Benchmark data will help firms move to new value-based models

My recent post on “Web Tools for Law Firms” reminds me of another piece that I wrote earlier this year but never posted. Whereas the creation of web tools for law firms might be only marginally beneficial to corporate law departments, I feel confident that the new model articulated by O'Melveny and Myers will definitely be. Read on and comment.

I just read a fascinating post in Above the Law called The New Biglaw Business Model, According to O’Melveny & Myers (http://abovethelaw.com/2009/09/omelveny_myers_strategic_plan.php), which was subsequently cited in the ABA Journal (http://www.abajournal.com/weekly/omelveny_aims_to_become_fixed-fee_leader_leaked_plan_says).

In it, bloggers David Lat and Elie Mystal discuss a “leaked” strategy memo from the management of OMM. Whether it was truly leaked or, as some commentators have observed, released as a PR move, is beside the point. The memo is interesting in that it perfectly illustrates the Catch-22 in which large law firms find themselves. OMM management acknowledges that the market for legal services delivered in the traditional model is shrinking. As the memo says, "In the very recent past, our business model, as a whole, has yielded disappointing financial and practice growth results." The plan notes that O'Melveny's litigation model, "which depended heavily on high charge hours levels by associates, counsel and partners to offset the impact of discounted rates and increased write-offs of expenses and time, has been under pressure for at least three years" -- i.e., well before the Great Recession began. In addition, OMM management acknowledge that alternative models are emergent. For example, the decomposition of the full-service firm is being driven outsourcing. "Document review and production have been outsourced altogether or client-directed to contract attorneys," the memo states, "thus eliminating much of the work formerly assigned to junior associates." These difficulties won't go away with the recession: "[O]ur litigation clients are looking for rate and fee reductions, and we expect that mindset will continue into the next good economy and beyond."

To their great credit, OMM management appears to be charting a genuinely new course for the firm, one that seems to honor the long time pleas of clients to pursue alternatives to the billable hour. They even take the courageous step of entertaining new organizational models required to profitably pursue these value based delivery models including a reversal of the traditional pyramid and proactive outsourcing of low value work.

The one question that I am left with in this memo, or any similarly aspirational statement of intent is this, “How can OMM effect this type of fundamental transformation of its model unless its knows, with a high degree of certainty, the costs associated with the matters it is handling?”. Obviously, they can’t rely on their billable information to date. It is that information that is at the root of their client’s dissatisfaction. Rather, they need benchmark information about what the same or similar cases cost when handled in the manner to which they aspire. I would submit that the only way the OMM, or any Biglaw firm, will be able execute on this type of model shift is to have, and be able to rely on, benchmark financial data about the costs and outcomes of similar cases. In addition, there is question of execution. As we all know, it is no small feat to change the fundamental structure of an institution like OMM. And for as hard as that is, changing the culture required to make this new vision work will be exponentially harder.