Bigger and Bigger
Redefining the industry of your
facilities management investment
By Doug Gerstner
In 2007, I published an article for Legal Management titled, "Big Changes," which provided some insight into the evolution of the facilities management industry from basic mail, copy, fax and hospitality services into a much more robust, value-added offering. At that time, few would have disagreed that the industry was in a period of dynamic change.
ECONOMIC CHALLENGES DOWN THE ROAD
Beginning in 2009, significant economic challenges curtailed the very consistent law firm aggregate and individual firm revenue growth that had marked the history of the legal community. Due to top line pressures, law firms were compelled to examine their fixed cost structures, long-term contracts, cost recovery models and long-established ways of doing business with an eye firmly fixed on the bottom line.
As in other industries, facilities management providers found legal clients more willing to challenge long-standing ways of doing business in an effort to reduce costs. Law firms were exploring options such as reducing hours of operation and interoffice sweeps, outsourcing additional services long provided by in-house staff, and other methodologies for reducing staffing and service-related costs. Firms also sought opportunities for extending equipment and technology leases/obligations and other means of reducing technology-related costs. As business partners, facilities management service providers were challenged to assist our clients in their cost-reduction efforts.
Two other dynamics developed as a result of these economic challenges. First, many law firms that had long provided these services under an in-house model turned to outsourcing for the first time. The time span between 2009 and 2011 saw more first-time outsourcers than perhaps the nine or 10 years prior. Second, there was a significant reduction in the overhead/profit model that would be acceptable to the legal community as a whole. The already competitive marketplace became that much more so; and firms were able to reduce their costs either by negotiating with their current service provider or changing service providers.
For perhaps the first time, improving a firm's top or bottom line had become just as important, if not more important, than the specific services it provided. The good news for law firms throughout the country is that many in the facilities management industry embraced these challenges and changing dynamics to bring a different level of strategic solutions to the marketplace. While the changes in 2006 were very big, the changes that are apparent today represent a redefinition of the industry overall.
CHANGING FIRM PRIORITIES AND NEW MARKETPLACE SOLUTIONS
For many readers, this term "redefinition" comes as no surprise, as they have observed or participated in this evolution/revolution. Law firms today have focused goals for reducing fixed costs, making fixed costs variable, avoiding subsidizing costs that should be billable to clients, ensuring there is a return on all investments and staying competitive in a dramatically altered litigation environment. These objectives have allowed those who are proactive in the facilities management industry to bring entirely new value propositions to the marketplace that challenge long-accepted models and deliver more strategic solutions. What are some of these new value propositions?
- On-Site Versus Off-Site Solutions
Law firms are reevaluating the traditional model for on-site centralized solutions when it comes to copying, printing, scanning and other related services. Historically these services have paid for themselves because firms were able to fully charge the costs back to their clients. However, every anecdote, formal survey or specific analysis reinforces that this is no longer the case. Declining volumes, declining charge-back rates and redlining by attorneys and clients have led to an environment where fixed costs are being significantly subsidized by firms. Work done off-site, on the other hand, is handled as a straight pass-through cost. One of the industry redefinitions centers on the mix of on-site versus off-site work and how changing that mix can reduce fixed costs. The concept here is not new; it is merely becoming a more widely accepted methodology.
- Enhancing/Integrating the Litigation Services Solution
When the "Big Changes" article was published, it was possible to describe on-site litigation services as one of the most dramatic changes happening in the industry. I stated the traditional "copy operator" would become extinct as every copy center in the legal community, by necessity, would become a full-service center offering much more to support litigation and transaction services for firms. Litigation scanning, optical character recognition (OCR), branding, Bates labeling, load files and CD creation/duplication became part of the standard package expected by most law firms. However, this area has once again expanded in a major way. Today, firms are recognizing the enormous fixed costs that stem from the hardware, software, staffing and training associated with litigation support. They want alternatives that allow them to:
- utilize the best possible tools to make their litigation teams competitive in a rapidly changing litigation and discovery environment
- access these tools in a way that minimizes fixed costs and risk of obsolescence while maximizing the training and support available for the solutions. The necessity for service providers to address these needs is here; and the evolution/revolution related to these services is well under way.
- Changing Cost Structures and Models
Services have long been provided in this industry under a fixed cost model with variable pricing for overage, usage and other costs. Today, however, proactive service providers are partnering with clients to offer more of their services under a variable cost model. This model eliminates some fixed cost areas for the firm and helps ensure these costs are charged back to clients on a usage basis. Further, it helps eliminate the environment in which firms were subsidizing a significant portion of these costs. Invoices created for jobs completed on-site are no different than jobs completed off-site. Whether for litigation-related services only, all copy/scan/print/finishing-related work, or even for the entire service offering, these variable cost solutions are becoming more common, similar to the alternative fee arrangements that law firms have with their clients. Even when variable cost models are not utilized, work order solutions are often being implemented to at least increase client charge-back realization rates.
- Fundamentally Impacting Secretarial Ratios and Costs
Services previously provided in-house, or outsourced only sporadically, are increasingly coming under consideration for full-time outsourcing. Court filing, docket and records management represent just a few examples. However, perhaps the most interesting area falls under a heading of document management, or perhaps knowledge management. Firms are reevaluating the ways they create, manage and store documents, along with the role of the legal secretary and how these professionals can best support the firm. They are considering solutions, such as a clustered support environment that can enhance and expand services for attorneys and the ability for that support structure to positively impact the traditional attorney/secretarial ratio. The ability of service providers to offer solutions in these areas is once again driving an opportunity to reduce fixed costs for word processing and other document-intensive tasks.
There is certainly no one-size-fits-all solution; while we know some of these concepts are not new, we believe the convergence of new value propositions, combined with the need for firms to address these critical areas, will lead to another shift in the industry. In fact, these changes are prompting a total redefinition. Those not properly focused on the legal market space will be hard pressed to maintain services and solutions commensurate with what the industry will come to expect and require.
REDEFINING AN INDUSTRY
What makes the above changes more of a redefinition than those discussed in the 2007 article? The conversation then was about specific new service areas that the legal community would define as a minimum requirement for consideration. Just as mail, copy, fax and hospitality had defined the minimum requirements prior to that time, the new expectation was that the most basic offering would include litigation services, automated document routing, impression management and other new services.
The changes today go far beyond the simple addition of new services. They go much deeper than the simple question, "What services do we get for our facilities management investment?" They now go into the overall goals and objectives of firms and instead, ask the following:
- What services should (and should not) be performed internally at the firm and to what degree?
- How should certain services, solutions or technology best be obtained?
- What model(s) will allow the firm to best reduce its fixed costs and charge services appropriately back to clients?
- How does the firm stay competitive in the litigation support and electronically stored information arena while minimizing significant fixed cost investments?
- How does the firm best support the attorneys, maximize secretarial ratios and minimize fixed costs associated with this area?
These strategic questions move the discussion beyond a simple change in the services being offered or provided. Instead, they redefine the industry itself. This redefinition in the facilities management marketplace may ultimately make the term "facilities management" itself obsolete. What should the new terminology be for the expanded and more impactful value proposition being offered today? Managed services? Management services? Attorney and firm support services? All of these may more accurately describe what is being offered, but regardless of the naming convention or the way the new value proposition and service paradigm will be described, every law firm must decide on its own which of the elements already out there may best help achieve its unique goals and objectives.
A QUANTUM LEAP
In 2007 I wrote, "This rapidly changing business landscape is not about incremental improvements or changes. Instead, the legal community increasingly expects to see a quantum leap in the added value received for [facilities management] annual spend." The article went on to say, "This is not to insinuate that traditional services are not still included in [a facilities management] service provider's offerings. They are still included, but clients expect perfection in these service areas because they are now considered the basics." I believe most would agree that "the basics" expanded in the way the article described. On-site litigation services, automated document routing, impression management and other new services are now far more the norm than the exception.
Even so, that quantum leap does not begin to compare to the adaptations that have come and are coming in the industry today. The current evolution requires both law firms and service providers to challenge their long-accepted ways of doing business. It demands a level of creativity and leadership far greater than simply expanding the traditional facilities management services provided or obtained. To be clear, however, there will certainly be firms that continue to obtain services under a more traditional model, and there will be service providers that continue to succeed by providing these more basic solutions, even in the redefined landscape. That is the nature of evolution/revolution/redefinition. Some will fully embrace, some will partially embrace, and some will not embrace change at all. Some will embrace early, some will embrace later, and some may never embrace change. Regardless, the opportunities today are far greater than they have ever been in an industry that continues to evolve and impact the way that law firms do business. It is truly an interesting and exciting time.
About the Author
Doug Gerstner is the Executive Vice President of Management Services and an Equity Partner at DTI. He has worked in the facilities
management services field and served the legal community for nearly 20 years. Contact him at email@example.com.