People in the legal industry tend to think of NewLaw players as small firms or tech providers that operate like startups. It is true in some respects, as undercapitalised organisations must be more agile and innovative than established players if they want to make a dent in the market. However, at the complete opposite end of the spectrum, large enterprises are demonstrating the recent re-emergence of Multi-Disciplinary Practices (MDPs) as a development that shows the desire to innovate within the legal industry and do business differently.
Differences Between BigLaw and NewLaw
LegalVision’s recent White Paper on NewLaw examined some of the purported differences between established BigLaw players and innovators in the NewLaw space.
Some characteristics of NewLaw providers include:
- virtual or dispersed workplaces;
- commitment to using technology;
- flatter working structures (possibly without partners);
- flexible work arrangements for employees; and
- alternative billing arrangements.
In contrast, BigLaw providers are built on:
- a partnership model, where partners are promoted from within and share in the equity of the firm;
- graduate lawyers, who are worked hard and paid well (though not if calculated on an hourly basis);
- high hourly rates; and
- time-based billing.
Many of the characteristics of NewLaw players are not the exclusive domain of innovators in the legal industry. There is evidence that traditional firms are increasingly moving towards fixed fees, capped fees and “no win, no fee” billing. There is also evidence of rising numbers of non-equity partners and the availability of flexible work arrangements.
Therefore, NewLaw is not so much a series of characteristics that a business must have but is a philosophy that a law firm can adopt. An organisation can be a NewLaw firm or have NewLaw aspects if it harbours a desire to challenge the orthodoxy and adapt its offering so as to serve clients in either new or different ways. In our own business, we use process design and design thinking to try to understand the end user of legal services and try to deliver services in a way that best serves them.
MDPs Taking on the Law
As long ago as July 2015, the AFR was touting the “steady advance of big four accounting firms into legal services”. At the time, the Big 4 were branding the announcement as a client-centric move. While it may true that the Big 4 are looking to service their clients in as many ways as possible, their ultimate goal is, more likely, acquiring a share of revenue that clients would have otherwise spent on the big law firms.
In and of itself the development is not particularly outrageous. These are accounting firms, after all. Money is their game, and it’s not surprising that they’d leverage an opportunity to make more of it. The interesting part from our perspective is why they are only getting to it now. After all, MDPs have been around in the past, with limited success. The Big 4 are saying that it is in response to changing market demand. Clients want things done differently. Now some 18 months later it is apparent that this trend was no flash in the pan. The accounting firms are continuing to poach lawyers from the big law firms and acquire other small firms.
What Does This Mean for Traditional Law Firms?
Established law firms can expect tougher competition and may need to work harder to attract and retain clients. The value proposition MDPs offer is obvious – they can provide an integrated service with high levels of market insight and support from their other practice areas. There may be exceptional partners within a law firm whose personal understanding of the subject area they practice means that they can understand and anticipate non-legal concerns that may arise. However, this does not compare to the commercial insights that MDPs can offer, which are likely to be both broader and deeper than those a law firm offers.
This ‘one stop shop’ value offering from MDPs starkly contrasts the offering of traditional firms – namely, a highly specialised service offering. It remains to be seen how this burgeoning trend will pan out. Will clients trust that MDPs can do everything required by way of legal needs, or will the market continue to demand specialisation? We suspect that how MDPs perform when they win legal work away from the BigLaw firms will, in part, determine the answer. If an MDP does well on the legal tax aspects of a deal, a client may be inclined to try them on a broader range of legal needs next time.
An interesting corollary of this trend is that law firms are beginning to offer a broader set of services themselves. While we are yet to see any law firms seriously dip their toes into the accounting game, there have been other avenues that law firms have been more comfortable expanding into. Some firms are hitting back by offering consulting services and business support to in-house legal functions and even to business units within a client. Gilbert and Tobin’s “g+t <i>” strategy, Allens Accelerate or MinterEllison’s Flex program are good examples of traditional firms implementing innovative strategies to retain clients and provide ‘end-to-end solutions’.
Where Does This Leave NewLaw Players?
If the Big 4’s strategy turns out to be right, it will be a good development for NewLaw players. This is because it will be proof of the fact that clients are seeking to do things differently. Market disruption does not play out in just one way. It tends to do so messily and with a substantial amount of contradiction. If clients want something that BigLaw isn’t giving them, there’s a good chance they’ll find it elsewhere. It stands to reason that any client that has tried to be innovative in the past and had a good experience will be more likely to try something new and innovative again in the future.
It may not be the case, however, that clients will assess their options and choose to stick with just one. Many businesses have long-standing relationships with their law firms that are deeply entrenched, and may not wish to leave those firms altogether. MDPs may not be able to offer all legal services, at least in the short term, but may be useful for particular legal areas, such as tax, which often goes hand in hand with accounting issues. For ‘business as usual’ work, such as high-volume contract generation or reviews, clients or the legal teams themselves may outsource to companies like LegalVision, to benefit from a commoditised approach.
There is no reason a client couldn’t keep more complex work with their current BigLaw partners, move specialised legal services that are related to finance or tax to an MDP and pass on more commoditised work to a NewLaw player. This feeds into a trend of stratification in the industry as well as opening up opportunities for collaboration.
NewLaw firms do a lot of business by forming partnerships and collaborations with other firms or service providers. No doubt MDPs will require the services of legal tech players, Legal Process Outsourcing (LPOs) and new legal software. At the same time, the increased pressure that MDPs are bringing to bear on traditional firms may lead the BigLaw players themselves to seek out opportunities with NewLaw innovators to make their value proposition more appealing to clients. Overall, the discussion of innovating within the legal industry seems to have generated a domino effect, prompting the big law firms, the MDPs and the NewLaw players to find better ways of delivering legal services to clients.
In an increasingly competitive market, every industry is seeking to innovate to improve their practices and reduce costs. Instead of the initial uptake of MDPs, the development of legal technology and software, and the rise of NewLaw startups such as LegalVision, BigLaw firms may seek to innovate to make their services attractive to clients whose needs are rapidly changing. Or these firms may seek to segment the market further by emphasising the benefits of increased specialisation. We are yet to see the effects of these changes. Overall, the trend is exciting and important for keeping the momentum of innovation going in the legal industry, as it has the potential to add real value for clients. We’ll be keeping a close eye on how these practices go over the next twelve months or so, as we expect the legal industry at large will.
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