legal market. This does not mean law firms having data that helps their billing. It means using management information and trend data to help customers manage risk, measure quality, identify issues, pre‑empt future cases and reduce costs.

In the new legal landscape emerging it is not too difficult to describe what successful legal businesses will look like. They will develop great brands and have significant business development, PR and social media activities. They will employ lawyers and non-lawyers in one integrated team. They will have a huge focus on values, recruitment, retention, development, career paths and reward. They will understand the power of data, management information and business insight – for both customers and their own businesses. All service delivery will be underpinned by lean processes and one integrated workflow platform. There will be appropriate investment in research and development and experimentation, particularly IT, some of which will fail. They will have significant project management and contract implementation skills that ensure that outsourced contracts are set-up for success. They will deploy capital wisely. They will be part of their communities.

One brand, one team, one culture, underpinned by one integrated infrastructure… all focused on serving the customer not maximising PEP!

The big winners in all this change are customers. If customers are from Venus they’re finally being joined by legal services providers from their own planet. The Martian monopoly is ending!

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