An evolving profession: Lawyers describe the commoditization of certain legal services

By Olivia Clarke

General counsel Jeffrey Carr says he can separate legal services into four metaphorical boxes: process, content, advocacy, and counseling.

While the legal model that exists today mainly pays outside lawyers for the process and content they do, Carr said he would rather pay less for those areas, and more for advocacy and counseling because that’s how outside lawyers can best serve his company.

”All legal services are, at least at some level, a commodity,” said Carr, vice president, general counsel and secretary for Houston-based FMC Technologies, Inc. ”There are always at least two lawyers who can do whatever you need to get done, but we act like there is only one. And that’s crazy.

”Eighty-five percent of the matters, any competent attorney could do that work; another 15 percent requires more sophisticated skills.”

Utter the word commoditization in a room full of lawyers, however, and many cringe. They fear it belittles their profession.

Yet, certain legal services can be considered a commodity because those services can be accomplished effectively by a great number of people in a great number of ways, and often using technology. But some people feel that using the word ”commoditization” only hurts the conversation because it doesn’t fully describe what is occurring.

In the law firm of the future, lawyers may have different jobs, depending on the category of legal services they handle. All legal services may not hold the same value as they do today, because accessibility to those services is changing. More ways already exist today for clients to get those legal services considered a commodity, and many in-house lawyers say they want to pay less for those services and more for specialized legal help.

When asked to improve the bottom line, in-house lawyers often look to their outside lawyers to provide more efficient, cost-effective ways to do certain legal services. This may mean treating certain legal services as a commodity, and focusing more of their outside lawyers’ time on other areas of the client-lawyer relationship.

The Association of Corporate Counsel launched the ACC Value Challenge on Sept. 26 to ”reconnect value to costs for legal services.” It calls for a discussion about the value placed on different legal services, and how firms charge for those services.

”We need law firms to be profitable, but the existing model is no longer sustainable,” said Carr, who sits on the ACC’s national board. ”So how are we going to fix it? We need to get back to the value of the profession and the value in counseling and advocacy.

”In the in-house world, to me, it’s all about efficiency and effectiveness. Every million dollars my law department saves, translates to about two cents a share in earnings. That means the legal team can, and does, contribute directly to the bottom line.”

A dirty word

Using the word ”commoditization” can be a misnomer because it implies that once something becomes standardized it also becomes intellectually less challenging, and that’s not always true, said Paul Lippe, former general counsel of California-based Synopsys and the founder of Legal OnRamp, a collaboration site for lawyers.

”I think the underlying issue is that lawyers do not look at what they do as rigorously as people in other fields do,” Lippe said. ”They ought to think about the client, the service, the evolution of the business and the mix of ways you do that optimally, and the word commoditization should not be part of the conversation.”

The term ”commoditization” turns some off because they think it diminishes the value of legal services and eliminates judgment, said Richard Susskind, a legal futurist and author of such books as, ”The End of Lawyers? Rethinking the Nature of Legal Services.”

He said some of the routine and repetitive work that lawyers currently do can be done in different, more efficient ways using things like outsourcing and subcontracting.

”Most law firms have enjoyed, for the last 20 years, remarkable growth in profitability,” Susskind said. ”It’s hard to convince a room of millionaires that they got their business model wrong. [Commoditization] seems to be a challenge to the business model for which they have benefited considerably. They regard it as insulting to professionalism, and a superficial account of what legal advisors do.

”What I am presenting is, try to put aside your prejudice about the terminology; forget about the word. Are there aspects of your work that can be done differently, cheaply, or more quickly?”

Commoditization within the legal profession occurs when a service can be provided in a quality way by a large number of lawyers or law firms, said Michael H. Trotter, a partner at Atlanta-based Taylor English Duma and author of ”Profit and the Practice of Law: What’s Happened to the Legal Profession.”

A number of things contribute to commoditization, such as a longstanding effort to standardize legal products and the law; and the extensive training that occurs, which teaches lawyers standard ways to provide certain legal services, Trotter said.

”In the old days lawyers were portrait painters,” Trotter said. ”Every document was a creative work of art. And I think a lot of clients are saying, ‘Thank you very much, but I’ll take a photograph because it makes it easier for everyone in the business organization to work with it, because not only lawyers are reading and filling out documents.’

”There are always going to be special cases where someone needs a work of art. What most lawyers do these days is a high percentage of commoditized services.”

In the past, lawyers could develop a specialized knowledge that nobody had, he said. But today that’s more difficult because advanced technology, continuing education, and the Internet give greater access, at a quicker speed, to that knowledge, Trotter said.

”I think corporate counsel are increasingly going to demand reductions in costs,” Trotter said. ”They’ve gotten the pressure from CFOs and CEOs. They are not going to be willing to pay for customized work for everything they get or even for a large part of what they get.

”They are going to need specialists quite clearly for save-the-company kinds of matters. Litigators will remain in substantial demand, but I think there is going to be some pressure on everything else.”

In any services field, things naturally go through a progression toward standardization, Lippe said. Counseling and advocacy, as Carr describes, are less subject to standardization, but content and process work should be made more efficient, he said.

”Because of the billable hour, lawyers have less incentive to look for ways to be more efficient,” Lippe said. ”As a result, the law has become more efficient more slowly, and probably has more catching up to do.”

Certain areas

Legal services go through five phases, Susskind said.

They start as bespoke, or traditional services; then reach standardization, where lawyers do not need to reinvent the wheel; then become systematized with systems developed and used to conduct legal work; then reach the packaged knowledge level where clients can use the systems law firms were using; and then reach commoditization, he said.

”It is helpful in this context to imagine the series of evolutionary steps as a conveyor belt, always running and bringing about a natural flow of work from left to right,” he wrote in ”The End of Lawyers?” ”This presents a clear challenge for lawyers who are keen to remain very largely in the bespoke camp — they must continually innovate and so generate new bespoke offerings because what is bespoke today will not be so in the future.”

A legal commodity, Susskind wrote, is ”an IT-based offering that is undifferentiated in the marketplace (undifferentiated in the minds of the recipients and not the providers of the service). For any given commodity, there may be very similar competitor products, or the product is so commonplace that it is distributed at low or no cost.

”My conception of commoditization in law is therefore narrower than that of the many lawyers who seem to use the term to refer to anything from the second to the fifth steps on my evolutionary path.”

Many lawyers wrongly believe that commoditization only applies to routine work, but elements of high-end legal work can be turned into a legal commodity, he said.

”If you look at even the biggest deals, and decompose it into constituent tasks — some of it requires the finest lawyers, but lots of it is capable of being done in a different way,” Susskind said. ”I see other sectors and industries around the world having to transform themselves. I am not sure why legal services should be any different.”

Two things are happening with regards to the commoditization of legal services, said Tony Williams, principal at London-based Jomati Consultants LLP. First, more routine work is being sent to firms that offer creative pricing models, or to junior partners and paralegals who charge a more affordable rate, Williams said.

Second, in-house counsel are looking at whether a matter can be broken down into parts — with highly paid lawyers handling the strategic work, and more routine work getting passed down within the organization or to another firm, he said.

Technology plays an important role in commoditization because it helps lawyers keep track of what everyone is working on regarding a matter, Williams said. It also helps when breaking a project into parts, and can give junior lawyers the tools to perform their roles.

”The risk is whether project management skills are available in law firms and legal departments,” he said. ”How effectively will this be coordinated and managed? If it is being outsourced, who will have the responsibility for the outsourcing?”

Altman Weil principal Daniel DiLucchio said he thinks of commodity work as being almost totally price-sensitive. Many people can handle this type of work, and quality is a given.

”Work continues to migrate to the commodity level,” DiLucchio said. ”What’s strategic today will be important tomorrow, and will eventually become a commodity.”

An Altman Weil study predicts that the legal profession in 2020 could see as much as 70 percent of its legal services become a commodity, he said.

”That’s a significant, very significant statement if that in fact is the accurate number,” he said. ”[Lawyers] are concerned about it because they have to keep thinking, one, about their pricing models and two, if it affects how clients view the work and what their expectations are. Law firms have to think about how they are structured, and if they are structured effectively to deliver services in a cost-effective way.”

DiLucchio said that when he talks about different legal models and types of delivery, one of the primary tools we will see used even more is technology.

”Once it becomes a commodity service, there are going to be people who capitalize on technology to deliver those services,” he said. ”For some clients, that’s really all they need. That doesn’t mean technology cannot play into important strategic services either. There are uses for technology throughout the profession that can help lawyers better serve their clients and do it in a more efficient way.”

Placing value

In-house lawyers are increasingly analyzing legal services and whether the value and cost placed on these services needs to vary depending on the type of work required.

In-house and outside lawyers need to discuss efficiency, said Jason Brown, director of legal for PepsiAmericas, Inc. Companies already talk about it in other areas of their business, so it’s only natural to talk about it with regard to legal services.

”I hope that we take the time as in-house counsel and outside counsel to sit together and really evaluate the most efficient use of our time,” said Brown, president of the ACC’s Chicago chapter. ”I believe that greater attention will be placed by both parties on the end goal. People are willing to spend top dollar on top legal services. They want to spend it based on the output.”

Every in-house lawyer Brown has talked with has indicated that there is or will be a directive this year from their corporate leadership to contain and control legal costs.

Commoditization means that more legal work can be handled at lower rates by paralegals and contract lawyers, or even outsourced to other countries, Brown said. It can also mean using technology to share information or provide legal services more cost-effectively.

Members of the in-house community say they want a more reasonable value system placed on legal services, which will lead to innovative ideas for delivering services and different ways of billing for legal services, said Susan Hackett, senior vice president and general counsel for the ACC.

”It’s the client’s definition of what’s valuable and not necessarily the law firm’s definition of value that will determine the cost, the staffing and the management of the matter,” Hackett said. ”Value is not necessarily cheap. It is not to say that firms shouldn’t profit.”

Lawyers have worked on an hourly billable system for so long that they don’t know how else to value a lawyer’s contributions to a legal matter other than by how much time was spent working on the matter, she said. Finding other ways to value legal services can be difficult, but the ACC wants to help find the tools and data necessary to implement new systems of legal management, she said.

The ACC is hosting meetings that bring in-house and law firm lawyers together to talk about the ACC Value Challenge.

”The whole concept behind [the ACC Value Challenge] is rediscovering value and connecting it to cost,” Hackett said. ”It sounds really easy, but it’s not. We’ve never done it any other way.

”As a group of people, lawyers are risk-averse. Part of the challenge in developing this project is building momentum, building that comfort zone.”

Brown said he hopes lawyers understand that this initiative is an effort to improve legal services, and not an attempt to cut costs or complain about fees.

”It’s truly about the services that are provided,” he said. ”That should be the focus, not simply the cost of those services. In-house, we’re concerned about making sure that we increase efficiency and increase the value of the services we get from law firms, not just containing costs.”

Susskind wrote in ”The End of Lawyers?” that the legal market will be a buyer’s market for the foreseeable future. Clients will look for ways to decrease costs, and find alternative ways of sourcing work, sharing costs, and collaborating with one another.

”New methods, systems and processes will emerge to reduce the cost of undertaking routine legal services,” Susskind wrote. ”This will extend well beyond the back-offices of legal businesses into the very heart of legal work. To achieve the efficiencies needed, I say that legal services will evolve from bespoke services at one end of a spectrum along a path, passing through the following stages: standardization, systematization, packaging and commoditization.”

He said lawyers who do mostly routine work are most threatened by the future.

”I do not therefore anticipate (in the next 20 or 30 years at least) that there will be no lawyers,” he wrote in ”The End of Lawyers?” ”I expect instead that there will be significantly fewer lawyers providing traditional consultative advisory service; and I predict the emergence of new legal professionals with quite different roles in society.

”We will witness the end of many lawyers as we know and recognize them today, and the birth of a new streamlined and technology-based generation of practicing lawyers who are fit for purpose in the 21st Century.”

Inside the firm

Patrick Lamb remembers attending a panel in 2008 when someone raised the issue of firms doing commodity work. Members of the audience quickly said they don’t do commodity work because that’s for other, lower-priced firms.

”The reality is that even the most sophisticated case or transaction has commodity elements to it,” said Lamb, a founding member of Valorem Law Group. ”If you are doing document production, the process of the production is a commodity.”

Firms frequently forget that when they bring their own people in to work on a matter, some of those individuals don’t have the background or experience in that area, and that illustrates that part of the matter is commoditized, he said. They are looking for bodies to do a process rather than people with experience to exercise judgment.

”There is an element of individual thinking in almost every matter, and there’s an element of repetitious or more process-oriented work,” Lamb said.

Law firms resist commoditization because it can be hard to justify charging $300 an hour for a brand-new associate if the work he handles is commodity work — especially when someone else charges a third of the cost or will handle it as part of a fixed cost, he said.

And a firm perceived as handling commodity work could earn a reputation that may negatively affect everything from getting new clients to recruiting new lawyers, he said.

”Law firms need to look at different ways to define the universe,” he said, ”and be more flexible in what they do and how they do it.”

Bryan I. Schwartz, a founding partner and chairman of Levenfeld Pearlstein, doesn’t understand why lawyers do not talk frankly about commoditization, because it can provide a value to clients.

If a firm has a strong relationship with its client, providing commoditized work on certain legal matters turns into a good thing, he said.

”Why wouldn’t a lawyer look at being more efficient?” Schwartz said. ”A fair amount of work is commoditized. In other words, a very small percentage is rocket science, a fair amount of bread-and-butter work exists, and then there is a fair amount of commoditization. You need to treat all three of those differently.”

Many lawyers do not talk about commoditization, he said, because ”when you are talking about a lawyer’s work you are talking about the lawyer. When you are talking about a client being good or bad you are talking about the lawyer. Everything goes back to the lawyer. You can’t have a frank discussion because the lawyer’s ego gets in the way.”

Some law firms use technology as another tool to more efficiently serve clients.

Bryan Cave, for example, sees that some of its clients who do business internationally face commerce problems with shipments, said John Alber, strategic technology partner.

Assigning a partner to solve each problem as it comes along would be a traditional approach. But Bryan Cave employs trade experts, who aren’t always lawyers, to help resolve trade problems at a greater, more cost-effective speed, he said.

Also, those clients faced with an international trade question can use one of the firm’s 2,000 extranet sites to go through a set of decision trees to determine, under U.S. trade law, whether they can ship a product, he said. Its extranet sites offer everything from decision support to information repositories.

These types of ideas, Alber said, ”don’t displace lawyers. They solve a certain kind of problem in a very efficient way and leave lawyers free for more complex problems, more involved problems, and frankly, from a lawyer’s perspective, more fun problems.”

Mark Rust, managing partner of Barnes & Thornburg’s Chicago office, said clients often view legal services in three categories — as a commodity that can be done by a large number of interchangeable lawyers; a specialized service where a lawyer needs to understand a specific area of law; or as a unique legal matter that very few lawyers can handle, and, because of that, the highest rates can be charged.

As a lawyer who works in the healthcare practice area, Rust said his practice clearly fits into the specialized category because only a limited number of lawyers understand the healthcare regulatory laws that affect the industry. Having the knowledge is essential to fully serve the client.

”We are seeing an increase in client loyalty and appreciation as they look at the limited number of lawyers who do work in this area, and understand this industry at a very high level,” Rust said.

Regardless of changes in the profession, there will always be a place for lawyers, he said.

”It is the lawyers who are bringing order to society,” he said. ”Like it or not, a sloppy process or a smooth one, expensive or not expensive, it is the lawyers and the legal system that are bringing some order to how a transaction is done, how a dispute is settled, how a company should proceed and think through a problem. Without that what we will have is chaos.”