So Long, Blank Checks: Clients Saying Get with the Program, or Get Out of the Way

Over the past week there’s been a lot of social media discussion about the impact of lean, cost-effective, agile and highly capable non-traditional law firms and service providers on the business of law — particularly on traditional big firm, profits-per-partner models.

Last week Larry Bodine hosted an interesting and lively Martindale-Hubbell Twitter discussion about virtual law firms and alternative fee arrangements, and this week presenters at the Georgtown “Law Firm Evolution: Brave New World or Business as Usual” conference are hammering the point that disruptive innovations — and clients’ receptiveness to them — represent a fundamental shift in the industry.

As Rachel Zahorsky at ABA Journal writes today:

“If Susan Hackett, Association of Corporate Counsel vice president and general counsel, is correct, outside firms have only another 18 months before client patience runs out. ‘The window is open for another year to year and a half for firms before clients start walking and looking at firms they’ve never looked at before,’ Hackett says, citing legal service companies and nonlaw entities as viable alternatives to traditional firms.

‘Whenever a firm says [it] can’t hold to a budget number because of unpredictability, the GC still has a busted budget,” Hackett says. “It’s not unpredictable. It’s unforgiveable that they don’t know and unforgivable that we haven’t held them to that.'”

That’s a critical insight: It’s the clients who are changing, and the “winners” will be the firms who understand, respond to and anticipate that change, and who manage and market their firms innovatively.

A few thoughts on how clients are changing:

Tighter cost controls: Although it has been slower in coming to legal departments than other areas of business, aggressive cost containment is finally reaching the general counsel’s office. Overall budgets are constrained or dropping, and cost overruns for case management are not tolerated any more leniently than are higher component costs. No more blank checks.

Outcomes vs. outputs: Companies have successfully moved other professional services providers — mosted notably marketing — off hourly rate-based compensation models, reducing costs and improving productivity.

People Like Us 2.o: The new generation of general counsels (and the internal teams who work for them) are lean, virtual teams, and are continually pressed to do more with less. They value and seek out partners who understand and complement that dynamic. Good post by Timothy Corcoran on this topic.

The issue for clients is not structural — small/virtual law firm vs. traditional firm, or billable hours vs. alternative fee arrangementss. It is quite basic: How do I get the results I need with the resources I have? Help them answer that, and let those answers drive your business. 

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