Big Four Consulting firms (Deloitte, EY, KPMG & PwC) and large law firms have a lot in common. So, it seems to me that looking at changes in law firms may be a useful exercise to find innovations for running a consulting business. Lets start with some similarities:
1) Both exchange time for money, usually in the form of "Billable Hours". While we sometimes see fixed price engagements in consulting, typically the commercial model is to sell hours. Both are under pressure from weary clients to decrease their rates. While efforts to leverage lower cost resources in offshore markets are underway, these efforts are still a small share of the work.
2) Both employ models where the senior people (usually partners) lead the sales process and manage the client relationships, and actively work to "push work down" to "leverage" more junior staff. When managed well it can be more cost effective for the client, but feedback from clients for both lawyers and consultants is that they want to see the partners more involved in the delivery of the work.
3) As partnerships, the Big Four consultancies and law firms are funded and governed by the partners. Limited access to public capital markets and private equity can hamper their ability to fund and drive transformational change.
Here are three examples of disruptive innovation in the legal services industry. Leaders of Big Four consulting firms should take note.
Cognition LLP is a virtual law firm based in Toronto with 32 experienced lawyers. All have experience from large firms or in-house council but work as independents within the Cognition network. Their rates are transparent and simplified with a basic rate for most work and a higher rate for complex work such as M&A. Rates are based on the type of work, not the experience level of the lawyer. Revenues are split between the individual lawyer and the company. When the work is sourced by the lawyer directly, then they keep a higher percentage of the fee. Based on solid growth over the past four years the model seems to be addressing a need in the marketplace. Feedback from the lawyers is positive. One lawyer I spoke with says that the model gives her much greater flexibility, work/life balance, and the ability to share directly in financial rewards. She finds the revenue split fair, considering that all work has been sourced by Cognition and at times she has chosen to turn down work. She says "if I want to make more money, I can choose to work more or go out and source it myself". Cognition was recently featured in Maverick magazine in the article They Fought the law…and won. http://issuu.com/cognitionllp/docs/mavericks_winter_2013/1?e=10223453/6013071
Another example of innovation in the business model for legal services is the US based firm Axiom. With over 1,000 lawyers in eleven offices, Axiom provides an alternative model for legal services. By leveraging technology and business process disciplines they have created a new category of legal service company's. The model goes beyond labour arbitrage for lower end work and now provides a full range of legal services across a wide spectrum of more complex transactions including mergers and acquisitions. Annual revenues exceed $150 million. In February of 2013 they raised $28 million in private equity funding primarily for investment in technology to further automate the business. Accessing financial markets for funding is something that regulated law firms are not able to do. Quoting Axiom founder and CEO Mark Harris "For many years our industry operated without any truly compelling alternatives to law firms….we have now evolved to a place where there are compelling alternatives".
A third example of innovation in legal services is in the UK with Riverview Law. In this case the innovation is backed by an existing large law firm; DLA Piper. Providing fixed price legal services to mid and smaller clients is their central business proposition The question they are asked most frequently by clients is how can they deliver access to high quality legal advice and support, at fixed prices, when, typically, law firms have not?
The answer is we started with a blank piece of paper and changed the legal service delivery model so it is focused on the customer. They kept overheads low including not having expensive city-centre premises. There is no head-office or partner model to support and they leverage technology and workflow systems to enable the legal and support teams to work flexibly and efficiently.
All three examples illustrate that disruptive innovation is alive and well in legal services. Clients who are seeking value for money and lawyers seeking flexibility and balance are endorsing the new models. For innovators in business consulting the lessons learned include:
1) Build a model with the client at the center
2) Keep overhead costs low
3) Provide transparency and clarity in fees whether as a rate card or fixed price
4) Leverage technology to enable efficient business processes and access to information
That's what we're doing at ember advisory to serve the Canadian business consulting market. Share your ideas on what other disruptive innovations provide lessons learned for the consulting industry.