Bloomberg Law
April 14, 2016, 5:00 AM UTC

Perspective: Law Firms Must Adapt to Market Segmentation

Editor’s Note: The author of this post is a consultant to law firms.

By Mark Klender, Principal, Deloitte Consulting

Intending to be full service and meet the broad needs of clients, most Big Law firms provide a broad set of offerings, with some represented focus on industries and the areas of law they practice. Those that do specialize still offer a wide range of services, and there is still that temptation to take what comes in the door and flex to do it. This is the nature of legal training and of law firms.

A tour of Big Law firm websites is enlightening. We reviewed a small sample of Big Law firm websites to see how they listed industries, geographies, and services:

• The number of services listed ranged from 40 to over 95, the latter including detailed sublistings. • The number of industry practices listed on any law firm website ranged from 5 to more than 18. • The number of geography focused practices ranged from 6 to more than 10.

For the many at the higher end of listings, is this a well-intended effort to comprehensively meet potential client needs? Trying to be all things to everyone? A lack of focus and discipline on what the firm does best?

What differentiates the firms for these services, beyond the firm’s name and its reputation? Do all of the services that come from one White Shoe or Magic Circle firm vary that greatly from other firms to merit its rates? Or should certain services be delivered and priced differently — or purchased elsewhere? This brings us to a concept key to success in other professional services sectors — segmentation. Segmentation in what is provided to the market and in how services are positioned, priced, and delivered. And, at its core, how to be most competitive for the long haul.

As a starting point, a fundamental split can be cast as “expert vs. transactional”, with a spectrum spanning between. The Big 4 professional services firms are enlightening examples. Common to all of the Big 4 are a range of services and delivery, with higher leverage, more remote, and substantially lower cost delivery as one moves down the continuum. Highly regulated audit services were threatened to become commoditized, with continued pressure on rates. Delivered with high staffing leverage and automation, under expert leaders with strong controls, audit services are profitable. Sided with them are high-value, related services that command higher rates. Tax ranges from the highly-expert to the more generic, with considerable leverage and automation for the latter. The Big 4 consultancy offering can be split into three tiers: strategy, operations, and technology. Within each is a continuum of services, focused practitioners, perceived value, and a range of rates.

This is not to imply that all Big Law firms are or should be as broad in offerings and reach as the Big 4. Nor to make light of the highly complex, expert work that calls for the best that a client will pay for. The distinction is that the work within any law firm can be segmented by the nature of the work. Across the suite of services they offer, there is a mix of work and activities, with the content and splits varying by the area of the law, the nature of the matter, nuances of the industry, and the firm’s capabilities. The challenge is in working through the activities, at a process view, to understand how the work can be best delivered. Take your firm and your practice through this exercise.

So why address segmentation?

  • Strategic sourcing — Corporations are demanding efficiency and effectiveness in their service providers. They are demanding transparency into cost structures and the pricing of services. And they are looking to alternative delivery and providers for those things they see competitively valued. This is not about standard rate cards by level of professional and ad hoc billings, but resetting the structure of services and delivery, and fundamental cost structures.


  • Innovation — This the nature of technology and the evolution of business —the industrial revolution, advent of the computer, the internet/dot.com, and current age of no-holds-barred disruption. A constant churn and froth of how to do something better, more effectively, cheaper — and make a profit. Focused on this industry that has operated the same way for centuries. There are some wild ideas cropping up in the legal space, but disruption and disintermediation by alternative platforms and providers will not let up.


  • Competitiveness — There is only so much demand for the top tier of services. There is only so long that clients will pay White Shoe and Magic Circle hourly rates fees for everything that those firms offer. Great for those firms that are distinguished for those services and able to maintain the rates as long as they can. That leaves the many competing for the mid and low services tiers, but on what basis? Always quality, but efficiency, effectiveness, and price are critical. Low cost delivery — low cost U.S. and offshore locations, contract employees, outsourcing. Innovation and partnerships with mid-tier market law firms and alternative providers. Not providing certain services.


  • Profitability — With downward pressure on corporate legal spend and rates, and the growing competition from alternative service delivery, it becomes difficult to maintain undifferentiated services and pricing. It becomes expensive to have big-market, high-cost professionals doing the work. Differentiated services and delivery match cost structures with value delivered and pricing. And as the Big 4 and other professional services firms have demonstrated, it is possible to create profit on the differentiated services.


  • Talent — It is hard to be price competitive with the high cost, traditional partner model, fueled with the highest talent from top schools. It is challenging to keep this talent motivated doing middle and lower tier work. The traditional model is not necessary under segmented services. The new world has work done by new roles and levels — with highly differentiated comp and career models. It has variable supply and staffing models, flexed against variable demand, and contract and outsourced work, much done remotely, fitting firm needs and the work force of the future. And with the new talent model, a rethinking of career development.

The law firm of the future recognizes what it does best and for whom. It segments its services and fees by the nature of the work, with a menu of services with rates for each. It follows a “best in breed model” for those things that it does well, and positions itself as one of the stable of law firms on the clients’ preferred provider list. The foundation is the delivery model for each service, with differentiated cost, talent models, and profit structures. The art is in how to bundle and price the services for the big customers, and the services that the others get.

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