Profiting from increased competition and new markets

Competition is an accepted part of legal professional practice. The forces of deregulation and new technology are set to alter the shape of competition in the legal services industry. In this article, Ben Horton of FirstLAW explores the purchasing priorities of clients and lawyers, and the response to the concept of the first regulated on-line legal services marketplace.

One of the most notable features of the legal services industry in recent years has been firms’ progressive attitude towards competition. The requirement for self-promotion may not always be welcome among busy practitioners, but it helps to combat a thankfully dying perception from some purchasers of legal services that, in George Bernard Shaw’s words “all professions are conspiracies against the laity”.

Following the recent OFT report, the legal profession faces increased exposure to competition and deregulation. In many areas of the profession, this situation will not be met with concern, and few would challenge the general assertion in the report, that markets work best when there is unrestricted competition between suppliers.

In the case of legal services, there are of course subtleties that add complexity to this straightforward model. Such difficulties are highlighted in the report commissioned by the OFT from the Law and Economics Consulting Group (LECG) as “market failures”. I believe such failures are difficult, but not impossible, to address and that the legal services market can be made more competitive, and yet workable, to the benefit of both clients and lawyers. FirstLAW is endeavouring to address some of these difficulties and, in doing so, we have been given an interesting insight into purchasers’ priorities and law firms’ responses in the market for legal services.

In seeking to understand the purchasing decisions of clients it is worthwhile taking a look at the difficulties they face. A feature of the legal services market, highlighted by LECG in their report, was the rather dauntingly described ‘asymmetry of information’ between buyers and sellers concerning the characteristics (or quality) of services involved. I hope I don’t do the complexities of this notion injustice by explaining the term from the client’s perspective with regard to the difficulty in judging whether a good service is offered (or has been performed) and whether a reasonable price is asked. The paradox is, of course, that the client would often have to have the very expertise sought to be able to assess this. Even after the service has been performed it is difficult for a client to assess in objective terms whether a good service has been delivered and reasonable price has been paid. This is due to a lack of correlation between the business result for the client, and the provision of the service – litigation is a prime example. Even with suitable expertise to assess the quality of the service, the purchaser is faced with difficulties in knowing whether other suppliers in the market may have performed better or more cost effectively.

So, against such a background, on what basis are clients buying legal services? It is, of course, impossible to generalise but certain themes can be drawn out which may be valuable to those seeking to gain new business. At FirstLAW, our first communication with the client reveals the variety of reasons for selecting an adviser. Some are looking for specialist skills or expertise in foreign jurisdictions, some are unhappy with their present advisers due to performance or cost, and for some, especially for start-up companies, this is the first time they have sought legal services in a commercial environment, and the market appears complex to them.

In all categories of client the ‘information asymmetry’ referred to above is a real issue, and if they lack experience of sourcing their particular requirements, they rely on us for our market intelligence and the pooled experience of our clients.

Our involvement saves the client time and helps support what LECG refer to in their report as a ‘credence’ purchase. I like this term for its roots in the concept of belief and trust. A client’s belief and trust often underlies their purchasing decisions in legal services albeit supported by all manner of ancillary matters – their own knowledge, experience of particular firms, the reputation and branding of a firm. Clearly if a firm can capture the belief and trust of a client then in a competitive landscape they are likely to win and retain new business.

Our clients highlight their articulated priorities in advance and give us access to their feedback on the performance of firms. This reveals some clear ways to capture such belief and trust. We ourselves counter some of the worst impacts of information asymmetry but client reactions demonstrate that it is hugely important that firms get those aspects of the service that are not subject to such complexity correct. Clients will look very favourably on firms that, for example, offer to keep them proactively informed of the progress of their matter and respond quickly to communications. Whereas a client may not always be able to accurately assess the amount of work required on a particular matter, they will certainly appreciate the certainty of fixed fees (even for prescribed stages in an ongoing matter, with otherwise flexible charging) and being kept informed of costs on a regular basis. These elements often form, or undermine, a client’s belief and trust in a firm – the tragedy is that firms often consider these elements to be less significant than their prospective or present clients do. For our part we try to cement some basic service standards in a contractual relationship between the client and their selected adviser.

It is also interesting to note how important market intelligence is considered by those who use us. Even with our clients who are not experienced in sourcing legal services it is enlightening to see that there is never a sense that all lawyers who profess to practice in a certain area are equal in competence. Instead, there is almost without exception a perception that the client requires specialist advice from an experienced expert (even when the services sought are in fact fairly mainstream). In these cases, our interrelation with other forms of self-promotion from firms is evident. If our suggestions are reinforced by a brand awareness then, in our experience, this does serve to increase the confidence of the client and the belief that the firm will perform well. In such cases something would have to go badly wrong in the delivery of the services to damage the belief that the client had made a good purchase.

The more sophisticated the purchaser, the more sophisticated the market intelligence sought. In-house lawyers and other knowing clients are less concerned with brand and often view the individuals, specialist groups or accumulated expertise beneath as more important. In the final analysis, most purchasing decisions are made on the qualities of individuals within firms. This is, of course, why lawyer salaries can be very high and why smart firms are seeking technological ways of retaining knowledge and skills, i.e. their product, within the institution and separate from the transportable vessel of the individual. For the time being, though, the individual reigns, and often our clients are using us to target expertise embodied in individuals – and our market intelligence must support this. In the future, firms may well become more successful at capturing knowledge and skills using technology and our market intelligence will become more focused on other elements of the service delivery.

The latent legal market

In common with most law firms, our first contact with the client is in response to an enquiry. We are reacting to the client’s acknowledgement of a need for legal services. Where a possible need is recognised, there is a category of potential purchaser who finds the prospect of obtaining legal advice daunting enough (due to concern over issues, for example, of cost, time and complexity) to refrain from seeking immediate advice. In the traditional environment this may lead to, from a commercial perspective, a missed purchaser and, from a philosophical perspective, to a problem of lack of access to justice. From the client’s perspective it is also, all too often, storing up troubles for later.

Perhaps because of our approachability – both in terms of free access to lawyers and easy channels of access, clients feel more at ease approaching us for recommendations. I must say we welcome them. We would prefer to have the opportunity of reviewing their requirements and referring them to suitable advisers rather than miss them entirely.

The nature of our service means that we do not perform substantial legal work ourselves and do not charge the client. This has the effect of freeing us to offer practical guidance to clients and select suitable advisers from the vast range of expertise available in the entire legal services market. In all, I make no apologies that the guidance we give is often akin to that sort of guidance that would be given to friends or family in a similar position to those clients who contact us. For a pragmatic lawyer it is a liberating experience.

Our first steps into this latent market have been illuminating – the correct treatment of ad hoc requirements for guidance have lead to client satisfaction and ultimately to new business, often of a significant value. This market can be further addressed by proper packaging of legal services by suppliers to fit client requirements — we hope to be able to refer clients to suppliers offering cost effective ways of meeting these requirements in the near future.

The future

Throughout this article I am indebted to the work of Richard Susskind and his latest book Transforming the Law – such vision supports a view that the future heralds increased deregulation in the legal services market and growing diversity in the substance and channels of delivery. The client is likely to be faced with a plethora of choices in relation to the consumption of legal services – from using qualified or unqualified suppliers for certain roles, to using on-line information or automated services. There will be pros and cons of each and all will be weighed against the purchase cost.

To a certain extent this can be viewed today in the ‘unbundling’ of services into constituent parts. In large-scale litigation it is not uncommon for routine document analysis to be performed by external bureau who employ paralegals independently of the instructed law firm. Similarly, there are companies to whom legal research is outsourced.

In such an environment, we see a role for FirstLAW in working with clients to help identify when and where they should look to find and package services to meet their specific requirements in the most appropriate and cost effective way.

This involves a change in the competitive landscape for lawyers. Through FirstLAW we hope to be able to transform that change into opportunity for all those who aim to give real value to clients.

Ben Horton is a solicitor and chief operating officer at FirstLAW. He is a five year qualified IT/IP lawyer who practised formerly at Manches, where he specialised in IT and internet-related law. As in-house lawyer at Legal Technologies Ltd, he was responsible for managing the provision of technology solutions in high value multinational litigation, international tribunals and government enquiries. Before joining the legal profession he worked as a systems analyst/programmer. Aged 31, Ben was educated at Westminster School, Exeter University and Guildford College of Law. He can be contacted at bh@firstlaw.co.uk.