This is just the introduction. Head off to http://www.forbes.com/sites/davidparnell/2014/06/17/george-beaton-on-the-future-of-law/ for the full piece
Dr. George Beaton of Beaton Capital, On The Future Of Law
The year is 1978. Roger Cleaver, a senior office-bearer of the Law Society of South Africa (South Africa’s bar association), is attending a business conference, and is listening to a lecture on a subject then quite foreign to the law firms: the principles of effective business-to-business advertising.
It was a timely topic, for him and for the legal market in general. The United States Supreme Court had just delivered a historic verdict in Bates v. State Bar of Arizona, one that allowed law firms to advertise to the public for the first time. The market was on the cusp of a fundamental and irrevocable change, helping to spur along its ongoing metamorphosis from the profession of law to the business of law.
The law society, loath to become mired in the politicization of the advertising judgment, was seeking to find a principled position on the issue and constructively guide its members on this aspect of market deregulation. Seizing an opportunity, Cleaver approaches the speaker—an entrepreneurial young advertising executive who operated his own subsidiary of advertising goliath, BBDO—and asks him, frankly, for his advice. The two get talking.
That speaker was Professor George Beaton. At the time, Beaton—now legal consultant, researcher, and current advisor to the two largest law firms in the world, among others—was largely unacquainted with the law. From Johannesburg, South Africa, curiosity and familial influences propelled Beaton into medicine at a young age, eventually turning his hand to the advertising of pharmaceutical products. However, his conversation with Cleaver was to seed a new curiosity and lifelong passion for researching, evaluating, and developing law firm strategy.
More than three decades later, Beaton thinks he is seeing the first barbarians at the legal industry’s gates. But this time, the barbarians are armed with disruptive technologies and more innovative business models. “NewLaw,” a term coined by Beaton, is the calling card of the business models that are strategically positioning themselves, hoping to disrupt the legal services industry. See our exchange below:
On the Growth of “NewLaw” Business Models
Parnell: You’ve been paying attention to the growth of various “NewLaw” business models. While I see that major law firm management is recognizing their existence, some management doesn’t see them as a real threat. What are your thoughts? Do you see them threatening the traditional model?
Beaton: I would say, not today, but in strategic-time, tomorrow—absolutely. Look at Axiom. Axiom is a legal services provider out of New York reported to be growing at 30% per year, compound. The industry of traditional law firms is growing—if they are lucky—at around 3%. Are the established NewLaw enterprises growing off a small base? Not anymore! Axiom is no longer small by any standard. In less than 15 years it’s comfortably into the AmLaw 100, in 10 offices around the world, and serving half the Fortune 100. And it’s not even a law firm.
David, when I was in New York in February this year, two things happened: On Tuesday [the] 5th, the prestigious Canadian law firm Heenan Blaikie collapsed. As you would know, number eight in Canada by size, fragile because of a lack of strong leadership, it had suffered two years—only two years—of 15% profit decline. Then, two days later on the 7th, Axiom, the alternative business model firm, announced it had won a contract from British Telecom—its biggest contract ever—for work related to commercial contracts and anti-trust in the UK, US, and Asia. So, on the one hand, you had this BigLaw collapse, and on the other, a significant win for a NewLaw pioneer.
We think all forms of NewLaw are still in the first phase of the innovation diffusion curve. They still have less than 1% market share; though, there is no hard data. The early adoption, and then, early majority phases, will occur when NewLaw proves the superiority of their value propositions for certain clients and certain work types.
Clients are inherently risk-averse when it comes to procuring outside legal services; they wait and watch others. If the risk is within acceptable limits, the early majority will jump in. If this happens, it’s less than a decade away.
NewLaw firms are small but potentially very dangerous, because they are teaching clients about new ways of buying. They are not lawyers for mom and pop shops. They are not.
George Beaton: “… we think we will see an environment where there might be the ‘Big 10’ firms.” Photo credit: http://www.theaustralian.com.au/
George Beaton: “… we think we will see an environment where there might be the ‘Big 10’ firms.” Photo credit: http://www.theaustralian.com.au/
On Clients and a “Kaleidoscopic” Future
Parnell: Based on your bio, you’re primarily a business strategist, an adviser, and researcher. Perhaps most interesting of your work is that you’ve modeled the market shifts to get an idea of what’s ahead. So what do you see for the future of legal services?
Beaton: We have visualized a scenario—and let’s say this is in about 2025, so, it’s close, just over on the horizon, but you can see the dots sufficiently now to connect them and know it’s there—and the main drivers of this scenario are, first, the rate of change in the way clients manage their procurement practices for legal services, and second, the capacity of the BigLaw firms to remake their model. So there is a race, if you like, and when you play this out—which we have done—we see a picture we call ‘Kaleidoscope’.
What will it look like? We see the traditional legal procurement model being substantially disrupted. The big corporate clients will have created captive suppliers, like the outsourcers which we now find everywhere: Mumbai, Los Angeles, Belfast, Cape Town, and Toronto. The corporates will be shareholders in them, so you’ll get a much more integrated supply chain. They’ll also be using NewLaw business model providers of different varieties, managed legal services, and temporary hire firms, to a much greater extent.
Clients will have grown their own classical in-house legal departments even further, and they will be even more specialized and more technology-enabled. For example, they will all have applied Six Sigma disciplines toward meeting their legal needs. And to some extent clients will be crowdsourcing—yes, crowdsourcing.
We think clients will also be hiring specialists, of kinds, that don’t now exist; for example, what I call legal diagnosticians, who will diagnose the problem—not solve it—and advise clients whether they should handle it in-house, or send it to outside counsel, or even that the risk is such that they should do nothing about it. These risk-related diagnostics—based on data analytics—will be managed by people who triage risk-adjusted decisions.
On BigLaw Sinking or Swimming
Parnell: The scenario you are painting could certainly take a material slice of BigLaw’s revenue stream. How do you think the industry will respond?
Beaton: BigLaw will have watched all this, and will have said, “Our natural place in this ecosystem is doing the most complex, mission-critical work for clients; work that needs teams of highly skilled, very experienced super-specialists.”
