FYI, the following article on the similarities between what is going on in today’s economy with attorneys (and other professional service firms) and with those in managed care appeared in the March 12, 2010 edition of the Atlanta Business Chronicle. Full text appears below

http://www.bizjournals.com/atlanta/stories/2010/03/15/focus6.html?b=1268625600%5E3024771&s=industry&i=economic_snapshot

The past year has brought significant changes to the legal industry, affecting the way law firms conduct business and relate to their clients. The economic marketplace is no longer predictable; and the legal industry has been dramatically impacted:

• New pricing models have emerged.
• Client relationships have shifted and are less secure; long-standing partnerships between lawyers and their clients are transitioning from unique to commodity status, where cost matters most.
• To keep costs down, some clients are suggesting a fungible relationship with their lawyers, where some types of legal services are provided in exchange for products or services of the client and no money changes hands.
• Traditional methods for recruiting, hiring, and training are less effective, so they are quickly being replaced by unproven techniques.

The rapid, unexpected changes to the economy have not allowed any business segment — let alone the legal profession — to react in a thoughtful, strategic manner. There has been a continued stream of imprudent responses, and they are not working. Reactions must be based on an assessment of the long-term possibilities and consequences.

What lies ahead?

Many believe that today’s changes are temporary, that the legal profession will readjust itself to business as usual. However, this may be a dangerous perspective, specifically if one studies the evolution of the health-care industry into a managed care model. During the formative stages of managed care, superior health-care providers thought they were immune to pricing model changes. They speculated that life would return to normal when the economy turned around. Yet, the model that was once taken for granted has never returned. The forces present then are eerily similar to those that exist today. This time, the legal profession is targeted.

Using health care as an example, in the early 1990s there was a downturn in the economy. Corporate leaders worked to identify cost-cutting measures. Reducing health-care expense was the objective then, just as legal expenses have become a target in today’s downturn. Before the ’90s, health-care coverage was a sacred cow, as legal services have been for several decades — no questions asked. Then, in response to the evolving economy, insurance and other providers made changes in the way they were doing business. They stepped in and offered to set fixed, guaranteed prices for health care in exchange for the insurance companies managing employee health-care costs. Thus, the commencement of the managed care era.

Today, we begin to see similarities between the health-care situation of the ’90s and the legal industry in its present state.

There is a growing trend where corporations are expanding their internal legal departments, bringing more work in-house. Companies are also gradually contracting legal services that transfer the cost risk to the law firm or other service provider. These cost-saving measures are cut and dried. There is less room for relationship-building between lawyer and client.

Once managed care took hold, those who suffered the greatest were the suppliers of health-care services, specifically the doctors and hospitals. Many were neophytes — they were expected to provide health-care services in a new way that was radically different from their long-established models. Gradually, single or small physician practices were economically forced to merge into larger groups. Even then, the smallest of these groups formed legal entities through Independent Practice Associations (IPA) or Physician Hospital Organizations (PHO). The goal became economic survival.

We are seeing comparable activity with mergers and acquisitions in the legal industry. Many smaller firms have been gobbled up by the large and mega-firms.

Built on tradition and precedence, many law firms are struggling with new concepts in the delivery of legal services.

While they still seek to give clients what they want and need, such as predictable budgets, shared risk, and operational efficiency, they are also attempting to implement new pricing and work structures to keep themselves financially sound. Clients are seeking prevention strategies with the intent of avoiding legal issues similar to preventive health for consumers; and many lawyers and firms are having difficulty finding appropriate ways to respond to their clients’ changing needs.

The most significant point is that the health-care industry continued its new path even as the economy reached full recovery. Will this happen to the law profession as well?

What will it take for law firms to succeed and thrive? There are lessons to be learned from the health-care revolution. First, the attitude that any lawyer is so skilled or differentiated that clients will continue to seek them out, regardless of cost structure, has to change.

To be successful, one must be flexible and adaptable — keep an open mind. Partners of law firms should be asking themselves a plethora of questions to determine if they have what it takes to remain viable.

We are facing a significant and permanent shift. By looking at the lessons learned in the health-care industry, today’s law firms should be asking themselves how they should respond to changing client demands and meet the future head on. Now is the time for a complete strategic reassessment.

The paradigm is shifting, and the legal industry may find that its next leaders are those who are not trapped by precedent or prior involvement in the legal industry of the past.

Kirschner is managing director of Raising the Bar consultancy and former CEO of Northside Hospital. He is also head of The Davis Academy. Hensley is a business development coach and president of Raising the Bar consultancy. Hensley was with Ernst & Young LLP for five years and the Atlanta law firms of Kilpatrick & Stockton LLP and Swift, Currie, McGhee & Hiers LLP and author of the recently published “Raising the Bar: Legendary Rainmakers Share Their Business Development Secrets.”