2 October 2012
Susskind: firms starting to embrace new ways of working as 'legal factories' loom
Susskind: clients focused on “outcomes and processes”
Pressure from in-house lawyers has encouraged some law firms to come out of denial and realise that they need to find new ways to handle and price work, legal IT guru Professor Richard Susskind has claimed.
However, the author of The End of Lawyers? said there was still considerable resistance among lawyers to alternative fee arrangements (AFAs), which generally end up being a variation of the hourly billing model.
In an exclusive interview with Legal Futures, Professor Susskind said recent invitations to tender coming out of major legal departments are expressly asking firms how they are going to source the work, leading law firms to ask how they go about changing the way they operate.
General counsel have been asking him to advise on such tenders, and are now far less interested in the traditional response of “capabilities and credentials”; instead they are focused on “outcomes and processes”. He explained: “The clients are now interested not just in how you work today but where you think you’ll be as a law firm in three years’ time. How will you be working differently and will you be the kind of firm they’ll want to work with in x years’ time?”
As a result, “law firms have got to the end of the denial period”, with his consulting work shifting from advising managing partners on helping their firms to understand the need to change to dealing with practice heads on devising an actual strategy to achieve it: “The question now is ‘How do we go about rethinking the way we deliver our services? How do we go about analysing what we do, how do we go about managing it a different way, how do we decide whether or not we should be doing this routine work internally or externally?’”
The academic has previously spoken of new roles developing, such as legal process analyst, legal project manager and legal knowledge engineer, and he said that while that’s not the language law firms use, these are the people they are actually seeking.
He explained: “Regularly major firms are saying to me, ‘Do you know anyone who can come in and have a look at our corporate practice or our litigation practice and do some analysis of it? Maybe some flow charts and think through some ways of achieving efficiencies and identify where we might be able to do that work differently but doing it in a more structured systematic way because we don’t have the internal experience?
“It’s a really common question. And that’s when I say, ‘Well, actually, I call that person a legal process analyst. The bad news is that there aren’t that many of them around'.”
He insisted that such people are a species of lawyer because while they need non-legal skills, they also require “quite a lot of legal insight to know what the nature of the problem is, how best to break it down, how best to resource it and so forth”.
It means the traditional law firm pyramid “has got to break up”; law firms essentially have two branches, Professor Susskind said: the specialist division and the process division. “I believe we will have legal factories, legal production centres where the routine work is done in different places.” These might be inshored or offshored, and may be shared with other law firms or clients. Even though the high-end work may stay in their current locations, firms will have to justify the cost of doing so, he added.
When it comes to AFAs, he said clients should ask law firms two questions: Will this make you less profitable? Are you going to be working differently to deliver this? “If the answer to both of these questions is no, and it usually is, then you see that it is just the old model.” Many lawyers “genuinely believe” that what they do is unique and that hourly billing is outdated for all areas of law except their own.
Professor Susskind said that many AFA proposals are actually quite hard to understand and in the end clients just ask for a discount in the hourly rates, leading the lawyers – wrongly – to think they didn’t really want an AFA. This leads to a 10% benefit to the client when actually they need substantially more.
At the same time, he said some firms are “slicing and pricing”, or task-based pricing that identifies the different tasks involved in a job and pricing them in different ways. He added: “I shouldn’t be too cynical with pricing because sometimes the big thing is not the overall cost but the certainty. So fixed costs, even though they would be the same as if on an hourly billing basis, can help, whether for accounting purposes, internal expectation management or for a message to the market purposes.”
Pundits often ask whether Professor Susskind’s predictions have come to pass. On this one, he said it is starting to: “It’s moving from pricing differently to working differently.”
To be continued
By Legal Futures
Tags: alternative fee arrangements, insourcing, outsourcing