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Fast Followers

Over the weekend, I participated in the 2009 Futures Conference presented by the College of Law Practice Management at the University of Denver Sturm College of Law.  It was a good program with some excellent and provocative speakers.  Most sessions focused well on the topic at hand:  What's going on in the business of practicing law and how will it change?

Perhaps because I tend to approach things with the Monty Python view of things ( "And now, something completely different!!") I was most intrigued by a concept of "Fast Followers" put forth by Harry Trueheart, Chairman of international law firm, Nixon Peabody.

It's an idea that has been around for a while.  In essence, it suggests that it is smarter to avoid the pain and heartbreak of taking a totally unique concept to the world, and instead, choose the strategy of making someone else's innovation better, faster, cheaper and thereby taking advantage of their hard start-up work and learning to surpass them. Sort of like winning the auto race by "drafting" in the pull exerted by the front runner.

There have been strong opinions on both sides of this. You can read management consultant Jim McGee's explanation of the theory's flaw.  And you can read Constantinos Markides and Paul Geroski's 2004 book, Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets to learn all the ins and outs.

I like it, however, in the context of the business of practicing law.  In a world where anything without precedent can be viewed as toxic, the "Fast Follower" approach allows the determined innovator to say "YES, someone else HAS done this before!!" to calm the critics then move forward in a way that is frequently impossible in a law firm if it is a brand spanking new concept.

Something to think about, anyway.

Images from the 2009 Futures Conference - Day Two

 

 

 

Socialnomics Video

At lunch today, Joe Altonji of Hildebrandt in Chicago screened a neat four minute viral video which is well worth a view.

<a href="http://socialnomics.net/video/">Hereit is</a>

And Merrilyn Astin Tarlton suggests that <a href="http://www.maxkerning.com">thisone if fun</a> too, <a href="http://www.leskerning.com">and this one too</a>, for those of us who are typography buffs.  Be patient while it loads.

Joe's viral video is by the author of this book:

<img src="http://images.barnesandnoble.com/images/40230000/40234859.JPG" alt="Socialnomics" />

This is the Second Live Blog Post From 2009 Legal Futures Conference

The Second Plenary has Bruce MacEwen, who's known in the blogosphere as the President of Adams Smith Esquire, http://www.adamsmithesq.com, talking about the Economic & Strategic Perspectives on The Current Environment

A strong and at times depressing presentation as he focused on what the current economic travails have meant for the legal market.  While the data concerned the US market it has clear repercussions and implications for Canada and Europe.

The legal market is worth $220 billion, ten times larger than Hollywood.

He is talking about the current economic environment and the BigLaw business model ca. 1980 —September 15, 2008:.
•High, and built-in, levels of associate attrition •High, and increasing, leverage •Annual inflation-plus rate increases •Growth, growth, growth

•Is the model fundamentally broken?

•What's to be done?

The Economic Environment dominates this business too and (no, we have not eliminated the business cycle).

Bruce argues that this is a Credit-Driven Recession, and Credit-market driven recessions last at least twice as long as inventory-/interest-rate driven recessions.

Now:
•Wholesale credit (securitization) markets paralyzed •
   Banking sector on life support (read: insolvent) and dysfunctional •   
   Consumer spending appears to be seeking a new, lower, equilibrium

He argues that Global Deleveraging Takes Time, although this data is US centric.

•Asset prices slide precisely when demand for liquidity rises • US household savings rate =7% of after-tax income and rising • But not yet high enough • And every dollar saved is a dollar not consumed • US household debt as % of disposable income
36%     55%     65%     133% (all-time high)    124%
1952    1960    1985    2007                            August 2009

This raises the Existential Question, on the “other side,” will the supply and demand vectors for sophisticated legal services be familiar?

So what is happening with the Economic Forecast:  How long will it last Bruce's data shows No underlying economic recovery before 2010 “Make that 2013”—Marty Lipton “US consumers are in the early stages of a multi-year retrenchment”—Stephen Roach Wall Street Journal prediction as to the shape of the recovery/future:
• U:  10%
• V:  15%
• Big D (Depression):  20%
• L:  55%

Bruce speculates that we are in for “The Great Reset” • A long, long “L” with ugly, lasting unemployment “less consumption, less financial engineering, more biotech, more green” (Larry Summers) • Once-in-a-generation shift in expectations: sustainable, responsible • 18 Months & Counting… Down

The jobless recovery has many aspects behind “Headline” Unemployment •
Workers on unpaid leave don't count • “
Discouraged workers don't count •
~6% of workers involuntarily part-time •
Average work week (33 hours) shortest since tracking began 45 years ago •
Average duration of unemployment (25 weeks) longest since tracking began. • “
Long-term unemployed (> 6 months) highest since tracking began

So where are we headed?  Bruce identified three broken elements:

Broken element #1
High and built-in levels of associate attrition.
If This is “The Great Reset” then reset associate pay to pre-boom levels

Broken element #2
High and increasing leverage
Fewer Associates, More Non-Equity
Leverage Is Getting More Expensive
And Clients Won't Take It Any More
•
Extreme reluctance to pay for 1st & 2nd years •
Rattling sabers about outsourcing •
  Recognize “outsourcing” covers a multitude of models:
  •Domestic & Internal: —Orrick/Wheeling, West Virginia •
  Domestic & External—: Axiom Legal •
  Foreign & External: —NovusLaw, et al.

Broken element #3
God-given annual inflation-plus rate increases

So we have reached the “The New Normal”

Exhaustion of the Billable Hour Model?
• None of the three drivers of revenue [(a) rates, (b) hours, and (c) realization] can grow to the sky •
 To determine profitability, add in:
• Leverage
• Which will likely decrease
• Given the relentless “PPP” arms race, how long can the billable hour reign?

Like Teenage Sex, there is a lot more talk than action involving alternative billing?
• “Early adopters were lonely then and they're lonely now” • “
      Never has so little been accomplished by so many for so long”
But:
• Virtual unanimity that pendulum will not swing back post-recession; and •
 The path is “thankfully” irreversible

Alternative Fees, of course
• But what if law firms and clients were truly in a relationship of trust?
• Barrier:  It requires change—working smarter, not harder •
 Redefining “quality:”  Successful projects delivering compelling value •
 Key clarification/recognition:
• Alternative Fees ≠ Less Revenue

What It Will Take
• Growth, growth, growth…

• “Gentlemen, we have run out of money.  We shall be forced to think (Sir Ernest Rutherford)

Is the model fundamentally broken?

Sure, There Are Cassandras
• Richard Susskind, The End of Lawyers
• ACC “Value Challenge”
• DuPont Legal Model
• And its progeny—GE, Cisco, FMC
• Outsourcing

Why did BigLaw evolve to Begin With?
• Reputation/-Branding
• “Nobody ever got fired for hiring (Skadden)” •
 Diversification across economic downturns •
    What assurance of quality?
• In globally distributed empires?
• A benefit to lawyers but to clients?

But there is a core intrinsic tension, because partners are both workers and owners.
      
Worker:  Enhance your own individual human capital, primarily by building personal professional expertise and portable client relationships

Owner: Invest in enhancing the firm’s expected earnings, by committing to “institutional” clients, associate mentoring, management activities, and being a good citizen

This presents a Prisoners Dilemma
• Gains from investing in firm > gains from investing in self…
 …If and only if ...All my partners are equally committed to the firm •
 But what if people are tempted to grab and leave?

Is Diversification a Blessing or a Curse?
• Given lockstep, smooths income during downturns in one's own practice area •
 Easy, one-stop shopping for clients •
 But lawyers with the hot hand can presumably make more by jumping to an eat-what-you-kill firm •
 Aren't boutiques just plain better at what they do?

Bruce identifies three destabilizing elements which may disrupt the way to a predictable future.

Destabilizing Elements (I)
• The bigger the firm, the higher the (Coase) costs of:
• Management the sun never sets on [OUR FIRM]” •
   Communication establishing and cementing cultural glue” •
 Monitoring partners for quality •
 Training associates effectively and properly winnowing them through the tournament

Destabilizing Elements (II)
• The end of joint & several liability
• Reinforced equal sharing/lockstep
• Discourages flight you remain liable for debts incurred while at the firm •
 With personal liability, incentive is to try to rehabilitate a declining firm •
 Without it, logic dictates early departure first out the door •
 Most importantly:  The end of periodic shared decisions to stay together

Destabilizing Elements (III)
• Higher associate: partner leverage
• Human capital ~ financial capital
• “Your best friend, your worst enemy”

Is this a Secular, not cyclical, drop in demand?
Yes:  We were benefitting from a bubble
Yes:  Clients are more sophisticated
Yes:  Information is ubiquitous
Yes:  Unbundling and outsourcing
And the counter-arguments are: .....

Destabilizing Elements (IV)
• Challenges to hourly billing
• Love it or hate it, it is “cost-plus”
• Almost any change will entail becoming more efficient •
 Economic history shows benefits from increased productivity flow to clients •
 Reputation isn't what it used to be •
 Increased leverage has diluted quality • “
 Trusted advisor increasingly an anachronistic concept

What's to be done?
• Comfort (denial), or risk (opportunity)?
• What If We Could…
• Return more closely to the welcome advisor role?
• Lower leverage is one big step
• Treating every single scarce associate as genuine partnership material is another

• Deliver compelling value for professional services rendered”?

Bruce was ultimately optimistic that the challenge of the transition will result in exciting opportunities:

Carpe diem or perde diem?
• “History shows that most firms do not deal well with transformation (Andy Grove) •
 “The world is not only becoming less predictable, it is becoming less benign.
 The only antidote against irrelevance is fast-paced adaptation, but the reality is that most organizations are pretty inflexible (Gary Hamel)

But above all, keep the faith

Thanks Bruce

http://www.bmacewen.com/test2/images/UmbrellaCropped200.jpg" alt="Adam Smith"

College Futures Conference Taking Place Today & Tomorrow

For the next day and a half, Sturm College of Law at the University of Denver is the venue for a programme focussing on the Future of Law.  I'll post about the highlights.

The keynote address was a talk on the Legal Transformation Study Update by Ward Bower of Altman Weil, Inc.
Ward was one of the leaders of the 2008 Legal Transformation Study which identified four scenarios for the legal marketplace of 2020. The study produced reports on global developments that suggest market movement toward one or more of the scenarios, and the latest projections of the probability of each scenario dominating by the year 2020. 

Overview
The legal industry is undergoing significant change and transformation due to numerous external forces influencing the nature and quality of legal service delivery. Some of these changes, such as the changes in the Federal Rules of Civil Procedure and globalization are obvious. Other changes, while receiving less media coverage, are also beginning to affect how legal teams are servicing their clients.
In the past, law firms, law departments and the internal and external customers they serve, have frequently been taken by surprise by unexpected practice forces trends and uncertainties that directly influence the practice of law. These surprises have often negatively impacted the quality and value of the legal services delivered (or received) and force the practitioner into a reactive solution mode at a higher risk and greater cost for their clients. Electronic discovery is an example. In retrospect, it seems possible to have predicted and planned for the explosion in electronic evidence, had we stopped ten years ago to consider that computers were enabling more and more documentation, and email inbox sizes were rapidly growing. It has therefore become increasingly important for legal professionals to identify and assess the impact of these practice forces, trends and uncertainties on the representation of their clients, so they can provide informed, proactive legal counsel before they are blindsided by unexpected events and risks. In order to continuously enhance the quality, value and efficiency of legal services to their clients and proactively manage the expected risks that threaten our clients interests lawyers must be more cognizant of the forces in the following categories that will directly influence their practice in the coming years:

    * Societal
    * Technological
    * Environmental
    * Economical
    * Political

In response to this legal industry and practice challenge, in 2007, a group of legal industry thought and practice leaders from law firms, corporate law departments and legal service supplier organizations were brought together to better understand and plan for the future of the legal profession. The group commissioned global strategic and scenario planning experts at Decision Strategies International (DSI) to create a Legal Transformation Study to help all participants in the legal industry better understand our collective future, through the design of four potential legal service delivery scenarios that may unfold between 2007 the year 2020. This Study contains the forces constituting the four scenarios, the scenarios and their strategic implications readers can plan for and leverage these scenarios to their clients strategic advantage by better managing their clients risk profile.

The current trends thus identified by Legal Transformation Study researchers include:

• Unbundled. outsourced and bifurcated legal services
• Increased application of technology
• Expanded globalization of legal practice
• Heightened demand for legal work from economic and regulatory forces'
• Standardized legal information
• Deepened interest in work-life balance issues
• Increased Internet-based service delivery
• Heightened demand for specialized experts
• Enhanced role of non-lawyer business managers in law firms and legal departments
• Increased authority of corporate management in legal purchasing decisions
• Shifted focus to process orientation

The concurrent uncertainties include:
• What purchase and delivery models will develop for legal services?
• What type of regulatory and compliance environment will exist?
• What will the global economy look like?
• To what extent will non-attorney legal service competition move upstream?
• Will the legal profession become deregulated?
• Will the industry face a skill shortage?
• How much will third parties focus on cost?
• How much of a role will privacy and data security issues play in litigation?
• Which litigation model will prevail globally?
• Will non-governmental organizations shape and influence regulatory regimes?
• How much will smart technologies that mimic attorney tasks penetrate the legal services market?

The four possible scenarios for the delivery of legal services between now and 2020 are summarized as follows:

Blue-Chip Mega-Mania -- A model that emphasizes the global consolidation of legal service providers and the dominance of giant law firms with vast global presence and offerings spanning all legal areas.

Scenario A – Mega Mania = Aggregated providers and delivery in a heavy and fragmented regulatory environment.

Snapshot
• Conflicts prone world
• Major economic blocks competing fiercely
• Few large firms acting as consolidators
• Still a traditional model dominated by giants
• Customer loyalty is low and frustration is high

Drivers
• Middle size law firms have been forced to consolidate or join into very integrated networks to offer the bench strength and international coverage sought by their clients.
• Aggregators have reduced their costs by leveraging outsourcing and using local expertise leading to the possibility of offering lower cost for volume work.
• The complexity and intensity of the various regulatory environments has increased the ability of law firms to demonstrate their value, thus conserving their margins.
• The continued high margins and potential for international development have made the profession an attractive one.
• Technology is limited to workflow, process and data management. It has not delivered in terms of critical analysis.

Expertopia --A scenario that envisions the increasing complexity of the law and challenges of corporations operating in multiple environments worldwide, thereby placing a premium on specialization and expert-driven cultures at legal services organizations.

Scenario B – Expertopia = • Disaggregated providers and delivery in a heavy and fragmented regulatory environment.
Snapshot
• Regulatory driven world with the individual at the center
• High stake litigation
• Expertise is at a premium
• Numerous niche players due to regulatory breakup of large providers

Drivers
• Rise in litigation cases linked to the growth of privacy and data security issues.
• Congress enacted new regulations making companies liable for the loss of employee / consumer information.
• Regulations have flourished to protect consumers and employees, but there is no harmonization among the national, federal and state levels.
• Increased demand for corporate social responsibility.
• High level of competition, increasing influx of young lawyers and NGOs providing more services have created a low margin environment.
• Technology is still a fragmented world with no standards.
• Regulations have been passed to break up the mega firms, in order to reduce conflicts of interest and to increase access and affordability of legal services.

E-Marketplace -- A model built on the premise that technology will be a catalyst, but not the core, for an industry transformation in which an array of Web-based technologies will make information more available and expert judgment more valuable.

Scenario C – The E-Marketplace = Disaggregated providers in a hands-off and harmonized regulatory, compliance environment
Snapshot
• Major economic downturn leading to deregulation and harmonization to spur growth
• Flurry of new providers
• Online selection/satisfaction tools
• Commoditization of many services

Drivers
• Regulatory hurdles have been lifted to boost global trade, resulting in increased harmony.
• Corporate organizations have adopted technology such as KM and others and are now in a position to reuse some of the knowledge they had paid for.
• Cost pressures have led to the change in the US litigation system (tort reform) and deregulation of the legal profession, enabling non-lawyers to provide a wider array of legal services.
• IT systems are still customized but pervasive and the world is digital.
• The legal marketplace has imploded and standards have emerged for the purchase, audit and delivery of services. Benchmark metrics are readily available for the comparison of multiple providers

Techno-Law -- A scenario that contemplates rising corporate investment in automation capabilities throughout the legal services industry, leaving only the high-end services to be delivered by legal professionals and potentially requiring a complete reconstruction of the traditional business models in the legal services industry.

Scenario D – Techno-Law = Aggregated providers and delivery in a hands off and global environment.
Snapshot
• Peaceful world dominated by desire to further trade relations
• Harmonious regulatory systems
• Experts moving into technology field to codify content and rules
• Major aggregators offering “lawyers in-a-box”
• Selection based on value and capacity

Drivers
• Customers have demanded that technology be interoperable for cost purposes.
• Technology providers and content providers (legal publishers) have collaborated to create expert systems.
• Senior lawyers with high expertise move to create technology companies that provide these expert systems.
• Neural network AI systems are a reality.
• Political harmony, the UN is working and emerging markets are being supported.
• Peaceful relationship with China.
• Global sourcing is the norm.
• Technology enables aggregators to work and access any local resources.
• Large integrators have entered the market for aggregating and managing legal services

<img src="http://www.bisnow.com/lawimages/weil.jpg" alt="WB" />

2009 InnovAction Award Winners Announced!

Israeli legal organization, New Family is the 2009 recipient of the coveted InnovAction Awards from the College of Law Practice Management while New York-based legal services provider Practical Law Company, Inc. received the first-ever InnovAction Honorable Mention Award.

For the fifth year, the InnovAction Awards have recognized outstanding innovation in the delivery of legal services, demonstrating to the legal community what can happen when passionate professionals, with big ideas and strong convictions, resolve to create effective change.

Meet our 2009 InnovAction winner!

New Family Organization
Family, Justice and Law initiative

Irit Rosenblum broke fresh ground defending a universal right to family as intrinsic to the practice of law. Rosenblum pioneered a new sphere of legal rights surrounding the family based on the conviction that the rights to marry, divorce, have children, bequeath and inherit assets, and conduct family life are human rights and must be attainable to all regardless of faith, nationality, sexual orientation or status. She founded New Family to fill a critical gap in the practice of law in Israel: to attain the right of every individual to establish a family and to exercise equal rights within it. For the 2 million people in Israel who are subject to discrimination due to family status, New Family’s achievements have been invaluable.

In addition, for the first time, the InnovAction Awards offered Honorable Mentions to entries that have taken an existing innovation in the practice of law, transformed it in a unique and valuable way, and made it better than before.

Here is our very first InnovAction Honorable Mention:

Practical Law Company, Inc.
Creating Efficiency for business lawyers

Practical Law Company (PLC) is changing the way business lawyers work. It employ attorneys with significant experience practicing with the world’s leading law firms and legal departments (e.g. Davis Polk, Skadden, Pfizer, Sullivan & Cromwell) to provide practical, up-to-date resources that help business lawyers practice more efficiently and provide greater value to clients. PLC provides the practical, generic level of information needed by all business lawyers that allows them to get up to speed quickly, stop reinventing the wheel and focus on client and firm specific work. It launched its first US services in December 2008 to wide market acceptance. PLC began in the UK in 1990.

The five InnovAction judges were greatly impressed by the groundbreaking ideas in the submissions from law firms and companies in the United States, Canada, and the Middle East", said Jordan Furlong, editor of the Canadian Bar Association's National magazine and chair of the 2009 awards program.

The 2009 InnovAction Awards will be presented on Saturday, September 26, 2009 at a special session during the 2009 Futures Confernce held in conjunction with the Annual Meeting of the College of Law Practice Management in Denver, CO. Please visit www.innovactionaward.com for more information.

InnovAction Award entry by Seyfarth Shaw

 

Pro Bono Administration Tool submitted by Seyfarth Shaw LLP

 

Seyfarth Shaw's IT Department built a web-based application that allows attorneys and staff who administer the Firm’s pro bono legal services program (the "Pro Bono Team") to monitor the Firm's pro bono matters.  With this new pro bono application tool, affectionately known as “the ProBot,” the Pro Bono Team now has real-time access to the firm’s pro bono hours, matters, costs, and other information.  Under the prior system, the Pro Bono Team had to use manually generated reports from the Firm’s Finance, Human Resources, IT, and Professional Development departments, as well as an online pro bono proposal form and multiple Excel spreadsheets, to track and monitor pro bono cases.  The Pro Bono Team needed a more streamlined system for responding to the myriad internal and external information requests it receives, and the demands it faces in monitoring and reporting its pro bono work.  The ProBot allows the Pro Bono Team to easily generate reports and mine information, thereby allowing the Team to better track, patrol, and encourage the Firm’s pro bono efforts, and to allocate more resources to non-reporting activities, ultimately elevating the level of the Firm’s pro bono program and saving the Firm money.

InnovAction Entry by Schottenstein Zox & Dunn Co., LPA

Cross-selling legal services through internal public relations submitted by Schottenstein Zox & Dunn Co., LPA

 

We are proud to serve world-class clients and to continually achieve exceptional results for their companies; It’s why we’re in business. But our success doesn’t have to end there. Our experience gained through these valuable relationships can be leveraged further to benefit both our clients and our professionals.

 

Instead of channeling our firm’s public relations efforts externally to generate sales, we have chosen to focus our public relations efforts internally to originate leads and opportunities from within the firm. Through spotlights on cross selling success stories and our attorney’s unique experience and skill-sets, our target audience – the entire SZD team – becomes engaged in the firm’s collective capabilities and client relationships and can use this knowledge to enhance the scope of services the firm provides to all clients.

 

We established an internal public relations team to research, interview and write compelling business development stories to detail the legal work our attorneys are handling and the results they are achieving for clients. The articles are written in true journalistic style by an experienced news writer and editor retained to focus exclusively on generating internal success stories, legal Q&A’s and business development features that bridge our client relationships and varied experience.

innovAction Award Entry by Raymond & Bennett LLC

 

Fully digital law practice with emphasis on value billing and alternative fees submitted by Raymond & Bennett LLC

 

In two years, we have created a new law firm design on the leading edge in technology, firm management, and the use of alternative fees. Raymond and Bennett was founded on the core principles of excellent client service, lean practices, value billing, and effective use of technology.

 

R & B is a fully digital law firm (no paper files!) with all case materials securely stored, fully text searchable and universally accessible from any location with internet access. We outsource our secretarial work to a U.S. based vendor over the internet. We have a mix of “brick and mortar” and “virtual” associates.

 

R & B is a green firm. When we print, it is on recycled paper. The paper we receive is scanned and sent to the shredder and recycled. Our “brick and mortar” attorneys also work at least one day per week from home to save on gas and commuting.

 

We offer all our clients alternative fees based on value billing. We call it our RealValue campaign. To get back to our profession’s roots and away from the dying billable hour, we offer alternative fees to save our clients money and tie our fees to results.

InnovAction Entry by Practical Law Company

Creating Efficiency for business lawyers submitted by Practical Law Company, Inc.

 

Practical Law Company (PLC) is changing the way business lawyers work.  We employ attorneys with significant experience practicing with the world’s leading law firms and legal departments (e.g. Davis Polk, Skadden, Pfizer, Sullivan & Cromwell) to provide practical, up-to-date resources that help business lawyers practice more efficiently and provide greater value to clients.
 

Traditional legal publishers are not meeting the needs of transactional lawyers, especially in this climate where innovation and delivering greater value is of critical importance. PLC provides the practical, generic level of information needed by all business lawyers that allows them to get up to speed quickly, stop reinventing the wheel and focus on client and firm specific work.  We launched our first US services in December 2009 to wide market acceptance – not only to the services themselves, but also to our core principles of innovation, value and quality.  PLC began in the UK in 1990.