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In commoditization they trust

Many drivers can force an industry to redefine itself: new competition, fluctuating demand, and market restructuring. With information technology redefining the pace of innovation, the legal industry is undergoing its own period of transformation, powered by changes in both supply and demand, as well as by changes in the market itself.

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Should lawyers worry? Perhaps yes, at first blush; however, taking the long view, there is plenty of cause for optimism.

Traditionally, legal services have been based on trust. The consumer generally knows very little about the quality, value, the scope or even the actual necessity of the service ultimately being rendered.

In The Trial, Franz Kafka provides a shining example of a litigant who is always kept in the dark about the legal process he is caught up in. That surreal piece of fiction is not far, however, from reality. Just like Kafka’s Josef K., legal service consumers often have no choice but to place their trust in a lawyer’s reputation and hope they will be well represented. It’s for this reason that, in the past, the legal market paid so little attention to objective considerations such as price and product characteristics, focusing more on subjective aspects like client service and perceived value.

That is changing. Today, the world is filled with tools offering consumers information so that they may make informed decisions. Gradually, a service based on trust is evolving into a standardized product with features, such as quality, that the buyer is in a better position to evaluate.

It isn’t just the vast, impersonal internet that helps consumers understand what they’re buying. Various groups are making efforts to provide public legal education online; as well, lawyers offering information for free online find it functions as a sales tool and leads to more legally savvy consumers.

Even more likely to change the rules of the game is data analysis. AIG, which spends more than $2-billion on legal services each year, recently announced plans to use its internal data to advise clients on how to set competitive pricing for legal services. Consumers will suddenly have unprecedented access to information that was previously impossible to obtain.

This, in turn, will give legal service providers a compelling reason to either reduce costs or increase efficiency. Cost reduction is unlikely to be a viable long-term solution for a law firm because if the competition focuses on efficiency, sagging productivity will render the firm’s business model unsustainable. And because there are limits to making a lawyer’s intellectual work more efficient, gains in productivity will require a more intensive use of web-based technology.

A business that sells billable hours cannot compete with one that sells legal products online. To be efficient, a business model needs to be tailored to the type of financing it needs, its use of technologies, and the kind of product it is selling. Part of the solution lies in project management and process optimization, supported by technology, in varying degrees: whether it is partial automation of certain aspects of the process or complete automation of a service. Either way, investment in technology is inevitable, and the structure of the legal business will change.

Lawyers resent the notion that what they do can be commoditized. But what’s important to remember is that litigants no longer trust the service they are being sold, and naturally, this fosters scepticism and encourages consumers to give up on legal proceedings. According to a 2009 report published by Justice Canada, up to 88.5 per cent of legal needs go unmet. Moving away from a service based on trust toward a standardized product could be profitable for the legal market. It could shed light on what the litigant is purchasing, and the legal needs to be filled. As a result, we would be able to provide additional objective reasons for the consumer to buy, which would increase opportunities for lawyers.