A strategic plan we often hear law firm partners espouse is that they want to move their practice mix to primarily doing higher complexity work.
This is driven by a few factors.
- The first is higher complexity assumes higher value, which should translate to higher fees
- The second is the intellectual challenge and positioning of doing higher complexity work, that is integral to the identity of being a top lawyer
In more recent times, it’s also driven by the fear that AI will do more of the low and mid complexity tasks better than human lawyers.
My own view is that this thinking limits a firm’s business and growth model. For one, a business strategy purely based on an internal perspective, doesn’t take into account either the client’s value drivers or the wider market opportunity. Secondly, the choice architecture for complex work is not as straightforward as it seems.
What Clients Actually Value
Let’s look at this from the client’s perspective.
Common scenario: The client comes to a law firm, for a specific outcome. In a lot of cases, the client wants something done quickly and efficiently. A venture capital transaction is an example where the transaction has to be done in a timely manner, with minimum friction between the co-investors and the target, with key risks ascertained and covered for.
In other cases: The client is coming to a law firm, because they have the experience of having advised on similar issues for other clients. A structured finance transaction is an example, where the main value here is the experience of having done similar transactions, which translates into established structures, legal positions and drafting language that meet market standards and will stand the test of time.
In select situations: There is a unique problem statement that requires deep legal analysis, judgment and a creative solution that will stand up to regulatory or judicial scrutiny. Here the client is coming to the firm to rely on its legal expertise and very often its ‘letter head’ to make a decision. The decision on how to structure a new business model that is not specifically provided for in the regulations is an example of the ‘Expertise’ driven work.
Author's representation of David Maister’s service value pyramid
The Three Tiers of Service Value
David Maister’s three tiers of “service value” is a useful framework to identify where the value lies for a particular service offering. ‘
- Efficiency’ at the base, signals that the value lies in process, speed and consistency
- ‘Experience’ in the middle, the value lies in the quality of precedent, advice that has been tested, and good judgement
- ‘Expertise’ at the top, the value lies in strategic insight, novel problem solving, and the trust that comes with the name on the letterhead
From Inputs to Outcomes
The increased adoption of Legal AI is moving the conversation from input based pricing (i.e. the billable hour) to output driven value pricing.
This is true even for Experience driven work, which is the segment of work the law firm, ‘billable hour’ model is based on. Only when a partner clearly identifies the value drivers for a client, does the ‘output driven value’ strategy start to become clear.
When seen from this lens, simplifying a complex problem, will certainly be one of the value drivers, as will speed, clear legal risk assessment for better decision making and in some cases playing hardball.
However, complexity by itself does not equal value.
Here are some questions to think through
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Where is there a mismatch between the ‘value’ we provide (3Es) and the value that clients want?
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What if we stopped using time-sheets as a tool for billing, and instead used it as a tool to track budgets, costs and resource allocation?
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Where could we use Legal AI to increase the value for our clients, without impacting unit profitability?