Challenges in the Legal Services Industry

For some time now we have seen a global incremental trend in the implementation and search for innovation in the provision of legal services. We know that it is an industry marked by the adoption of global trends and where service delivery formats have not changed in years, but once they do, many are the ones who take the changes.

The main reason why business models associated with legal services have not substantially altered their characteristics, is because they are mainly personal professional services, where the bonds of trust and relationships have prevailed as determining factors in the definition of the business model on which these institutions are commonly organized. For its part, decision-making on the selection of legal service providers has been influenced by the strategic attack of organizations engaged in the generation of international rankings, which has contributed to the construction of entry barriers for some suppliers and the strengthening of an industry usually linked to personal or group recognition as a positioning strategy.

However, there are people and organizations that have reacted to these conditions before, which makes industry dynamic and leads traditional organizations to rethink whether the characteristics and attributes of their models are best suited to meet the current demand needs.
With this, the insertion of alternative business models that exploit opportunities generated by the negative inefficiencies and externalities of the traditional structures of legal studies is now a reality.

In this industry, the fixed costs that high-supply offices require, the price-determination mechanisms based on billing hours and the associative structures of society or community, where partners maximize their benefits as well as shareholders in a public limited company, are determining variables in defining incentives, compensation, approaches to price-definition formulas, conceptualization of services and, finally, the decision-making mechanisms within the organization.
It is the same variables already mentioned that are precisely today restrictions on innovation and create an adverse scenario. Indeed, we have noted that customers have placed a greater focus on cost optimization, the reduction of management and sales costs and the generation of efficient processes in the relationship with suppliers, in order to improve their margins and the benefits to their shareholders. This reality is consistent with a contractive economic environment and where opportunities to improve operating margins are motivated by the optimization and efficiency of resources, all aspects that show that market conditions have changed.
In view of the characteristics of this environment, service providers cannot stay outside and believe that changes in the business ecosystem do not imply their necessary adaptation.

CHANGES IN THE OPERT.
The reactions of the supply of legal services to an essentially dynamic demand, which appreciates responsible innovation and creativity, the efficient use of technologies, the adoption of alternative price strategies and other adjustments associated with the above variables, have not been expected.
A concrete testimony corresponds to the development of global companies that in the search for alternative responses have visualized and implemented strategies based on the generation of solutions and products predominantly virtual, online or other, where the automation of documentary generation, the standardization of contractual models, the development of e-discovery tools, the incorporation of software and other support mechanisms to standardized processes, has led to an emerging current of non-traditional service providers. Many qualify them as support for the turn. However, several of them are far from that classification, since in strict terms, several are real providers of legal services, founded, integrated and led by lawyers who exercise their profession.
In turn, the emergence of predominantly remote advice, where the use of teleworking technologies and models has proliferated, is another reflection of some's interest in seeking opportunities for differentiation and added value for customers.
In addition, models that recognize the interests of current generations, where flexibility is enhanced, the greater balance between family and work life, the required integration of women and an adequate appreciation and recognition of the real contribution of each partner versus their usual compensation and incentive structures.
Examples of organizations that have sought to generate alternative models are LegalZoom, Rocket Lawyer, DirectLaw, Axiom, Potomac Legal Group, Lawyers on Demand, RimonLaw, Virtual Law Partners, Clearspire, among others. These are mainly United States of America, but similar examples exist in Europe, Asia and Oceania.
The services or products that such organizations provide are of a wide range, some are based simply on optimizing processes of contracting massive generating programmed and comprehensive solutions, others are based on providing high value-added alternatives to companies or entrepreneurs that do not have the scale to own internal lawyers, but whether the need for permanent and recurrent solutions. There are also those who seek to generate alternatives for the provision of top quality services, but supported by light fixed cost structures, which allows them to be extremely competitive and adaptable to the requirements of their customers.

CLIENTS TO THE CHANGE? ORGANIZATIONS ADOPTED FOR CHANGE?
Having outlined this new environment, there is obviously a question to be asked: Are there customers willing to test and incorporate into this movement of legal innovators? This is a question that is not alien to us and that we usually present to those entrepreneurs who think they have found different ways of doing things. In fact, only if there are customers willing to change is that the future of these innovations will be promising and these alternative business models will proliferate globally.
In this sense, it is good to clarify certain concepts that we share with the firm Tools4Legal GmbH, which in a recent publication mention the existence of 3 main elements that strengthen the idea that the trend of change in the market should be a reality, but that traditional structures of legal studies are in themselves a restriction on innovation:

The model of traditional law firms is inherently contradictory.
In this regard, authors Felix Rackwitz and Filip Corveleyn state that inherently leveraged business models and heavy cost structures are certainly contradictory to the demand for more for less. So, when one seeks to incorporate efficiency into the organizations, the first thing he expects as a reaction is a cost reduction and, consequently, an increase in margins. However, when you introduce these efficiencies into a legal study structured on the basis of a leverage pyramid of junior partners and lawyers, the measures usually lead to a reduction in returns. In this way, it is only possible to conceive of the possibility of improving the margins if one is trying to correct the cost structures of these models.

2. The traditional model of administration and association does not contribute to change.
A second point relates to the partnership structures of legal studies. The existence of the partner-based management model does not facilitate change, as changes in environments where participation or role rivalries can prevail or where levels of freedom and decentralization in decision-making are commonly restricted are conditions that naturally make the trend to change difficult, more considering whether they have been very profitable for years. Taking these structures out of the comfort zone is not easy.

3. The studies of lawyers, in terms of their structures, are boxes of diffuse content.
In fact, while the authors recognize being provocative with the assertion, the approach seems reasonable, as to what more is a legal study but a collection of expert individuals with a support structure generated around them. So, wondering what the real assets of a study are is interesting, as practically all the value can be found in the brand and the people who make it up. In fact, the brand is only the sum of the individual brands gathered in the same space, plus the institutionalized knowledge and marketing and positioning efforts that have been generated. However, the marks built on these bases are easy to dilute and people can go, which is complemented by the fact that the limits of the organization itself constitute restrictions in themselves, as the trend in these structures is the generation of knowledge silos, which are neither shared nor interacting, and this is another element that restricts innovation.

CONCLUSIONS

In this way, our answer to the original question is positive. We believe that the observed trend is actually the result of a wear sign of traditional structures and models. More, it is a fact that the companies we mention as examples are companies that are inserted in the world of legal services, where their growth has led them even to open regional or global offices, and where their consolidation is admirable. For its part, we have witnessed the growing interest of customers in hearing about alternative models that can be efficiently integrated into their value chain and that by definition allow for generating resource optimization, without sacrificing quality. In addition, more organizations are increasingly seeking to align their suppliers with practices or policies that they themselves implement and promote in their companies, such as policies of inclusion, diversity, job flexibility, among others.
The final product that all these providers will continue to deliver will certainly be similar, that is, services or legal advice, but the way in which such services are provided, those who provide them, under what conditions and with what motivations they provide them, if they change. We are convinced that today we are seeing a trend that will not disappear and where the current market players, rather than resisting this current, must at some point recognize it as a real change to which they will have to join in one way or another and for which they will have to take into account the restrictions of their models.
We therefore look forward to the early multiplication of alternative business models and the insertion of new market players who will find niches and spaces directly linked to the factors already exposed.