The Thomson Reuters report got it wrong

Last Wednesday, Thomson Reuters published the 2018 Report on the State of the Legal Market (the "Thomson Reuters Report"), its annual review of law firm key performance indicators, and spent a large portion of the report chiding law firms for following failing strategies. The Thomson Reuters Report's prescription in the face of a shrinking market is "greater efficiency, predictability and cost effectiveness in the delivery of legal services". The models for change are the strategies pioneered by the LPO shops and Axiom. That is the wrong conclusion.

For all of the talk in the Thomson Reuters Report of law firms constructing a Maginot Line, the report sends law firms right back into the trenches. The Thomson Reuters Report defines a law firm's options around services and not technology, which is worthy of note particularly as Thomson Reuters has collected a strong portfolio of technology products like Practical Law that are actively replacing legal services. As soon as the delivery of legal services is expanded to include not just services but tech products, such as those pioneered by Practical Law and being pursued by law firms like Allen & Overy and Simmons & Simmons, the picture is different. At PartnerVine, we've created a tech-first alternative for law firms to address just this issue, in which law firms sell their own tech and capture the work arising from it. The PartnerVine model positions law firms in the growing tech market rather than the shrinking market for law firm services, and is a better option than competing to sell legal services at lower cost. There is no reason to surrender the field to Practical Law.

By defining law firm services as traditional legal services plus new businesses like Axiom, Riverview Law and the LPO shops, the Thomson Reuters Report addresses the symptoms and not the cause of flat revenue growth for law firms. The cause of flat revenue growth at law firms is the information economy, not new models for providing legal services at a lower cost. The information economy for law firms is Google plus the multitude of information from law firms and others about the law and legal services. That information leads to more informed consumers of legal services, which causes price pressure for law firms outside the top tier. It allows in-house counsel to do more at a better price point, which leads to more spending for internal counsel and less for external law firms, all of which is confirmed by the data in the Thomson Reuters Report. When in-house counsel need services, they contact the right tool for the job, but the disruption happened earlier when in-house counsel got most of the information they need online. The rise of alternative legal service providers like the LPO shops and Axiom is a result of that disruption, but not its cause. 

Following the LPO shops and Axiom as a firm-wide strategy is a fool's errand for law firms because they are substantially locked into their largest expense, which is their human capital. Thomson Reuters Legal Managed Services is a good example of what law firms are up against if they pursue the Thomson Reuters Report's recommendation. Thomson Reuters Legal Managed Services is the LPO business Thomson Reuters bought in 2010 called Pangea3. Its employees are primarily in India and do legal work from higher cost jurisdictions. The business takes revenues away from law firms, and it will be hard for law firms in the developed world to compete with its cost structure. The Thomson Reuters Report doesn't mention that firms that do choose to compete with the likes of Pangea3 will find it difficult to maintain the margins on their premium services. 

The alternative is not to price like Pangea3, but to pursue the competitive advantages of tech. Thomson Reuters is doing a great job of that with Practical Law, and is rapidly expanding that offer by automating contracts with Thomson Reuters Contract Express. In the UK, most large law firms have built substantial libraries of automated legal documents with Contract Express, but only allow them to be used internally by associates to prepare a first draft. With PartnerVine, law firms sell their automated legal documents online, and receive the overwhelming majority of the proceeds from the sale, plus whatever referrals come from making the document broadly available. That means law firms help their metrics by selling tech products for a fixed price, and capture the referrals for higher margin legal services. That is a far better alternative to competing with Pangea3 on price.

The Thomson Reuters Report would do well to discuss technology-centered strategies for law firms, and not just service-centered ones. For services, law firms are fighting a losing battle if they frame their competition as the Thomson Reuters Report has done. Tech alternatives like PartnerVine raise the metrics of a law firm's existing cost base, and position law firms to grow with technology, rather than fight against it. Although it means competing with Thomson Reuters' tech products, it's a better way forward for law firms. 

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