Archive for April, 2012

Moneyball and the law: The Competition

Author: Debra Baker
April 19, 2012

“If we act like the New York Yankees in this room, we are going to lose to the Yankees out on the field.”

- Billy Beane, Oakland A’s General Manager

Like baseball, the law firm competitive landscape is not an even playing field. Large firms continue to consolidate. The richest firms are getting richer. They are able to attract the best lawyers and win the highest volume of premium work. Where does that leave everyone else?

It depends on what you want.

Traditionally, the U.S. legal market was divided into two segments “Big Law” (often defined as the AmLaw 200 in the annual rankings by The American Lawyer magazine) and everyone else. The market, however, is quickly bifurcating into sub-groups based on global economic trends.

Although these groups will evolve, Legal Vertical Strategies segments the current market into five tiers:

Tier 1: U.S. firms LVS believes ultimately will be a part of a Global 25 based of the most profitable law firms. Currently, this tier includes 18 U.S. firms.

Tier 2: The remainder of the AmLaw 200 firms based on revenue.

Tier 3: Regional firms with muti-city offices.

Tier 4: Single office/city law firms

Tier 5: Solo practitioner

What do you want from your legal practice?

Big Law has a number of competitive advantages because of  geographic reach, ability to staff cross-practice/geographic/ industry teams, ability to compensate talent, and market themselves at a national and global level. That means Tier 1 and Tier 2 firms will win the largest share of premium work and will continue to offer the highest compensation opportunities. It is also having a significant impact on law firm loyalty, culture and the concept of professional partnership. Large firms tend to have a greater pack mentality. Innovation tends to be slower and decisions often hinge on what their counterparts are doing.

Smaller firms will miss out on opportunities with multinational clients and large public companies. They may have trouble retaining quality talent due to lower compensation models. However, they also have competitive advantages as it relates to their ability to create niche practices, cultivate stronger client relationships, integrate technologies to differentiate themselves and build stronger firm cultures and attorney teams.

To be sure, there is no one size fits all definitions within these tiers. But Tier 3 and lower firms cannot compete for legal services in the same way that Tier 1 and Tier 2 firms do. A realistic assessment of a firm’s competitive position, therefore, can help firms define and clarify their long-term objectives.

Moneyball and the Law: Understanding the market

Author: Debra Baker
April 5, 2012

Part 3 of a 5-part series

By Debra Baker

“I do not start with the numbers any more than a mechanic starts with a monkey wrench. I start with the game, with the things that I see there and the things that people say there. And I ask:Is it true? Can you validate it? Can you measure it? How does it fit with the rest of the machinery? “

- Bill James, 1985 Baseball Abstract, as quoted in Moneyball by Michael Lewis

Understanding the client base of a given market is akin to fielding a team based on the totality of circumstances — the opponent, the stadium, the talent pool.

Legal Vertical Strategies analyzes the legal landscape from three perspectives: Demand, Client Base, Competition. Each has its own set of measures that provide insight into the overall market. The second perspective, Client Base, provides insight into the mix of legal needs that exist and how decisions about who to hire are made.

Buyers of legal services vary based on size, market reach and relative sophistication. Legal needs range from day-to-day matters – perceived as part of the cost of doing business – to high-risk, premium matters where price plays little, if any, role in who gets hired. The larger an organization, the more complex the legal needs are likely to be. The buyer profile of a given market, therefore, provides insight into the value (cost) of different types of legal needs and the decision-making process for selecting who to hire.

In general, businesses can be categorized into four clusters: Multi-nationals, Large Companies, Medium-sized Companies, and Small Companies. Combined with an analysis of market demand, insight into the client base of a given market provides informs decisions about:

  1. What clients to target;
  2. How to reach decision-makers and key influencers;
  3. How to focus marketing and business development resources around the highest value opportunities;
  4. Projecting revenue and developing creative pricing strategies.

Lawyers and law firms should evaluate how much of their client mix is dependent on clients in this region and ensure that growth strategies take into consideration the nature of work this client base has and how these clients make decisions.