A modern-day case study of disruptive change is happening in the legal field and it’s happening right now. And, the rest of the business world should be watching to see how the strong firms survive.

A few major changes have had a major impact on their profitability:

Competition and the Economy: When the economy started slowing and law firm clients began tightening their purse strings, then the laws of supply and demand started kicking in. We haven’t even mentioned the increase in competition. The combination of less clients and more competition has had a dramatic affect on the industry leading to some interesting pricing tactics and a growing importance on efficiency.

The Billable Hour: A quick Google search on the term will bring up phrases such as “Billable Hour Under attack,” “Kill the Billable Hour,” well, you get the idea. The key point is that law firms utilize highly educated resources and used to completely bill them out at an hourly rate. The billable hour type of system didn’t promote collaboration or efficiency because the clients where happy to flip the bill for that inefficiency.  Not any more… the world is changing.

My prediction on what is likely to happen is that commodity type legal services that are easy to standardize and turn into repeatable processes are going to become more of, well, a commodity (reminds me of the fate of travel agents). However, firms that offer highly specialized services and are known for their execution of those services will be able to stave off the competitive forces for a while longer (there are still highly profitable, specialized travel agents in business). Going forward, it will be important to understand the financial impact that even a small percentage of flat rate services will have on law firm profitability.

Efficiency: If your firm offers more of the commodity type legal services, applying lean manufacturing principles and utilizing technology to facilitate collaboration and automate processes is a no brainer. But, if you are in a highly specialized field, you may be asking yourself if you need to go down the efficiency road… This is why I believe so. After the commodity type firms figure out how to squeeze their costs out of their legal services, they will be looking for growth opportunities, (which could be in your field) especially if you bill at a high rate.

We are working on some exciting projects with a few firms helping them squeeze more efficiency and insights out of there communications systems. An example of a few of these projects would be automatically logging time spent on customer calls by integrating phone communication information with all of the back office billing, accounting, and CRM systems. Not only does this help keep track of all of the billable hours spent with clients, but it also gives greater insights into the cost behavior of delivering those services. With those insights, it can help firms determine how to start delivering flat rate services… profitably.