I recently came across this article on law.com which points to the rise of strategic sourcing and Spend Management practices in law firms. According to the piece, one firm profiled spends "more than $200 million a year on purchasing goods and services" and a new head of procurement estimated that "he knew he could pare at least $20 million annually from that amount within the first year or two." Now that's a lot of low hanging fruit. But only a minority of the largest law firms are going after the opportunity. The article notes that "perhaps 15 to 20 percent of Am Law 100 firms are tackling this opportunity by hiring someone with corporate experience to rationalize sourcing on a highly centralized basis."
What's to explain the lack of enthusiasm for saving money? When you're charging your partners out at $700 per hour, it's a license to print money. The only more obscene industry when it comes to hourly rates is investment banking (but most of their deals are transaction based, so at least there's some risk element for the provider to justify their fees). In my view, the only way to get the largest law firms to think more seriously about cost cutting is when clients demand more reasonable fees and stop accepting price increeases. Take Wal-Mart for example. I know a laywer from a top East-Coast firm whose hourly bill rate is in the neighborhood of $650-$700 (in New York, fees can reach $1000 per hour). Wal-Mart pays him just around $400/hour. But they pay his firm incredibly quickly and pile work onto them. The cut is a something the firm is willing to take given the size and stability of the client. And hopefully they can make up the difference through smarter sourcing as well.
- Jason Busch