The Obsolescence Audit

by Jordan Furlong   December 2, 2009

Just 20 short years ago, if you wanted to buy a book, you had to go to a bookstore. If you wanted music, you had to visit a record store, and if you wanted to read the news, you had to buy a newspaper. Then Amazon.com debuted in 1994, Google was incorporated in 1998 and Napster emerged in 1999. Soon enough, people stopped buying newspapers because news articles were accessible online at no charge, stopped buying records because they could get music from each other freely, and stopped walking into bookstores because they could buy books with one mouse click online. These three companies helped deliver body blows to three massive industries by exposing and eliminating the key to these industries' success: control over distribution. Far more than what's happened to banks and auto manufacturers, it's the most important business event of our time.

Lawyers don't sell books, articles or music tracks to our clients. But we've long benefited from a similar type of control over the distribution of legal services, rooted in two barriers: the inability of competitors outside the legal profession to replicate our offerings, and legislative restrictions against such competitors operating without our authorization. The first and more formidable of these barriers is falling as we speak: client-directed assembly of legal documents, legal professionals operating in low-cost jurisdictions, online dispute resolution systems that render litigation superfluous, free searchable legal knowledge databases: all these and more innovations exist today and will rapidly multiply. The second barrier is weaker than it appears, vulnerable to the stroke of a legislative pen like the one already wielded in England and Wales.

News, music and bookstore executives who could somehow time-travel from 1989 to 2009 would be struck by how ill-prepared their companies were for fundamental change to their marketplaces. It's not that demand for their products has gone away — it may even have grown — but business models founded on control of narrow distribution channels were overwhelmed when control failed and access exploded. Many law firms are in an uncomfortably similar position — too much of what they offer is within striking distance of increasingly accomplished competitors from outside the legal profession.

But lawyers don't need to repeat the mistakes of these other industries. We can prepare better, both because we have a clearer picture of how our own marketplace will change and because we have the incentive of seeing what happens to companies that don't prepare well. We can take a close look today at what we sell and at the market in which we sell it, and figure out which of our offerings will survive a new landscape in which there are many more competitors playing by a different set of rules. We can conduct what I think of as an obsolescence audit — identifying those aspects of our business model that won't survive the next ten years and taking steps now to address them. Here's a short checklist to get us started: look within your firm for…

1. Any offering that's the same no matter who buys it. This includes news and analysis of legislative and case law developments, documents like simple contracts and wills, tips to adopt and traps to avoid in various areas of law — universally applicable legal products, basically. If what you sell differs hardly or not at all depending on your buyer's circumstances or preferences, then you're squarely in territory now occupied by service providers outside the legal profession. They don't need to tailor their services to clients because they don't have clients — they're using these products to make money through advertising or other means. Non-tailored services in the legal sector have a stand-alone value approaching zero; if they constitute a part of your business, drop them now.

2. Any offering essentially the same as your competitors'. This, as you might imagine, covers an enormous amount of what law firms now do. The hard truth is that a lot of legal work doesn't really vary that much from firm to firm, in terms of function and quality; there are very few legal tasks that only one firm can offer to an acceptable degree of competence, let alone excellence. So you can either come up with an offering that can't be duplicated by any competitor, law firm or otherwise (unlikely), or you can distinguish your offering by redesigning the way in which you deliver your services — re-engineering the client experience by way of cost, design, ease of access, integration, and so forth. If an offering really isn't susceptible to a value-added redesign, be prepared to drop it, no matter how lucrative it might now be.

3. Any offering not optimally designed for client value. Think carefully about this one. It's not just the easy candidates like the billable hour, in which every new case development simultaneously increases risk to the client and reward to the lawyer. It's things like your entire litigation practice. Litigators are especially fallible to the Black & Decker error that Richard Susskind cites, failing to see that the customer wants not a drill, but a hole in the board, in the easiest, cheapest way possible. Litigation is neither easy nor cheap; online dispute resolution is both, and it's poised to eviscerate litigation over the next decade. Look at what you do in your firm (and how you do it) and ask yourself: if I were the client, would I want it done this way? If the answer is no, change it.

4. Any offering that really, truly doesn't require a lawyer. This one is far too important to be answered by lawyers. Instead, look at what your clients are doing themselves, or look at your flourishing competitors outside the profession. The question to ask isn't: is a lawyer the most accomplished possible resource for this matter? The question is: is a lawyer absolutely necessary, in terms of expertise, judgment and cost, for this matter? You may be correct that the quality of these alternatives doesn't measure up to what lawyers do — but rest assured, that quality will improve over time, and quickly. If the main reason your lawyers keep receiving particular kinds of work is because only lawyers are allowed to do it, or because clients use you for these tasks out of habit, alarms should be going off. In the near future, things that don't require a lawyer, won't.

Applying these four principles, and others that you'll come up with for your own circumstances, will result in a stripped-down law firm, maybe severely so. That's a daunting prospect. But do you suppose publishers and record companies now wish they'd been stripped down and focused when the web-generated wave of change struck them? Do you think they regret investments in and acquisitions of more-of-the-same year after year, time and money they could have spent retooling for a completely different competitive landscape? The reality on the ground for these industries today, when viewed from their catbird seats a decade or two ago, is unimaginable. The legal services marketplace is different, but it's not nearly different enough — and the change is far more foreseeable.

No one really knows what law firms will look like in the future, but I can guarantee what they won't look like: the past. Entering the 2010s with a law firm model essentially unchanged from the one that entered the 2000s is asking for serious trouble. Start changing that now.