Lessons to Learn from Bezos?

A recent article in the Wall Street Journal discussed Jeff Bezos’ strategy for Amazon to remain successful and continue to innovate and lead the charge in changing the online shopping landscape.  By offering Sunday delivery, Amazon is setting itself apart from its competitors and helping a declining US Post Office to remain competitive in the shipping market.  Ultimately, Amazon is hoping this strategy will force its competitors to adopt the same service, changing the market for online retailers. 

How can this strategy apply to law firms?  For several years now, there has been discussion over how clients are no longer willing to pay for the training of junior associates and law firms can no longer use the leverage model to absorb the costs of training new attorneys into client bills.  Clients have begun demanding flat fees, volume discounts, frozen billing rates, and other components to lower their legal costs.  What if law firms began not charging for first year associates?  What if firms absorbed the cost of each new class of associates each year in an effort to maneuver clients away from the volume discounts and other lower cost requirements and back to the traditional pricing of billable hours?  What effect would this have on the industry?

First, law firms would need to examine their hiring needs more closely, and alter their hiring strategy to be able to afford absorbing these new salaries.  Also involved would be a revamp of the summer associate program, making it less about lunches and events and more about substantial training and rigorous evaluation to identify the candidates who would bring the most value to the firm as a full time associate.  They would need to restructure the costs associated with hiring, such as recruiting events, travel, events, programs and summer associate salaries – if the firm would not be able to offset these costs by billing out first year associates at high rates, they would need to strictly adhere to a lower budget and evaluate the value generated from these costs.  Another possibility would be decreasing the number of summer associates hired, and looking at the utilization rates and determining how many associates would they need to manage the workload at close to 100% utilization. 

Second, firms would need to examine how they staff deals, their workforce requirements and salary structure for associates.  Would they maintain the same billing rates starting with second year associates or would changes need to be made?  Are deals being staffed efficiently or are there pockets of overutilization and underutilization?  How would the salary structure of associates change?  Would they maintain a lockstep progression, would they lower the salary increases, or would they change to a merit based promotion system?

Third, what effect would one or two firms changing their policy have on the legal market?  Would that be enough to cause other firms to follow suit?  Or would there need to be a larger contingent in order to cause change?  Or would it depend on the size of the firm making these billing changes? 

Another way this strategy can be applied is by law firms adopting residency or apprenticeship programs, for the first, second and/or third year associates.  Greenberg Traurig recently announced that they were adopting a secondary first year associate residency program for law graduates who may have not been chosen through the traditional on campus recruiting hiring.  This group would earn a lower salary than the regular first year associates, but would have the opportunity at the end of their first year to be promoted to the regular associate track.  This two tier system may be effective, but what if a firm eliminated the traditional first year associate program completely, in favor of a year-long residency training program for the law graduates they recruit through traditional on campus hiring?  These attorneys would not be billed out to clients, although they would be working on the matters, and would have a full program of work experience as well as extensive training for the entire first year.  This program would effectively have the firm be responsible for the costs of training junior attorneys while enabling clients to have only extremely well trained attorneys working on their matters.  What if the residency was a two or three year program, including a portion where each attorney would be seconded to a key client?  This way the training these attorneys would receive would be both in firm and in house, and can be used as a client service and marketing tool.  What effect could this trend have on the market?  When clients compare using the services of different firms, would the knowledge that one firm had this residency program and another didn't have an effect on which firm they would choose?