Forces that may slow or reverse the lock-in that converged firms presumably enjoy

Once a law department has chosen a firm to handle work in a certain area, and dropped other firms that had been covering that work, the department’s lawyers and clients attach more to the chosen firm. That firm will get to know more internal clients, will (presumably) arrange for its better lawyers to serve that important corporate client, will invest in systems, processes, and know-how, and will develop familiarity with the company and its legal issues.

One might think, therefore, that over time, as more and more law departments reduce their firms used to a smaller number, that those favored survivors will develop greater stickiness – it will be very hard to replace or supplant them (See my post of Jan. 27, 2006 on the endowment effect.).

That expectation of glued-together relationships may prove wrong. A law department will have much better data available about the matters in the areas of law and their costs, courtesy of the firm. With that data, the department will be able to price and value the services more assuredly than when the data were scattered among many firms.

Basic legal services being competently supplied, law department will start to think more about software, knowledge management, preventive law, training, and other operational efficiencies; expectations of a different sort will rise. More generally, the honeymoon will not last forever, and bickering and irritations will arise so other legal grass will glow greener. With the work all in one bundle, the department will find it easier to describe and move the bundle if it should choose to.

The plum will be tastier, so the firms that compete with the converged firm will try harder for a bite or the entire fruit. Also the law department will have gone through a competitive bid process and understands how to do it.

For all these reasons, the centrifugal forces of convergence may turn centripetal.

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