Originally published in New York Law Journal, January 2018.
Realization rates continue to decline in the legal industry, according to the most recent Georgetown Law/Peer Monitor report, demonstrating the growing disconnect between the hours worked and revenue generated by lawyers. As the connection between the billable hour and financial success becomes more tenuous, so too does the premise for advocating a highly leveraged business model comprised primarily of lawyers. The pyramid model the industry has grown to know and love, in large part due to David Maister’s masterful presentation in Managing the Professional Service Firm more than two decades ago, may be coming to an end. What will surface in its place?
The famed single continent, Pangea, may hold a clue—at least as a visual parallel to the pyramid. Pangea was a unified land mass with varying levels of depth and breadth, holistically flatter than a pyramid yet with pockets of pyramid-like structures. It is unique from the pyramid not only in its overall flatness (comparatively) but also in its interconnectedness, its incorporation of varied models into a single platform and its mutable nature (albeit over much longer periods of time than one would expect of a business). These analogous characteristics correspond directly to the transformation of the legal industry.
Various Models in a Single Platform
A surge in transparency and technology (among other changes) in the past decade has led to the expansion of the legal services spectrum: commoditization of some types of legal services—patent prosecution, routine contract work and much of product liability are good examples—and the appreciation of others. Commoditization lends itself well to a highly leveraged business model in some instances, and also to the application of new tools and processes that eliminate the need for talent altogether. These areas may be small or high “peaks” in the talent model, requiring lower-level resources to support and maintain processes (which, it is vital to note, may or may not require the skills of a trained lawyer); or, they may become “single-server” areas (aka, organizationally flat) where an individual or small team of lawyers armed with the right tools and processes may be able to deliver high volume without leverage.
At the high end of the spectrum, certain legal issues, such as regulatory advice and cyber risk, are becoming increasingly integrated and complex. Creative solutions to these challenges will demand drawing on highly skilled, multi-disciplinary teams. A flatter structure helps to create an environment where individuals from various backgrounds can seamlessly combine into a single group capable of considering a client problem from a complete, multi-faceted perspective. Again, all of these individuals need not be lawyers; in fact, success may demand that they are not exclusively lawyers. Diverse teams are typically more suited for innovation and creativity. Plus, changing client needs require more specific technical and industry-specific knowledge than many lawyers possess.
Harvard Business School professor Heidi Gardner writes effectively about the value of these types of diverse teams in her book, Smart Collaboration. Her studies reveal a direct correlation showing the more services a client acquires from a firm the higher the annual revenue. A positive outcome, to be sure. However, her commentary goes far beyond discussing the direct financial benefits of teamwork. Her research also illuminates the indirect values associated with truly collaborative efforts to deliver on client needs including better solutions, deeper, longer-lasting relationships with clients and—to the point of talent—a stronger bond between professionals and the firm.
Furthermore, the interconnectedness and flatness of an operational structure that resembles Pangea—like one that embraces collaboration—lends itself well to attracting and retaining the next generation of law firm leaders: Millennials. Millennials are inherently non-hierarchal, preferring to work in groups with people from diverse backgrounds and experience levels. They find purpose in the connections they make with others, their ability to contribute and their ability to continuously be learning—all outcomes more accessible to them in a less hierarchal organization.
Mutable and Evolving
Finally, the organizational structure of tomorrow’s law firm will need to continuously evolve, like Pangea’s topographical footprint. Few law firms today possess the fluidity to respond rapidly to changing client demands and the increased influence of technology—in their own business and that of their clients. Among the various changes anticipated in the industry, the growing role of business professionals in the law firm—both as contributors to the business and leaders of the business—will be one of the most pronounced. Finding a way to incorporate and value these individuals within the current “lawyer-only” ownership structure will require significant organizational and cultural shifts. A more flexible model will be essential to support this evolution.
Other anticipated changes in the sector include the promulgation of network-like expansions à la Dentons that mirror the constructs of the Big 4 accounting firms; alliances or mergers with other organizations to extend service offerings beyond the legal realm; and joint ventures to respond to increasingly sophisticated clientele. Again, each of these new ways of approaching the business of law will benefit from a broader base of empowered decision-makers as well as the development of interwoven connections across the firm.
Pyramid to Pangea and the Individual Lawyer
Accompanying this transition in the organizational structure of law firms will be an equally remarkable transformation in the individuals themselves who make up the law firms. In addition to the growing role of business professionals, as referenced above, will be the rise of the T-shaped professional. A term dating back to the early nineties (and likely before), the concept of a T-shaped professional describes one who possesses depth of knowledge in one or two specific disciplines (the vertical aspect of the “T”) alongside a broad, general perspective of the “big picture” and an ability to converse, at least superficially, on a wide range of topics. The T-shaped model was once used by McKinsey in its recruitment of consultants. It is considered an essential profile for many high-level strategic advisors and thinkers.
Some lawyers already possess this T-shaped profile. They are masters of their domain and also able to direct and counsel clients in broad strokes, even if only to refer them to another lawyer with more relevant expertise. The vast majority of lawyers, however, does not maintain this broad base of knowledge and familiarity with their clients’ business. As client needs evolve, the pressure to possess this mindset and combination of skills will become increasingly vital, especially for those lawyers and firms looking to compete at the premium end of the legal services spectrum. An integral component of developing and fostering the T-shaped professional is interconnectedness—exposure to a wide range of skills within one’s own organization—a signature characteristic of the hypothetical Pangea structure.
Much of the movement from pyramid to Pangea has already begun. Law firms with two-tiered partnership models are floundering under the weight of bloated systems. Associate retention is low, incoming classes are smaller and law school applications (despite a recent uptick) still remain well below historical figures. Pioneering law firms are devising alternatives to the traditional partnership track, incorporating technology and other tools into service delivery and expanding offerings to include complementary services and advice. Business roles are increasing not only in number but also in influence. The transformation is underway, yet there is still a long way to go. The “high leverage as optimal” philosophy persists, as does the reliance on outdated performance metrics. It is time to embrace a new mindset and model. Since “the secret of change is not on fighting the old, but on building the new,” or so says Socrates.