By Pieter van der Hoeven.
The rise of legal service delivery has its roots in the economic downturn of 2008. Since the move of work in-house, and the increasing demand for transparency in fees and matter management, law firms have been pushed to fundamentally change the way they interact with their clients. However, this transition is far from over.
The vast majority of firms rely on write-offs, or a host of other profit-eating measures to cover their fundamental failing. That they do not deliver the majority of work to budget, or to scope. The truth is that legal service delivery is still in its infancy, and will require law firms to integrate better tools, and better training and rewards systems, before it reaches its full potential. However, should that potential be reached, firms stand to see happier clients, increased profitability and reduced write-offs.
The rise of legal service delivery
“[Since the 2008 recession] there has been mounting evidence…...that clients, non-law firm competitors, and even many law firms are now operating with very different assumptions about the role law firm services should play in the legal ecosystem and how such services should be delivered. In the past year or so, this evidence has grown to the point that it seems apparent that a fundamental shift is now well underway” 2020 Report on the State of the Legal Market
For anyone who was working in the legal industry at the time, the impact of the 2008 recession became quickly apparent. Law firm operations have changed relatively little over the last century. The hourly rate, and position as trusted advisor rather than risk-sharing partner, was the status quo. However, the recession shone a light on the industry. Clients, often in financial difficulties (if not outright distress) were more prone to probe their counsel’s invoices. The hourly rate was no longer acceptable. Clients demanded transparency.
The problem is that a firm constructed on the principle of hourly billing is not set up to deliver it. Or at least, not yet. As a result, the last ten years has been a scramble for law firms to improve on their approaches to pricing, staffing and matter management to meet the demands of an increasingly challenging marketplace and demanding clients.
Importantly, the 2008 recession also introduced new ways of working for internal legal departments. By 2020, Altman Weil reported that nearly 7 in 10 law firms have seen their clients move a proportion of work in-house. Most of the remaining firms see that coming. Clearly, those who fail to be sufficiently transparent, or competitive, are not only competing with other firms, but the ability of clients to internalise costs.
The culmination of much of this transformation has been the growth in popularity of legal service delivery. The natural heir to the combined thrones of Legal Project Management, Pricing, Client Services and a host of other legal service disciplines. At its heart, Legal Service Delivery is about delivering matters as promised. When implemented effectively it enables firms to meet client expectations, thus ensuring their continued collaboration.
Understanding legal service delivery
Before determining the relative success of legal service delivery, it is worth briefly defining it. There can be a tendency to confuse service delivery with the way lawyers actually practice the law. Trial, corporate law, M&A and all other major areas of legal practice have remained relatively unchanged in the last fifty years or so. Yes, technology has come to play a greater role in areas like discovery, and due diligence. However, the greatest impact of technology has been on the functions supporting their practice. As Mark Cohen succinctly puts it:
“Technology has profoundly changed the delivery of legal services- how and by what structure those services are best rendered and by whom. Technology has been a key factor in creating a legal supply chain in a vertical where, until relatively recently, law firms were the sole outsourced legal service providers.” Mark Cohen
Legal service delivery, then, is the manner in which lawyers engage clients, scope and open matters (with or without specific pricing arrangements), and then how they manage the matter through its lifecycle, to completion. It is the machinery which supports the practice of law.
It would be fair to say that legal service delivery is no new concept. As long as lawyers have practiced, there has been service delivery to some extent. However, it is only recently that firms have attempted to improve the quality of their services in order to maintain market position in the face of increasing competition. In order to compete, it is increasingly important for firms to be able to deliver matters as promised, or risk losing their clients. Particularly in the face of a second looming financial crisis.
The current state of legal service delivery
It would be fair to assume, given the length of time that has elapsed since 2008, that progress towards consistent service delivery would have been greater. However, market research among law firms sadly does not support that. While some firms are leaping ahead in measuring and improving their performance for their clients, they are still in the minority.
“In every year from 2013 through 2020, Managing Partners gave mediocre marks in terms of their seriousness about changing their service model. The low marks are jarring when one considers that Managing Partners recognise that the market had changed substantially over the last ten years and that firms needed to change to stay competitive. Less than 2% of firm leaders strongly agree that law firms have changed as much as was needed, which invited many clients to look for answers elsewhere.” Altman Weil: Law Firms in Transition 2020
Of all the firms surveyed by Altman Weil, as part of their yearly Law Firms in Transition research, only 5.5% considered their legal service delivery program to be ‘mature’. Over half (53.9%) said that their service delivery program was either in early stages, or didn’t exist at all. Currently, the majority of efforts are applied in an ad hoc manner, unequally across practice groups or matters. Accordingly, outcomes are mixed, and firms have little way of knowing how successful their efforts are. Without data, it is very difficult to compare like-for-like, or be sure that your efforts are consistently successful.
What we can learn from the successes
But things are not all doom and gloom. Recently, Clocktimizer hosted a webinar with Anshoo Patel, of Blank Rome, who shed some light on the way they were approaching practice innovation. Together with LawVision, they have built a data driven matter lifecycle. By incorporating data at every stage, they can set targets and then monitor their success in real time. This enables their firm to consistently deliver matters to the client as promised.
Again, the data in Altman Weil shows that firms which have implemented practice innovation strategies are seeing success. Firms which introduced reward schemes for increased efficiency and profitability shared that they have improved firm performance in over 66% of cases. Equally, employing a Project Manager or Director has shown positive impact in 60% of cases. This is currently a young area of innovation for firms (and was included for the first time in the 2020 survey). As such, many investments still are too young to officially determine their success or failure. However, initial data suggests that investment in improved service delivery initiatives pay off for firms.
Source: 2020 Altman Weil survey
It is equally important to note against the relative success of service delivery initiatives, that the alternatives are potentially damaging to firms. In a poll recently conducted by Clocktimizer, those surveyed shared that between 5 and 20% of firm revenue is lost to write-offs or write-downs. These write-offs often come as a result of a mismatch between the expected cost of a matter, and the invoice finally delivered to a client.
As Jessica Davis, Director of Matter Performance and Service Innovation at McCarter & English notes, this mismatch is a failure of service delivery. At McCarter, Jessica has been able to use service delivery data to have conversations with clients in advance of costs exceeding pricing arrangements, or before out-of-scope work mounts up. In turn, this has reduced write-offs for the firm, by including the client in the decision making process.
“Proactive write-offs may seem helpful, but they are invisible. A client won’t know you have discounted the work. Talking with a client about the work you have done already, and why you understand that the client needs the discount, makes the client aware of how well you value the relationship. This is likely to lead to increased collaboration.” Jessica Davis
What is holding service delivery back?
If service delivery has been shown to be successful, can increase client satisfaction and firmwide profitability, why is it not implemented as standard throughout the legal world? It is often argued that clients aren’t demanding change. However, the earlier data showing 7 out of 10 clients are moving work in-house is a clear sign that that may not be the case. Instead, they are choosing to give their feedback with their feet.
Equally, other firms cite a lack of desire to innovate from senior firm management. Law firms, with the partnership structure, are inevitably averse to change. Those that stand to lose the most from changing ‘a tried and tested way of working’ are those that sit at the top. As such, firms must be able to collect solid data to demonstrate the positive impact service delivery innovation could have on their firm. This can be easily achieved by performing smaller tests within practice groups. Being able to compare like-for-like across matters with and without service delivery should make a clear enough financial case for firm-wide adoption.
Beyond firms not taking advantage of service delivery at all, the commonest problem is the inability to consistently scale service delivery to impact all matters in a firm. The conception is that costs are too high, or that it is too mammoth a task to complete. Importantly, failing to implement good service delivery throughout the firm is a wasted opportunity. Sure, some of your matters now run on time and to budget, but the other half don’t. So your firm isn’t remotely as profitable as it could be.
However, this conception also proves to unravel when you explore the tools available to the modern law firm to support their service delivery methods.
Scaling-up legal service delivery
At Clocktimizer, we are lucky to work with some of the most innovative, client focused law firms in the world. Through our work with them we have pulled together some best practices which show that consistent, firm-wide service delivery is not a pipe dream. It is achievable with the tools currently available. As such, here are some of the key ways firms can consistently deliver their matters to plan.
First and foremost, firms should ensure that they have developed the right teams. Service delivery is the oversight of all of the moving parts of a matter. It means that you will need pricing teams to properly scope and then set a fee for the work based on historical data. It means you will need LPM teams to keep matters on track and to budget. Client value will be essential in helping your firm identify and prioritise your client’s needs and wishes to ensure closer collaboration and that you meet expectations. If you have these teams in place, and reward their successes appropriately, then your matters have considerably more likelihood of being delivered as promised.
Secondly, firms must embrace technology which delivers early warning systems. Sadly, nobody has a crystal ball. As such, you can scope a matter perfectly and still come up against unexpected developments. In many cases this out-of-scope work will end up happening without the knowledge of the LPM in charge of the matter. However, existing technology, like Clocktimizer, allows firms to create a detailed matter scope made up of individual activities. Out-of-scope work is then automatically identified as soon as it is logged, giving your firm a heads up that things are not going to plan before it is too late. Importantly, these notifications can be tailored to a client’s specific wishes. Because this technology is easy to set up, it can be rolled out to every matter in a firm with ease.
Not all firms currently involve pricing teams in every matter. However, for true legal service delivery, they should be involved in pricing analysis of your matters, and to help create and manage budgets. For most clients, the key expectation for service delivery is the price. No one wants an unexpected bill, and in the financially uncertain times we live in, it could cause a client to seek alternative counsel. Pricing tools like Clocktimizer enable firms to scope their matters and build a fee arrangement based on historical data. This can then be automatically converted into a trackable budget or project plan. Importantly, the budget can be broken down by phase and task, ensuring greater oversight. This will enable your firm to keep matters on track financially, firm wide.
Finally, the key to great firm-wide service delivery adoption, is sharing your successes. This goes beyond internally sharing success. Obviously it is important that service delivery initiatives which have positive financial effects for the firm should be roundly celebrated. However, firms should also make it a habit to share success with clients. It may go unnoticed that you consistently deliver matters as promised to clients. Or indeed, taken for granted. Use matter reports to regularly update clients on how you are performing as their legal counsel. Long term it will make you a more valued partner.
The future of legal service delivery
“We had the opportunity to pitch for some wage and hour class action work, which is complex, expensive work. Our data set for this sort of work was somewhat limited over the past decade and we had very little time to build a quote. The client was looking for fixed fees and capped fees by phases, so we were able to use Clocktimizer to identify tasks and classify them into phase categories and constructed a quote from that. Because of how detailed our quote was, we pitched an AFA and won the work.” Levi Remley, BT Law
We recently interviewed Levi Remley, a Pricing Manager at Barnes and Thornburg, about the way Clocktimizer had helped their firm improve their client service delivery. This story is emblematic of the direction that all law firms should be headed, with the right support internally and from external technology vendors.
There is nothing currently standing between a law firm’s desire to deliver matters as promised, and their ability to do so. By embracing the tools available, firms can finally meet the desire for transparency that clients have been sharing since late 2008. Importantly, this drive towards firm-wide matter management will have knock on effects for profitability and efficiency. The only question now, is which firms will rise to the challenge?
About the Author Pieter van der Hoeven, a former M&A lawyer with 15 years of experience in the legal industry, is the co-founder and CEO of Clocktimizer. Clocktimizer is an award-winning legal technology company that helps law firms to understand who is doing what, when, where, and at what cost. Global 100, Am Law 100, and Am Law 200 law firms use Clocktimizer to make data-driven decisions around matter management, budgeting, and pricing. Before starting Clocktimizer in 2014, Pieter was an M&A lawyer at DLA Piper and earned his MBA from Rotterdam School of Management and IE Business School. Pieter can be contacted at firstname.lastname@example.org