How Can Law Firms Survive This Economy? Whatever You Do, Don’t Ask Your Clients

Dewey & LeBoeuf’s dissolution was a harsh reality for the law industry.

Just like Howrey before it, Dewey and other Biglaw firms facing lay-offs and financial difficulty have become the norm, not the exception.

Whether it’s due to technological innovation and an inability to adapt, or competition from online legal services, Biglaw is no longer immune to bankruptcy.

New partner compensation models, associate career trends, and other structural changes have stirred the industry.

“Investment in the future, whether aimed at transcending industry pressures by acquiring game-changing talent or at innovating through increased use of technology and more streamlined delivery models, requires a deferment of near-term compensation, and thus it risks inciting an exodus by a firm’s top producers,” writes Mark Harris in his Forbes article.

“As if we needed Dewey to remind us, what comes next might not be so pretty.”

It’s strange to think the pillars of law—the larger, more established firms—are crumbling under pressure. It inspires the question, “Why might firms be regarded as astutely managed at one point, yet subsequently lose their positions of industry leadership when faced with technological change?”

Christensen and Bower addressed this research question in their 1996 publication, “Customer power, strategic investment, and the failure of leading firms.” Except, the authors didn’t mean law firms.

The study investigated the disk drive industry between 1975 and 1990. Of the 130 firms that entered the hard disk drive market during this time, 100 failed. It seemed astonishing.

Especially among the incumbent industry leaders, with rock-sold market positioning, why did some of these tech firms fail while others thrived?

“A primary reason why such firms lose their positions of industry leadership when faced with certain types of technological change has little to do with technology itself—with its degree of newness or difficulty, relative to the skills and experience of the firm,” the study states, surprisingly.

“Rather, they fail because they listen too carefully to their customers—and customers place stringent limits on the strategies firms can and cannot pursue,” (198).

Apparently, market leaders were so faithfully attune to their current customers’ needs that they failed to anticipate market trends and future demand. In law, it’s easy to see where the same rules apply—curmudgeony clients complaining about hikes in legal fees, requesting old-school methods, and generally harking back on the good ole days…

Don’t listen to your clients.

Ok, Christensen and Bower weren’t quite saying that. But, for law firms to survive, sometimes it’s necessary to ignore routines, tradition, and the every whim of your clients. In the case of the disk drive market, incumbent industry leaders were so preoccupied satisfying their current customers that they didn’t recognize the importance of more recent market innovation, better product manufacturing, and demand associated with new technology.

Sometimes the customer is not always right (the savvy businessmen are).

Steve Jobs memorably said in an interview with Entrepreneur magazine, “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.”

So, listen to the market and anticipate client needs. Usually this means adding to your legal technology, recruiting ambitious, bright young minds, and updating your business practices.

Of course, lawyers must still listen to the needs of their clients. But, to ensure your competitive position and ultimate survival, that doesn’t mean giving them absolutely everything they want, exactly when they want it.

 

-WB

Work Cited:

Christensen C. M., Bower J. L. 1996. “Customer power, strategic investment, and the failure of leading firms.” Strategic Management Journal 17(3): 197–218.

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