Law firms and law departments, what I’ll call legal service organizations, aren’t Google, but they can learn from Google’s move to Alphabet. If you haven’t heard, Google announced this week that it was forming a parent holding company named Alphabet. Beneath Alphabet, there will be Google, which will house the core search, Android, YouTube, and advertising businesses. As sister entities to Google, Alphabet will hold other businesses that are the “moonshots” created by Larry Page and Sergey Brin, the co-founders of Google. This structure, which includes a CEO for the core Google businesses and will include lead executives for the other businesses, allows Google to focus on running the core businesses well while at the same time, but separately, exploring the big ideas. Formerly, the company was trying to run maturing businesses under the same roof as startups and R&D, which got a bit messy.
Legal service organizations face many of the same types of challenges that Google faced before the reorganization. The delivery of legal services is in many ways a mature business—much more mature than Google’s businesses. At the same time, legal service organizations desperately need to focus on the new and the future. It takes different skills to do these types of things so keeping them together in one place under common leadership isn’t the best strategy.
Protect the Core
We often talk about the core services of legal service organizations, especially law departments. Those services include contracts, certain disputes, employment law counseling, and routine compliance activities. If the legal services organization is a law department, core services also includes services that are central to the operations of the parent business, which could include licensing, franchise agreements, or other substantive areas. Law firms often have core services based on key practice areas, because they have large numbers of clients who ask them to handle certain types of matters. A law firm with a strong financial services practice might frequently do certain types of financing arrangements frequently, and a firm with a strong real estate practice might have a large volume of leasing work.
Legal services organizations also have infrequent work, but of a nature that is tightly related to the core services provided by the organization. In the legal industry, we tend to call these high-end legal services. Complex, cross-border mergers and acquisitions, bet-the-company litigation, and unique financing arrangements fall into the nature of infrequent work for law departments. In a law firm, these could be core services or they could be infrequent work.
Finally, we have the new services coming along. Cybersecurity is a hot area right now, but it also is a newer practice area. Even newer, areas such as drone law, artificial intelligence law, 3D printing technology, and other cutting-edge areas represent practices that are evolving daily. Even some areas that have been around for a bit, such as privacy, can be practice areas that are still evolving quickly. We also can include in this category future services. These are areas where demand for services may not exist, but we expect the demand to exist in the not-too-distant future.
Legal services organizations typically don’t think of their businesses along the lines I describe above. Law firms group their services by substantive areas of law, with perhaps a matrix structure to reflect industries. Law departments usually are generalist practices for smaller departments; a mix of generalist with some specialists for mid-size departments; and a mix of generalist, specialist, geographic, and product line groupings for large departments. Still, the specialists break out along substantive areas of law rather than service levels.
Automotive companies thought this way. Each brand sat in a separate business unit. Although all cars shared common elements, the business units didn’t share. This approach leads to great inefficiency and waste.
Rethinking How Services Are Grouped
As legal service organizations focus more on efficiency, how services are grouped and managed becomes more important. Since contracts are a huge part of legal services, I’ll focus on them. Contracts can be grouped in several ways. We could put them into substantive groups, for example, real estate, licensing, distribution, employment, etc. We could re-group them according to complexity, and we could re-group them according to jurisdiction, such as all Illinois contracts, all German contracts, and so on.
We also could think about contracts along the lines of what elements are common across the contracts, and what elements are unique. Common elements have picked up the name boilerplate, but common elements really involve much more than just a clause that says all references to men shall also mean women. For contracts involving the sale of goods, lawyers codified many common elements of contracts into uniform codes, such as the Uniform Commercial Code and the United Nations Convention on Contracts for the Sale of Goods. Thus, cutting across the substantive areas of contracts there is this core notion of contracts as a category type.
When we focus on efficiency, one thing we can do is look for common elements and combine them into one operation rather than creating multiple instances where we work on the common elements. Automotive manufacturers have followed this approach. You will hear them talk about putting several cars on a common chasis. It is far more efficient for them to make one chasis and use it across several cars, than to make a chasis for each car type. The same is true, of course, for engines, drive shafts, and other components. The cars are still differentiated, but they share a common core.
If we think of contracts as sharing a common core with a differentiated superstructure sitting on top, we should ask how we could build the core most efficiently. Should we have a group of experts devoted to running the common core contract business efficiently? They would be experts in churning out the core components of contracts. We also could have smaller groups that take the common core and build on it the differentiated parts (licensing or leasing). Because all of this work fits in the core service area of contracts, an expert running this area would work to make it a very efficient business. Law firms might run these businesses themselves. Companies might lease these services from law firms or set up centers (joint ventures) to run these businesses.
Richard Susskind has suggested something along these lines. We see some law firms and companies in the U.K. and Europe moving slowly in this direction. They have developed service centers that focus on building expertise and efficiency with certain types of financial instruments or contracts. In some cases, those services are used by the parent entity and in others, they also are services hired by third parties. Although they have not gone the next step of creating common element expertise, that next step is inevitable.
Organize to Support Future Services Development
Once we put those core services in a place where we can focus on efficiency and expertise, we are left with the non-core services. The high-end, legal services, or bespoke services, could be handled in one or more separate groups. They need different management and typically require competencies not regularly used in the core areas.
The third area is the one neglected by legal services organizations. While it often is called legal research and development, I think it is broader. Legal service organizations need to both look to the future and develop the means to handle evolving and future client problems, and they need to develop business models to handle these services. The common assumption that all legal services in the future will be or should be delivered as they have been delivered in the past is wrong. As new services arise, lawyers should consider ways to structure the services so they are provided more efficiently. This is part of the research and development function and part of a new business development function. In the past, lawyers would default to a labor-centric model for providing services. Today, they should look at technology. Should the services start with an online questionnaire? Should outputs be driven through document automation? What other, more efficient, methods could be used to deliver the services?
Managing and staffing research and development uses a different set of competencies than running a highly efficient, core service operation. In fact, it is so different companies think about creating skunk works or other separate entities where bureaucracy doesn’t burden the participants and disruptions prevalent in the core services areas. It is tough to have someone work efficiently in the box and think outside the box at the same time.
Evolving Our Concepts of Legal Services Organizations
What Google did in creating the Alphabet superstructure isn’t right or wrong for legal services organizations. It is, however, something that should cause these organizations to question their current structures and ask whether they really are designed to achieve their purposes. This is a separate question from the age-old question in law: is a partnership the right model? The pure partnership structure or limited liability structure allows the freedom to create subsidiary entities to handle separate aspects of the business. It also allows outside investment provided the subsidiary entity does not provide legal services to third parties. Law departments also can create subsidiary entities that provide core element services, and again those services can be provided to third parties if they don’t constitute the practice of law. While more flexibility in ownership would help in many ways, it isn’t necessary to move forward.
What is necessary, is the openness to consider what clients really want and how lawyers can achieve those goals efficiently combined with high quality and creativity. To do so means we have to question fundamental assumptions about delivering legal services. One of those fundamental assumptions is that contracts are dissimilar or need to be treated as if they have no overlap. Of course, that is just the start. Without questioning each aspect of the legal services delivery system, lawyers will make little improvement in the delivery of legal services and it won’t take much R&D to figure out what happens next.