Dr George Beaton and Dr Imme Kaschner
American Bar Association, 2016
This is a very welcome book. It is a timely re-examination of the law firm business model. It is deliberately not a book about market or industry changes, or strategy, but rather about how being in the market demands changes in law firms (or legal services providers). Even so, the authors do address globalisation, internalisation, regulation, and how clients’ needs and choices are changing.
A sobering – and challenging – early thought offered by Beaton and Kaschner is this:
For us, the most striking insight to come out of the research for this book is an understanding of how the professional values of bespoke, technically excellent client service and perfectionism in a law firm can have the effect of compromising the delivery of excellent value, as described by a firm’s commercial clients.
To many lawyers, this insight will be like a slap across the face, and will strike at the very foundations of all they believe about legal practice.
Why the business model needs to change
It is no secret that the world of law has changed remarkably in the past 20 years – and that the pace of change is increasing. Using Porter’s famous five forces analysis, the book demonstrates how commercial legal practice has become a mature market, and led to a ‘perfect storm’ of tension among those forces (clients, suppliers, new entrants, substitutes, and competitive rivalry). Nothing is as it was; nor will it be again.
In such a world, the ‘traditional’ business model cannot serve a firm well. It needs to change. But to what? To help readers and their firms on this journey, Beaton and Kaschner set out a helpful self-assessment tool that will diagnose readiness for change. They then use this tool to point to further insights in the book as a firm rebuilds its business model.
How to change
The bulk of the book addresses the components of change in various elements of the business model: business development and marketing; pricing; the supply chain and resourcing; project management and processes; technology and knowledge management. There is no doubt that these elements need to go into the mix of the business model, or that any firm that deliberately sets out to articulate and reinvent its business model will need to work on them. My principal reservation about the book lies in its conception of ‘business model’.
The authors identify three dimensions to a business model: how work is won; how work is done; and how the firm is governed and managed. They then suggest that each of those dimensions lies along a spectrum from BigLaw to NewLaw – roughly from traditional business models to new ones. The natural expectation is then that each dimension should move as far as possible from traditional to new in order to design any firm’s future business model.
Part of my difficulty with this conception is the idea that a business model is a continuum or can be described in such typological ways (more of my thoughts on this are in Mayson (2010) Business models in legal services). It would seem to follow that all traditional firms (BigLaw) could move along the spectrum in each dimension to become a NewLaw firm. But sometimes innovation or salvation requires a business to break or reinvent itself (or what it does and how it does it), rather than merely evolve along a spectrum.
Nor is it clear from the book how many of the ten ‘continuum hallmarks’ need to change before the business model can be regarded as sufficiently new or NewLaw. Indeed, some of those hallmarks of the NewLaw business model are not mutually exclusive as between BigLaw and NewLaw models (such as commercial relevance and business-savvy talent). While the concept described rightly does not advocate a one-size-fits-all approach, and therefore allows for variability in movement, the authors do not offer much guidance on how much change on any one or more or the dimensions (or in how many of the hallmarks) would constitute a reformed business model. Perhaps it’s a question of instinctively knowing the elephant when you see it.
My own review of the literature relating to business models confirmed the variety of approaches to exactly how to define or describe the idea of ‘a business model’. But the one factor on which they were almost universally agreed was that a business model must ‘create value’ for the customers of the business. This is not a factor that is addressed head-on in this book. There is no reference to value creation , which requires an explicit focus on what is important to buyers or clients. This is not the same as the implicit notion of ‘the job to be done’: many – perhaps most – clients do not care much about how their job is done, but they do care that it is done cost-effectively and successfully in ways that create value for them (or at least do not destroy business or personal value or relationships for them).
Value-based pricing is not the same as value creation. Creation lies in the outcomes and effects for the client beyond the lawyer-client interaction, even though it arises from that interaction or because of it. Value creation secures business or personal results that benefit the client (or, in disputes, prevent financial, trading, relationship or reputational losses). Value-based pricing is different to value creation: it can be an element of value creation, but is not the whole (or most important part of) the story; nor is it the only pricing route to reflect value creation. We are also not talking here about how the value of the services received is perceived by the client – because value creation is not about the services delivered to the client but the outcomes and effects of those services for the client.
If value creation is an element of a business model that focuses on outcomes or returns for the client, then another element must be the value and adequacy of the returns achieved for the business. Again, this seems to be lacking or underplayed in the Beaton and Kaschner conception. Many would argue that there is no business – and certainly no point in a business – if the organisation does not deliver satisfactory returns over time to those who own and work in it. These might arise as income or capital (such as employment income, bonuses, dividends, share growth or acquisition), and either as short-term or longer-term benefits. However they arise, the business must nevertheless deliver them, somehow, sometime. For my money, an effective business model needs to articulate these outcomes for the business, just as it must articulate the intended outcomes for buyers of its services.
In the overall scheme of this book, my reservations about its underlying concept, though conceptually important, do not puncture the premise of the book. The material in it will still help its readers to address the issues of value creation and the generation of satisfactory returns. My concern is that they should turn their minds deliberately and explicitly to them, and understand why and how they are important.
As with all publications, there are some typographical issues that have escaped the editor’s eye, and some indexing omissions, as well as some stylistic inconsistencies.
I believe that there is barely a law firm in existence that does not need to review and change its business model. This book will indeed explain why and how to do that. And those still in any doubt should be mindful of the following words from Edwin B. Reeser, recorded on page 205:
The change that we have seen in large law firms over the last ten years has been structural, and it’s the worst kind, because it’s rearranging chairs – deck chairs on the Titanic. It gives the impression that we’re actually engaged in change when we’re doing no such thing…
Meanwhile, the operational change to improve the value proposition of what we do for the client has been ignored for the most part. we have clients who continue to have dissatisfaction at an increasing rate and lawyers that profess to be doing everything possible. The disconnect between the two forces is clear…
The consequences of denying or ignoring this disconnect are profound and serious. If you’re in practice, don’t: buy this book and do something to remake your firm before it’s too late.