The Great Commodity Debate

6 09 2010

Fascinating debate over the last month on the Linkedin group “Leadership for Lawyers” on Mike Ames’ discussion “Is the law becoming a commodity, and if it is, what can be done about it?”.

If you can brand and differentiate salt, legal services should be easy, right?

One of the things that immediately struck me about the comment, was the implication that commoditisation was a bad thing, and something to be resisted. By contrast, my natural inclination is that there are certain areas of law that should be commoditised, but that the inefficiency of the law firm market and the business models of firms in the market that have prevented this happening extensively so far.

However, rather than look at the rights or wrongs of commoditisation, or indeed the future impact on the profession (which is where much of the Linkedin debate focuses) I thought I’d share my thoughts on what is driving this trend.

In understanding the roots of comoditisation, Delong, Gabarro and Rees in their great book “When Professionals Have To Lead” talk about the relentless commoditisation pattern facing professional service firms, and suggest that technology is a major driver of this trend.

Another author, Dawson in his book “Developing Knowledge-Based Client Relationships: The Future of Professional Servicesargues that the main causes are in professional convergence (i.e. the blurring of boundaries between the professions) and the “unbundling” of professional services. Unbundling  occurs where new competitors, rather than competing head-to-head with incumbent firms, select a very narrow section of services and offer very focused competition; to compete the incumbents have to unbundle their service offerings. I believe this driver will become increasingly prominent as a result of both the increased deregulation in the UK market place (leading to more new market entrants) and increasingly sophisticated LPO offerings that are beginning to reach the market.

In addition to these supply-side forces, I believe much of the drive towards commoditisation comes from the demand side of the market. In particular, as a law firm client I  frequently resisted paying for services by reference to a traditional “hourly rate” on the basis that the service was now a defined offering which had a clearly identifiable market price.

Buyers of legal services are undoubtedly getting smarter (whether commercially-savvy corporate counsel or in house teams working with procurement professionals) and the push for more fixed price work in turn drives law firms to put boundaries around their services (in order to control scope and risk). The recession has heightened these buyer behaviours, and as a consequence more and more services are being “productised” into individual and standardised products, which are easy to replicate and difficult to differentiate, which in turn means the market becomes price and cost driven.

So, that’s my take on some of the drivers. What it means for the profession (both opportunities and threats) are for another day, but if the comments on this post are as rich and well thought through as those on the Linkedin discussion, I’ll be a happy man.