Steve Harmon, the Senior Director of Legal Services for Cisco, participated in a recent Legal Executive Institute panel on “Disruptive Changes in the Legal Market”. LEI sat down with Mr. Harmon afterward and asked him about this change and the industry trends that were pushing it.
LEI: What do these disruptive changes mean for corporate general counsel? Is it primarily that there are more options for purchasing legal services now?
Harmon: Well, certainly that is expanding. We are able to find law firms willing to focus on outcome-driven service models—and those are the kind of firms we’re most interested in engaging with. We’re starting to see more of that in the market and we’re thrilled to be a part of that.
LEI: Outcome-driven models? Is that a way of saying the end of the billable hour?
Harmon: That’s representative of it. Historically, pricing models for delivery of legal services have been quantified by inputs with all the focus on the number of inputs, and those tend to be time-based, in the legal world. But there are potential internal conflicts within that model, and people understand that conceptually—they talk about it all the time—but for historical reasons that model is deeply ingrained in the profession.
But for us, we’re far less interested in the number of inputs required, and are much more focused on the types of outputs we generate. It’s really no different than the way we compete in the market. We don’t base our prices on the cost of the materials or the time or effort we put into it. The legal service industry is evolving such that one by one and over time, I believe firms will migrate away from an input-based pricing model and toward an output-based model.
LEI: Has this made a difference in what firms you work with?
Harmon: Absolutely. It’s a key part of our hiring decision process. Conceptually, we hire lawyers, not law firms. So our relationships are with the lawyers, and the depth of those relationships is a function of their ability to provide value for the engagement we pursue with them.
We’re far less concerned with where people are than with who they are and what they can produce. Like many industries, legal service is very much a meritocracy based on what providers can produce—not what they produced in the past, and certainly not what their predecessors 50 years ago produced.
We’ve been clear on what our expectations are as a consumer and what we would like to purchase in the market. We’ve been fortunate that some forward-looking law firms and lawyers have approached us and have been willing to pitch their services to us on that type of operating model. And it’s working very well for us.
LEI: When you were on the panel, what did you identify as the disrupters and the main trends pushing this change?
Harmon: Some of my fellow panelists were themselves the early adopters—the early movers that see an opportunity to take advantage of this inflection point in the market, be on the leading edge of that and grab a greater slice of the pie.
The other panelists [from Novus Law and Radiant Law] promote their ability to use data, price their services in a way that’s predictable to their customers, and eliminate the wasted overhead associated with billing.
I think that it’s important for all service provider firms to look for efficiencies in delivery. When you’re delivering on a flat-fee price, you have every incentive to eliminate waste. Your profitability is tied to your ability to understand your own business—that’s a market differentiator for them as well.
LEI: How far will this disruptive change go?
Well, it’s not a fad. I don’t think law is going to revert back to the time- and materials-based billing model, or lose interest in evolving toward an output-based model.
Harmon: As new law school grads come into this environment, and seeing this challenge, I think you will continue to have break-away innovators. Some of them will see they can disrupt things not only in incremental ways, but also in dramatic, wholesale fashion. I also think there is a different skill set required now—lawyers are going to have to be far better at the project management aspects of their practices than historically they’ve needed to be.
For bigger law firms and incumbent partners, these tipping points tend to sneak up on you. But every other industry has found a way to do this, and law is not going to be an exception.