IFLP is proud to collaborate with the above list of innovators and early adopters.


Later this month, the Institute for the Future of Law Practice (IFLP, or “I-flip”) will celebrate its one year anniversary. Before that, it was just an idea in the minds of a few dozen lawyers, legal educators and allied professionals.  In the fall of 2017, this “Group of 40” participated in a needs analysis. There were two questions: Is an intermediary organization needed to align the interests of law schools, legal employers and clients around the educational requirements of 21st century law practice?  And if so, could such an organization become a viable nonprofit operating company?

The Group of 40 concluded that the period of industry-wide discussion and debate, which began in earnest after the 2008 financial crisis, had run its natural course.  It was time to start building the future. Thus, an organization like IFLP was worth a try.

The Group of 40 endorsed the creation of a skills bootcamp in spring 2018 for a group of roughly 25 students. A key feature would be paid internship employment for every admitted student. By hiring students, IFLP employers would be signalling the value of IFLP training. Eventually the rest of the market would catch on.  In a nutshell, that was the model.

Initially IFLP’s only assets were relationships, albeit that was huge. In November of 2017, Cisco Systems committed to six paid 7-month internships ($300,000+ in salaries). Northwestern Law committed classroom space for the inaugural bootcamp.  In addition to hiring IFLP grads, Chapman and Cutler and Elevate Services agreed to provide year-one operating capital (later Quislex provided additional founding sponsor support). A wonderful group of professionals agreed to serve on our volunteer board. Another dozen-plus industry leaders agreed to serve as volunteer instructors. All this happened because of a network of professional peers with significant history and a reservoir of trust.

Drawing upon this foundation, IFLP was brought into this world on January 16, 2018 as a Delaware nonprofit nonstock corporation. A few days later, we launched a website and started recruiting employers. Before we had a checking account, we were interviewing students for the bootcamp. See Post 043 (announcing launching of IFLP); Post 046 (providing an early days account).

The inaugural bootcamp went well. We faithfully collected metrics on all of it. In the fall of 2018, as we began to plan for 2019, we finally had the bandwidth to create a logo and refresh the website with content that reflected our longer-term aspirations.

As we approach our one year anniversary, IFLP is immensely grateful to the above roster of 2019 IFLP employers. These are the legal industry’s innovators, early adopters, and opinion leaders.  To fill all the employment slots, IFLP will be running skills bootcamps in Boulder (Colorado Law), Chicago (Northwestern), and Toronto (Osgoode Hall) for 75 to 90 students. We have room for approximately ten additional employer slots before we hit maximum capacity. Our existing funnel of prospective employers is likely to yield that. Likewise, in 2019 we are fortunate to have 18 participating law schools, see list on IFLP website, with plans to add more in 2020.

As the title of this post suggests, this is an update on IFLP.  I have time to write it because the IFLP board and leadership team has done a very good job of building an infrastructure that can scale. As of today, our expansion is on schedule.  Below I will do my best to describe the organization’s current activities and future plans.  The good news is that we are building a big tent for those wanting to co-create a better future.


For the pre-history of IFLP, including the indispensable role of the Colorado Law’s Tech Lawyer Accelerator (TLA) Program, see Henderson & Linna, “Is Your Organization Building a World-Class Talent Pipeline?,” Law.com, Aug. 31, 2018; see also Post 018 (discussing TLA during the summer of 2017).


Mission

IFLP’s core mission is to align the interests of law schools, law students, legal employers and other industry stakeholders around the knowledge, skills and training needed by 21st century legal professionals. What makes this mission so important is the relentless growth of complexity in a highly regulated, interconnected and globalized world.  Without a bigger toolbox, legal services will continue to become unaffordable to a larger proportion of clients.

This pressure is most acute at two ends of the legal spectrum: PeopleLaw, where a growing share of ordinary citizens are forgoing legal services, see Post 037 (data on declining PeopleLaw sector); Post 042 (legal services shrinking portion of CPI basket); and large organizational clients, where legal need is racing ahead of legal budgets, see Post 022 (CLOC focused on this problem); Post 041 (Legaltech focused on this problem); Post 053 (rise of NewLaw focused on this problem); Post 055 (Godfather of legal ops joining Baker McKenzie to solve this problem); Post 069 (Microsoft legal dept focused on this problem).

For both clients and lawyers, the increase in legal complexity is experienced and, therefore, framed as a cost problem.  Yet, it’s really a problem of lagging productivity. The increased volume of complexity requires lawyers to find ways to accomplish more per unit of effort. Otherwise, the lawyers are priced out of a job. Cf. Henderson, “The Legal Profession’s ‘Last Mile Problem,'” Law.com, May 26, 2017 (legal industry is hindered by lack of business models that reliably reward efficiency).

IFLP is designed to serve the entire legal profession, as evidenced by this graphic, which organizes IFLP employers by sector. Yes, law firms, law departments, legaltech and NewLaw are supporting IFLP, but nearly 20% of our employers are public service organizations.

T-shaped curricula

In the most practical sense, IFLP is trying to accelerate the development of T-shaped legal professionals. See diagram to right. For lawyers, law school and law practice provide a deep foundation of substantive legal knowledge and skills. The T-shaped legal professional is created by adding a working knowledge of other disciplines, such as data, process/project management, technology, design and business principles.

The legal profession’s future is lawyers and allied professionals working side by side to cost-effectively solve very difficult problems. Cf. Ron Friedmann, “A Multidisciplinary Future to Solve Legal Problems,” Prism Legal (Mar. 2018). T-shaped curricula make these collaborations more effective and fruitful.

Someday the type of curricula offered by IFLP will be standard in law schools throughout the world.  Indeed, IFLP’s mission is to enable law schools to do just that.  But right now, the state-of-the-art is being pioneered in the field by innovative practitioners and allied professionals. The first step is to locate subject matter experts and organize their knowledge and know-how into subjects that can efficiently taught to others. Fortunately, IFLP has the networks to make this happen. Notice IFLP’s logo — it’s a network.

Bootcamps

Below are the modules that are currently covered in our foundational and advanced track bootcamps.

IFLP’s 2019 foundational boot camps will run from May 13-31 in three locations: Chicago, Boulder, Toronto. This training targets rising 2Ls but rising 3Ls and mid-career professionals may also participate. At the end of the bootcamp, law students go on to paid internships with IFLP employers.

The advanced track bootcamp is offered later in the summer to rising 3Ls and mid-career professionals. The advanced track is designed to be preparation for 7-month full-time internships (technically a “field placement”) during the summer and fall semester of a student’s 3L year.

In terms of contact hours and out-of-class study, both the foundational and advanced track bootcamps are designed to fulfill ABA accreditation requirements for a 3-credit law school course. Likewise, the 7-month field placement is designed to earn another 8 credits. See ABA Accreditation Standard 304(d) (defining requirements for field placements). Thus, the full IFLP sequence could total up to 14 academic credit hours, albeit the approval and granting of academic credit is done by participating law schools.

Below is the current timeline for 10-week and 7-month internships: 

To my colleagues at other law schools, I am happy to share the course proposals that led to approval of the full IFLP sequence at Indiana Law. In the course catalogue, these courses are referred to as Modern Law Practice I, Modern Law Practice II, and Modern Law Practice Field Placement. Email me.

Evolution, not revolution

In Post 077, Dan Rodriguez distinguished between mission-based and mission-disruptive innovation.  IFLP is definitely the former, as the IFLP curricula enables law schools to adapt to massive changes occuring in the legal profession.

On this point, it is noteworthy that the majority of IFLP students are rising 2Ls who complete the foundational bootcamp and go on to 10-week paid internships with IFLP employers.  This is creating a paid labor market for law students based on newly acquired skills.  The bootcamp leads are Dan Linna in Chicago, Bill Mooz in Boulder, and Monica Goyal in Toronto.  These are very accomplished T-shaped lawyers who are also experienced law school teachers. Throughout the bootcamps, each is assisted by over a dozen guest instructors who teach in their area of expertise and/or supervise team-based simulations and exercises.  This content is worth 3 academic credits, which significantly multiples the value of the other 85 credits needed to earn a JD degree.

One of the challenges faced by IFLP — albeit a challenge that is sure to fade over time — is a view by some law professors that T-shaped skills are peripheral to the actual practice of law and thus can be safely ignored during law school.  This is just not accurate. Below is a list of some of the substantive legal projects performed by IFLP interns over the summer:

  • Review and draft various contracts
  • Draft software service and licensing agreements, including NDAs, MSAs, SOWs
  • Contract management and risk analysis
  • Research substantive legal issues and write memoranda
  • M&A due diligence
  • Intellectual property: copyrights, trademarks
  • Deal negotiation
  • Litigation document drafting
  • Prepare regulatory filings
  • Update privacy policy and data usage and protection policies
  • Advise on employment law issues
  • Attend and summarize meetings with business units

It is also true that IFLP interns work on projects that have a legal operations focus. Below are example projects drawn from past interns:

  • Develop expert systems: checklists, compliance automation, document assembly, and workflow templates
  • Create budgeting templates
  • Use predictive modelling to create machine learning tools that predict case cost,outcomes, and timelines
  • Knowledge management: classifying documents, updating clause libraries
  • Case data analysis to develop value pricing models
  • Process map specific case type, then draft standard pleadings, discovery, litigation documents, and checklists for every stage of this case type
  • Simplify and streamline legal department’s advertising approval process
  • Research current state of blockchain and legal
  • Technology evaluation, selection, implementation, testing, and training
  • Analyze outside counsel survey responses and develop objective system for selecting firms
  • Trademark library clean up

So much of the innovation occurring in the legal profession these days are activities found on this second list.  One reason that law firms struggle to fully embrace these innovations is that their fee-earners are too expensive to take offline so they can be properly trained in the top-of-the-T disciplines. In contrast, IFLP offers a pipeline solution where foundational knowledge is baked into students’ law school education.  The attractiveness of this solution is why we ended up with 50+ sophisticated legal employers before we reached our first anniversary.

Placements that benefit interns and employers

In the year 2019, we are all in continuous learner mode.  Thus, it is understandable why a lawyer or legal service organization might conclude that they lack the expertise and bandwidth to supervise an IFLP intern. Yet, there’s a solution to this common situation.

In 2018, IFLP founding sponsor Elevate Services worked with Univar—a Fortune 500 company—to pioneer a supervised internship model. Univar was undergoing a major restructuring that consumed all its internal bandwidth. General Counsel Jeff Carr, an innovator who is frequently cited on Legal Evolution, see Posts 008, 052, 053056, needed the extra hands and the intern price point. However, his team lacked time for daily supervision.  Thus, he hired an IFLP intern supervised by ElevateNext, a law firm affiliated with Elevate.

Jeff recently told a group of fellow Fortune 500 general counsel, “I just can’t say enough about the importance of this initiative as well as the quality of the program and the interns. Our experience was incredibly positive.”

Below is quick overview of the two ways that employers can hire through IFLP:

Because Elevate has deep expertise in data, process, and technology, an IFLP supervised intern can be a very time-efficient and cost-effective way to accomplish an important organizational project while also observing and learning importance new methodologies related to law practice. Additional details here.

7-month field placements

In 2019, approximately 15 of the 75-90 IFLP employer slots are reserved for rising 3Ls who complete the foundational and advanced track bootcamps and go on to 7-month field placements. The value of this model was learned through employer experimentation and feedback.

As noted earlier, IFLP was born out a four-year pilot at Colorado Law called the Tech Lawyer Accelerator (TLA).  In its early permutations, the TLA looked very much like the current IFLP foundational bootcamp: 3 weeks of instruction followed by a 10-week paid internships.  However, based on feedback from employers, the TLA began experimenting with 7-month internships that extended full-time employment into the 3L fall semester.

Stephanie Drumm

One of the 7-month interns was Stephanie Drumm, a 2017 CU Law grad who is currently a second-year associate at Bryan Cave Leighton Paisner (BCLP).  Stephanie spent the first four months seconded inside one of the firm’s technology clients and the last three months working onsite at the firm.  The combination of tech and client knowledge proved to be invaluable to partners who work with emerging technology clients, particularly start-ups.  Thus, despite no expectation of permanent employment, Drumm was added to the 2017 incoming associate class and continues to receive glowing feedback. As Stephanie noted during IFLP’s Wave One launch event in Chicago, she believes the TLA 7-month internship gave her an edge in her career that continues to compound over time. This BCLP experiment went on to win a 2018 FT Innovation “Standout” award in the category of Managing and Development Talent, citing how it was instrumental in the creation of IFLP. See FT North America Innovative Lawyers 2018 at 19.

Other strong advocates for the 7-month field placement were Mark Chandler and Steve Harmon of Cisco. Between 2014 and 2017, the Cisco legal department hired nine 7-month interns from Colorado Law.  Seven months of onsite full-time work enabled the interns to learn Cisco’s business and work flow, which in turn improved their performance on more sophisticated and complex projects.

Indeed, one of the reason Bill Mooz and I felt compelled to form the Group of 40 and conduct a needs analysis was Chandler’s and Harmon’s willingness to hire six 7-month interns a year (a $300,000+ salary commitment). A second reason was a change in the ABA accreditation standards that removed the prohibition on for-credit field placements where students could also receive pay.  See Karen Sloan, “ABA Approves Pay for Law Student’s For-Credit Externships,” Law.com, Aug. 8, 2016. Although the 7-month field placements were phenomenal learning experiences for students, each student was required to move of heaven and earth to earn sufficient credits to graduate on time. This was a huge supply-side constraint.

Of course, removing a prohibition got us part way there. For-credit/for-pay programs have to be approved by individual law schools.  Further, someone has to do the legwork and find employers who see value in this type of program.

Fortunately, my home law school, Indiana Law, was willing to go first.  For several years, we have run an excellent program in Washington, DC where students work full-time for a federal agency for eight academic credits.  Each fall, an eight to ten student 3L cohort meet weekly or bi-weekly to review and discuss assignments with an Indiana Law instructor. This classroom setting earns students an additional two credits, thus totally ten for the 3L fall semester.  Although students were not paid, occasionally one of the agencies would provide a modest housing stipend. My colleagues viewed the IFLP field placement program as substantially the same.  The key constraint is that the placement must be with an employer utilizing sophisticated and advanced methods of practice — a description that applies to IFLP employers.

IFLP first class of 7-month interns

In 2018, I served as faculty liaison for three Indiana Law 3L students who were on IFLP field placements. All three completed the foundational boot camp in May and the advanced track in June before heading off to their jobs. Two (Matt Rust and Seth Saler) worked in San Jose in the Cisco legal department. The other (Elmer Thoreson) worked in Chicago at Chapman and Cutler as part of the Chapman Practice Innovations team.

During the fall semester, the four of us met regularly via Webex to discuss the assignments and mine the field placements for insights. While Seth and Matt worked on cybersecurity initiatives, M&A deals, proxy statements, preparation for the Cisco annual meeting, a dashboard for the legal ops group, and various other projects, Elmer was immersed in the application of process improvement and document automation to the intricacies of finance law, which is Chapman’s core area of expertise.  Seth and Matt raved about the weekly sessions on competition law that were run for their benefit by Gil Ohana, Cisco’s Senior Director of Antitrust and Competition. Elmer talked about the learning curve on Tender Option Bonds and the UX and UI features that entice lawyers to use technology.

One of the last assignments for the IFLP field placement was a departure memo to direct supervisors that summarized what each student had learned.

In the conclusion to his department memo, Elmer wrote, “Working in the Chapman Practice Innovations group has been a different experience from anywhere I’ve ever worked before. The entire group has valued my input, pushed me to expand my knowledge, and encouraged me to find solutions to problems. My time in the group has changed the way I look at legal problems and has encouraged me to figure out how different disciplines can influence the practice of law. … While the future is not entirely clear, I feel that my time here at CPI has helped me develop my long-term goals. In closing, thank you for the opportunity, the knowledge, and the laughs this semester.”

Likewise, Seth observed, “[During the internship, t]here were opportunities to complete document review, to witness oral arguments, and dive deeply into regulatory frameworks. …  I maintained a fairly comprehensive spreadsheet that tallied 30+ projects to which I contributed over the last six months. I was tasked with many of the fundamental tasks in a legal project pipeline: ideating, researching, drafting, and reviewing. … [T]he people I worked with departed from the conceptions I had about an internship. Rather than squeezing as much value and productivity out of me as they could in six months, the people at Cisco were interested in pouring value back into me.” Seth goes on list nearly a dozen people he considered mentors. Matt was equally effusive regarding what he learned and who he learned it from.

The last field placement assignment was co-written by Matt, Seth and Elmer and provides advice to next year’s 7-month interns.  Feel free to give it read. See Final 7-Month Intern Group Memo (Dec. 2018).

I hope the idea of a paid field placements in advanced practice settings takes off.  This is good for the law students, good for law schools, and good for the legal profession. That’s why I got involved.

Get Involved

This post is an invitation for readers to get involved with IFLP.  During 2019, members of the IFLP team would welcome the opportunity to speak to a wide range of industry groups, as we would like to include more law schools and more law students in our 2020 program. To do that, we need more IFLP employers. That is possible when more employers hear the IFLP story and learn what we have to offer.

During 2019, we will also use some of our foundational materials in our law school curricula to start creating high-impact, time-efficient training for mid-career professionals. That is the leg of our business model that will enable us to be self-sustaining.

Finally, IFLP is greatly indebted to our four founding sponsors who supplied the key resources to get to our year one anniversary.  Many thanks for your leadership!

IFLP Founding Sponsors


Big corporations are growing faster than the rest of the economy. It is not hard to figure out where this is going. Lawyer acceptance is different story.


Many lawyers and law firms claim to serve the middle market, often describing how they deal directly with owners and executives rather than in-house counsel. Although these clients aren’t the Fortune 500, the lawyers and law firm leaders take enormous pride in this type of practice and discuss it in ways that suggest it’s a stable and permanent market niche. I’m not sure that’s right.

Above is a treemap chart of U.S. businesses grouped by annual revenue. The key takeaway is that $100M+ companies comprise the vast majority of U.S. business activity (71.6%). Remarkably, all this purple is generated by 22,400 businesses, a mere 0.4% of the 5.7 million businesses in operation in the U.S. in 2012 (the most recent year that contains total receipts).

Companies in purple tend to have legal departments as do a meaningful number of companies in orange (>$25M-$100M). We can deduce this from a number of sources.  For example, according to the Legal Executive Institute, companies with less than $1 billion in revenue were classified as “small.” See 2018 State of Corporate Law Departments at 10.  Yet, these companies had, on average, nine in-house lawyers, or one attorney per $65M in revenue. Likewise, a 2016 report by Barker Gilmore, a national recruiting firm, classified companies into four groups: >$10B, $1B-10B, $100M-$1B, <$100M. Yet, even in the smallest category (<$100M), there were sufficient data to calculate separate salary, bonus and equity averages for three different in-house roles: general counsel, managing counsel, and senior counsel. See 2016 In-House Counsel Compensation Report at 14-22.

Defining “middle market” turns out to be surprisingly difficult — is it somewhere in the purple? The orange? The gold?  The managing partner of a successful firm near the bottom of the AmLaw 200 recently told me that all his partners agreed that the firm served the middle market. Yet, that consensus broke down during a strategic planning process when partners were asked to define middle market using specific criteria. Finally they gave up. The firm was still middle market, but each partner was free to follow his or her own definition.

Although consensus on the middle market is bound to elude us, not everything is so ambiguous. This Post addresses two interrelated topics regarding the future of law:

  1. The Journey to Big.  Large corporations are the fastest growing segment of the U.S. economy. This trend started several decades ago and will continue into the future.
  2. How Big affects the practice of law. Once one sees and accepts the journey to Big, several consequences for the practice of law come quickly into focus.

Journey to Big

Every day the global economy becomes a little more interconnected and complex. In contrast, our mental models for the practice of law are very sticky. This is because we need common, coherent and tractable mental models to coordinate organizational goals and effort. Thus, we only change our mental models when they become a source of competitive disadvantage, essentially pitting the pain of building new models against the pain of imminent failure.

The middle-market law firm discussed above is in that uncomfortable in-between state where the need for new mental models is building but the organizational benefits of such a change remain out of focus.  This likely describes most lawyers and law firms.

Below are charts regarding the more rapid grow of large businesses. Yet, these data are supported by our own intuition if we take a moment to reflect on the enormous advantages that accrue to very large companies. These include:

  • Significant economies of scale and scope, which translate into cost and pricing advantages
  • Portfolios of familiar brands that send signals of quality and value
  • A plethora of low-cost sales channels they either control or can readily influence
  • Ample cash on hand to develop new products and services
  • If internal R&D fails, the financial resources to acquire smaller, more innovative competitors

If you’re wondering how important large companies are to the overall economy, review your credit card statement or the bills you pay online each month, such as your mortgage, car payment or student loans.

The graphic below shows how the mix of U.S. employment is steadily shifting to companies with large employee headcounts.

Companies with 500+ employees (purple bars) comprise the largest category in the SUSB data. This is the only group growing in proportionate size, increasing from 45.4% of total US employment in 1988 to 52.5% in 2015.  If the change looks quite subtle, that’s also it’s experienced — so gradual it’s barely noticed. This makes it more difficult to keep our mental models up to date.

The magnitude of the change is easier to observe through a trendline analysis that starts with 1988 as baseline:

The absolute numbers underneath the purple trendline are striking.  Between 1988 and 2015, the total number of companies with 500+ employees increased from 12,800 to 19,500. The total number of employees in the 500+ company category increased from 39.9 million to 65.1 million. Further, total payroll for these companies increased from $958 billion (51.4% of total US payroll) to $3.7 trillion (59.2%). Purple companies, by dint of their sheer size and scale, generate substantial and ongoing legal work for lawyers.  Thus, they are very desirable clients for law firms.

Finally, the trend toward bigness is compounded by the growing portion of purple, orange and gold companies that are partially or wholly owned by private equity. Below is graphic showing an annual count of U.S. companies in private equity-backed portfolios.

Source: Pitchbook, 2017 Annual US PE Breakdown

In our journey to Big, more and more successful businesses with regional roots are becoming assets in multi-billion dollar private equity funds.  According to a recent McKinsey report, even the largest funds ($5B+) are growing faster than the rest of the PE market, increasing from 5% market share in 2010 to 25% in 2017. See “The rise and rise of private markets,” McKinsey Global Private Markets Review 2018 at 14 & Exhibit 9.

What makes all of these trends so powerful is (a) they are all moving to Big and (b) the pattern is near certain to continue. Alas, this is the path of globalization.


How Big affects the practice of law

Once we accept that the legal industry is on a journey to Big, several predictable consequences come into focus. In this post, I’ll discuss three.

1. Legal departments are law firms with structural features that favor efficiency and innovation. Thus, they are taking market share.

Our journey to Big produces legal departments that are comparable to AmLaw 200 law firms or specialized boutiques. Yet, legal department “firms” have several features that favor efficiency and innovation.

To illustrate this point, consider the statistics below from a recent CLOC survey of 156 member legal departments.

Large Companies ($10B+)

Mid-Size Companies ($1B-$9.9B)    Small Companies  (< $1B)
Avg. attorney headcount 188 41 9
Avg. legal ops headcount 21 6 1
Avg. attorney to revenue ratio 1 / $585M 1 / $195M 1 / $65M
Avg. internal spend per legal dept FTE* $225K /  FTE $236K / FTE $175K / FTE
* Legal Dept. FTEs include attorneys, paralegals, legal ops professionals, administrators, and all other members of the department.

Although the per-FTE cost of staffing a legal department appears to be higher in large and mid-size departments ($225-$236K vs. $175K), it hardly matters because the overall cost structure of legal departments gets significantly lower with size, moving from one attorney per $65M (small company) to one attorney per $585M (large company).

Part of the declining cost structure is economies of scale that apply equally to in-house and outside counsel. For example, the legal work for a loan or other type of financing is not ten times more labor-intensive because the monies raised are ten times larger.  Yet, another part is surely greater operational efficiency.  The larger and more mature a company, the more it must rely upon lower per-unit costs to meet its financial targets.  We see this in the CLOC survey above.  When asked to identify their department’s top priorities, the top response was “Controlling outside counsel costs” (76%) followed by “Using technology to simplify workflow and manual processes” (41%). See 2018 State of Corporate Law Departments at 8-9.

Although law firms and legal departments may be doing very similar work, their internal incentives run in opposite directions. Most law firm partners are strongly incentivized to maximize the revenue, either through originations or working receipts.  Likewise, high-billing partners can stifle innovation and efficiency measures by threatening to leave the firm.  In contrast, when a general counsel commits to similar initiatives, in-house lawyers have limited leverage to push back.

[click on graph to enlarge]
These favorable conditions are why the number of in-house lawyers has grown so rapidly. In 1997, there were 35,000 lawyers working in-house. By 2017, the number was more than 105,000.  The chart to the right (updated from Post 003) shows the trendline compared to lawyers in government and private practice.

A recent American Lawyer article by Hugh Simons and Gina Passarella modeled the financial cut point for bringing work in-house.  See “The Rise (and Fall?) of In-House Counsel,Corp. Counsel, Feb. 25, 2018.  According to their analysis, roughly 45% of the AmLaw 100 were performing the type of work that could generate a 2x financial return if brought in-house.  In asking how far insourcing might go, the authors offered a startling benchmark: “70 percent of accountants and auditors work in-house.”

Cost, however, is not the sole reason to insource.  In-house lawyers have an enormous advantage in acquiring essential knowledge regarding client goals and needs. This physical and organizational proximity reduces communication overhead and creates conditions where legal work can be better defined, scoped and managed.  As a result, some of the insourced legal work will eventually be outsourced again, but this time to lower-cost NewLaw service providers.

2. Specialized tranches of work go to law firms and other service providers

Although the journey to Big leads to in-house “law firms” that become very good at process and efficiency, there remains a significant class of work that, for reasons of cost or quality, will continue to go to law firms.  What are the criteria for these decisions?

Below is a graphic that Mark Chandler, the GC of Cisco, showed during the final plenary session of the 2018 CLOC Institute:

[click on graph to enlarge]
Chandler refers to this model as the “Core vs. Context Resource Allocation Model.” It is adapted from Geoffrey Moore’s book, Dealing with Darwin (2005). According to Chandler, this is how Cisco’s legal team makes resource allocation decisions.

The top-right quadrant consumes 65% of the department’s internal resources. The high percentage is warranted because (a) these are mission-critical activities that (b) bear on the competitive advantage of Cisco, a $48 billion technology company that manufactures and sells networking hardware, telecommunications equipment and other high-technology services and products.

The second biggest area of internal resource allocation (20%) is the bottom-right quadrant, which enables business units to more efficiently conduct their activities in a legally appropriate way. Note, however, that “Tools/Processes” are in every quadrant, not just in the self-service green. That is the result of Cisco’s very advanced legal ops function led by Steve Harmon.

Law firms are mostly likely to get work from the left side of the matrix. The work in the top-left pays the most because it is mission critical and Cisco’s in-house staff lacks contextual knowledge to perform the work at the necessary level of quality. Nonetheless, 15% of the department’s resources are dedicated to managing out-tasked work. This is to ensure that the department achieves its cost and quality objectives. The goal in the bottom-left is to lock-in a combination of quality-cost-reliability for low-stakes matters. The best outcome is one that require little to no department oversight.

Under this type of decision matrix, traditional law firms have two clear paths for winning work:

  1. Be best-in-class in an area of law that is mission critical. Cf. Henderson & Parker, “The Five Strategies of Highly Effective Firms,” Am. Law, Jan. 2017 (statistical model showing that practice area specialization is the single most important factor in law firm profitability).
  2. Be outstanding at doing volume legal work.  Cf. Henderson & Parker, “Your Place in the Legal Market,” Am Law, Dec. 2015 (discussing how three firms climbed into the AmLaw 100 by focusing on price-sensitive labor and employment work).

Some law firm partners might dismiss Cisco’s resource allocation matrix as this year’s gimmick. That’s wrong for at least two reasons. First, Cisco has been using this system for 12+ dozen years. I first saw Chandler present a 1.0 version of this model at a 2010 Georgetown Law conference. That slide was dated 2006. Second, this type of resource allocation matrix was featured in a 2018 CLOC Institute session taught by Nancy Jessen (SVP of Legal Business Solutions at UnitedLex) and Elizabeth Lugones (Dir. of Legal Operations, DXC.technology). See DCX-UnitedLex allocation matrix. This session was attended by roughly 300 people. The presenters, however, are innovators or early adopters. See Post 007 (discussing adopter types).  The success they were sharing is what other professionals in the social system will to try to replicate.  This is how innovation diffusion works. See Post 004 (innovation diffuses through social systems).

3. In the long-term, there is no middle market

Because the journey to Big is a very gradual process, it’s easy to confuse slow change with no change. Further, there is a generational effect, with both buyers and sellers of legal services sticking with what they know until external events force them to change. It’s certainly true that a no-change approach will work many lawyers in the last decade or so of their careers.

I have never met a law firm partner who told me that he or she planned to ride out the clock rather than adapt to changing times.  Instead, I hear a lot of lawyers 50+ years of age tell me their “middle market” clients just want excellent service at a cost-effective price.  These lawyers continue to stay busy, or busy enough, because there is demand for what they offer: (1) a personal relationship with a knowledgeable, responsive lawyer who makes difficult legal business issues go away (2) at rates that do not carry the expense and overhead of AmLaw 50 or Global 100 law firms.

Many lawyers like this type of practice because it puts them in control, giving them autonomy and security within their firms. They don’t have to collaborate with anyone if they don’t want to. Arguably, when the business world was itself more middle market and less influenced by private equity, this described the bulk of private law practice. Less so now.  And less so in the future as economic activity is increasingly driven by larger, more complex organizations that have the resources to build out their own sophisticated legal departments.

[graphic from Post 048]
Not only are clients on average getting bigger and thus destine to change their buying habits, but law firms are upping their game, trying to lock-in tranches of work based on some combination of efficiency, expertise, and national or global reach.  Likewise, there is a good chance that emerging businesses that start life in the 3.9% portion of the treemap chart above (<$1M in revenue) used LegalZoom or a similar service to incorporate their business and educate them on things like intellectual property.  How does the middle market lawyer disintermediate LegalZoom? And what is he or she selling beyond a promise of responsiveness?

Strategy and the Fat Smoker (2008) was the last book David Maister, the preeminent law firm consultant, wrote before he retired. Maister starts Chapter 17, titled “The Trouble with Lawyers,” by conceding the point that lawyers are, in fact, different. “The combination of a desire for autonomy and high levels of skepticism,” wrote Maister, “makes most law firms low-trust environments” (p. 231). Thus, according to Maister, firms struggle to execute on strategies that require collaboration and sharing of risk.

If this is true, why do most firms do so well financially?  Maister opines that it’s because lawyers “compete only with other lawyers.  If everyone else does things equally poorly, and clients and recruits find little variation between firms, even the most egregious behavior will not lead to a competitive disadvantage” (p. 239).

This passage invariably garners a good laugh among lawyers, but less so in the future. Law firms inside large legal departments increasingly rely on systems and process. Likewise, to capture a tranche of the legal work that is sourced using a resource allocation model, some law firms are executing on a strategy that requires collaboration and risk sharing. Although most firms struggle with this approach, a firm only has to do marginally better to win.  This is because the most able mid-career lawyers will eventually lateral out of firms unable to offer anything beyond a pledge of great service.

As discussed in Innovation in Organizations, Part I-III (015, 016, 017), firm size is correlated with innovation, not because of size per se, but because size brings with it specialized expertise, financial resources, and better access to a diverse stream of clients. Cf. Post 062 (Jae Um discussing how innovation require high-quality access to buyers and users). Further, the service offerings of marginally more innovative firms are destined to create value that is controlled by the firm, reducing the tyranny of partners with portable books of business. As portions of this legal work get productized, middle market lawyers will have very little left to sell. Thus, as it turns out, the middle market is but a waystation on the journey to Big.


Coda.  The journey to Big has significant consequences for entry-level law graduates and thus legal education. But that is a topic for another day.

What’s next? See Can Microsoft hit “refresh” on client-law firm relations? (068)