Law Firms Feel Pressure From New Breed of Competitors

In a recent article, author Gina Passarella argues that the law firm industry “is moving away from a monolithic provider of legal services – the law firm – to a fragmented service platform where the competition isn’t just a broadening array of law firms, but legal process outsourcers [LPOs] and other non-law firm legal service providers as well.”

In essence, Ms. Passarella argues that the industry is “unbundling” into various constituent parts — from the client (who is keeping more and more work in-house) to the legal LPO vendor (who is doing more and more specialized work ).  And, according to experts quoted in the article, the trend is towards global firms that can do everything and boutique firms that can do certain things very well — with little room in between for other types of firms.  These legal consultants argue that law firms can no longer be “bet the farm” firms and commodity firms at the same time. 

What the article posits as future fact may actually be the a short-term trend towards cost-cutting.  For example, a good portion of LPO competition may actually be driven now by those lawyers who could not otherwise get a job with a traditional firm.   Once the market picks up again, those lawyers may find a more traditional home.    As recognized by K&L Gates chairman Peter Kalis, who is quoted in the article,  LPOs do not provide the same attorney-client privilege guarantees as law firms; and therefore, can never really be a threat to most of the business his firm does.  As he puts it, “they are a gnat in an elephant’s ear when it comes to K&L Gates.” 

Not sure if LPOs are ultimately law firm gnats or very large bed bugs.  What is clear, however, is that a law firm needs to continually reassess its business model – with a constant eye towards improving efficiencies – before it can ever hope to improve its bottom line.  A good starting point is to hone in on core competencies.   There are good reasons boutiques have taken a chunk out of BigLaw books over the past decade or so — all of which boils down to self-awareness on core competencies tied to a focused business plan that is well executed.