Evolutionary Workplace The Legal Industry September 2015
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Adapt or perish, now as ever, is nature’s inexorable imperative. - H.G. Wells THE EVOLVING WORKPLACE – LEGAL | Issued September 2015 | 3
The Changing Business Environment EXECUTIVE SUMMARY We are living in exponential times. The ways in which people work, communicate, learn, and live is changing – rapidly. Evolving business models and the accelerated pace of technological innovation requires organizations to continuously adapt and reform. In order to thrive in the 21st century, operational goals and human factors within businesses must align with their real estate strategies. The Great Recession ushered in a new era of business. Substantial consolidation and convergence has resulted in increased competition from large, well-capitalized firms. Technology continues to advance, introducing new processes, allowing companies to leverage talent and efficiencies in order to remain competitive. Both large institutions and small firms alike are looking to lower operating costs in order to absorb greater risk, while maintaining financial viability to remain competitive. As traditional business models are replaced, so too are firms’ approaches to real estate and space utilization. Today’s increasingly competitive legal practices are looking to answer questions about unprecedented changes, with regard to re-regulation, structure, and re-organization. The most successful institutions create facilities by implementing workplace strategies flexible enough to support the evolving requirements of today, while being poised to suit the needs of tomorrow.
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Drivers of Change Workplace Attributes Affecting Design WHAT IS DRIVING CHANGE?
ECONOMICS OF REAL ESTATE
There are six overarching drivers that affect businesses, and ultimately the design of workplaces. These themes are always prevalent for every company, though the weight of each varies by client.
Historically, law firms have exceeded other organizations in terms of real estate utilization, occupying upwards of three times more space1. In New York City, this translates to 11.2% of all Class A real estate property 2. As a result of the 2008 economic downturn, law firms have looked to lower real estate as an overhead cost prohibitive; it previously ranged between 10–15%, and is now down to 7–10%, a progressive annual reduction of 1–2% per year.
CULTURE
ENGAGEMENT
The Drivers of Change include: Demographics
MOBILITY/ CONNECTIVITY
CLIENT
PROFESSIONAL DEVELOPMENT
Business Innovation
Productivity
Economic Imperatives
Technology & Its Place Within the Workplace
INFRASTRUCTURE
INVESTMENTS & ROI
Globalization These drivers, each separate facets of business, overlap to bring another subset of attributes for clients to consider. Aspects such as culture, engagement, professional development, investments and return on investment (ROI), infrastructure, mobility and connectivity, all play a role within the office.
Though the Drivers of Change are the same across all industries, how they manifest within the legal industry specifically, is very different. The following pages further articulate how changes are driving workplace design within the legal industry.
In 2013, gross revenue costs towards real estate for law firms nationally reached an average low of 6.2%3. This reduction, however, did not correlate with workspace reduction. Firms with recent lease terms are looking to reduce workspaces between 15–30%4. The legal industry has not been accustomed to such reductions, in part due to longstanding office cultures.
SNAPSHOT
PAST
PRESENT
FUTURE
LAW FIRMS USE
THIS EQUATES TO
A SPACE REDUCTION OF
OF ALL CLASS A REAL ESTATE IN NEW YORK CITY
IS EXPECTED FOR FIRMS WITH NEW LEASE TERMS
2–3x 11.2% 15–30% MORE SPACE THAN OTHER ORGANIZATIONS
The biggest variable among the Drivers of Change are clients themselves. Every organization has a different set of values and must prioritize these drivers in ways unique to their needs. As a result, an organization’s operations as well as the design of their space will be greatly affected.
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THE EVOLVING LEGAL PRACTICE Globalization: Moving Business Out of Office
Contracts for near-shoring, off-shoring and consultancy-based services are steadily being utilized to reduce in-house legal processes. Law firms and corporate legal departments are seeking third-party alternative models such as Legal Process Outsourcing (LPO) to distribute subset skills that range from paralegal, clerical, document review and filing, and coding processes, as it is considerably cheaper5. The wage differential between in-house legal personnel talent and LPO outsourcing overseas, can range between 30%– 70% less than within the U.S. market6. The advantage to onboarding near-shore or offshore services increases in-house labor retention especially within smaller boutique firms that specialize in niche markets. Freeing internal bandwidth can in-turn allow firms to specialize quicker.
Systems-Based Approach
In years prior to the Great Recession, it was common for legal business entities to charge hourly fees, based on client profile and case complexity7. Such pricing structures have begun to change; firms are starting to charge clients for individual components in order to offer competitive pricing, leveraging time efficiencies and employee productivity. Professor Richard Susskind predicts the future of legal service will be highly systems-based, with automated documentation readily available for legal businesses to access8. Susskind remarks, “The end result is a tailored solution, delivered by an advanced system rather than by a human craftsman. That is the future of legal service.” Legal knowledge management is thus becoming a key strategic competitive advantage firms must consider. Workspaces need to support such activities and support the exchange of ideas and expertise.
As a result, layouts of firms have begun to shift as there is a reduced need for services being replaced by LPO. In order to communicate effectively, law firms are now integrating better video conferencing technologies into offices, and are using online collaborative tools as their offerings evolve.
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MULTI - GENERATIONAL WORKFORCE As of early 2015, Millennials* became the largest share of the American workforce, according to new Pew Research Center analysis of U.S. Census Bureau data, at 34%9. In subsequent years, Millennials will become a more dominant part of the workforce, replacing Generation X. Organizations are generally readapting workspaces to suit the needs of changing demographics due to different ways of working, values, and expectations. The legal industry has not had the need to adapt such changes partly because the proportion of young lawyers (under age 35) has been on the decline. Statistical data indicates the demand for new attorneys has been declining rapidly, from 36% in 1980 to 13% in 200510.
* Generations Defined Traditionals
Born: 1928 to 1945 | Age in 2015: 70 to 87
Baby Boomers
Born: 1946 to 1964 | Age in 2015: 51 to 69
Generation X
Born: 1965 to 1980 | Age in 2015: 35 to 50
Millennials
Born: 1981 to 1997 | Age in 2015: 18 to 34
Generation Z
Born: 1998 to 2012 | Age in 2015: 03 to 17
RISE OF TECHNOLOGY This trend continues to persist, and is likely a contributing factor that detracts candidates from applying to law schools. Due to the rising age difference in the workforce, this prompts the need for adaptive spaces and mentorship. According to a recent Bloomberg Business article, the number of people applying to law school for the Fall 2015 semester is projected to hit its lowest level in 15 years11. Available entry-level jobs have been hard to come by, often forcing young lawyers to consider career paths outside traditional law firms, or part-time opportunities.
2015 law school applications are set to hit their lowest levels in 15 years.
Cloud Computing
Despite some important reservations by lawyers, cloud computing has become popular to access information without the need for substantial initial capital investment12. While adoption of cloud computing remains around 60%, implementation and usage has increased two-thirds since 2013, and now includes document management13. In addition to time efficiencies, moving document management to the cloud also decreases the need for additional space to house document storage and archiving.
Flexible Training On-Demand
Training is a major component of in-house operations, as well as overhead labor cost – items law firms can no longer justify as part of legal fees. Firms have started using proprietary online video training, while reducing costs associated with employing training professionals in-house. This in turn, promotes flexibility and autonomy, as legal staff can view training videos as-needed13.
Mobility
A noticeable upswing of mobility tools such as tablet devices paired with cloud computing empowers legal staff to conduct business remotely. A 2014 annual tech survey reports a 70% increase of law firms adopting this workstyle13. No longer tied to a specific office, senior-level staff can work remotely or off-site as desired.
Security Impacts
By providing lighter, more agile means to conduct business, clients pose major concern in response to this shift, especially with regard to security and privacy. To address client security requirements, larger law firms are onboarding IT security experts and some even designate a Director of Security role. Such job titles were introduced less than five years ago, and are now seen as a crucial roles at leading law practices13.
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DEVELOPING A COMPETITIVE EDGE: ALTERNATIVE BUSINESS STRUCTURES Alternative business structures are impacting revenue streams as firms are often providing customer-enabled “Q&A” legal advice instead of more expensive conventional face-to-face counsel. Additionally, law firms are being called on to present hybrid solutions that incorporate various facets of expertise, such as law, technology, and servicedelivery mechanisms14. Such factors are stirring law firms – especially boutique practices – to break away from the ‘Big Law’ approach15. As client expectations evolve, offerings have not only begun to vary as per client needs, they also shape how lawyers and legal staff collaborate. Readily available data once deemed as ‘crown jewels’ of firms can now be broadly accessed8, reducing the spatial need for in-house libraries. In 2012, ABA reported 56% of legal professionals use free online sources for research, and anticipate further increases over time16.
SUMMARY
Breaking away from traditional bespoke services, legal firms are beginning to adopt alternate business structures to reduce fees and increase efficiency.
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Looking Across Industries How does the Legal Industry Compare? While many organizations are shifting towards more progressive ways of working, not all sectors are moving at the same pace. Early adopters of alternative workplace strategies tend to be from sectors such as creative, media and digital, while those slower to change, include the finance, publishing, and legal industries.
To date, the legal industry maintains the highest square footage ratio per person. Considering the opposite end of the spectrum, the T.A.M.I. (Tech, Advertisement, Media, & Information) sector is able to meet programmatic requirements using significantly less space. The trend for law firms to continue to occupy the highest square footage ratios is likely to decline as they begin to adopt newer workspace design concepts to suit changing industry needs.
EVOLVING WORKPLACE DESIGN ADOPTION
TIPPING POINT
PROFESSIONAL SERVICES ADVERTISING TECH
DIGITAL
INFORMATION CREATIVE
FINANCIAL AT A GLANCE
PUBLISHING
LAW
The graph above charts average square footage per person, based on a decade of projects completed by TPG Architecture across different sectors. As square footages decline across all sectors, legal firms continue to occupy the highest RSF/person.
MEDIA
EARLY
LATE
TIMEFRAME
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Trends in Today’s Law Firms What is being designed for today’s lawyers?
AT A GLANCE The following pages feature the most prominent workplace trends being adopted by the legal industry today. Each of these trends reflect how new workplaces are taking shape, based on external driving forces (refer to pages 6-13).
Additionally, this section covers three legal case studies by TPG Architecture, that demonstrate how these trends are being implemented. Each of these projects had specific desired goals and unique circumstances, resulting in different office layouts.
Over the past decade, the legal workplace has shifted at its own pace towards – less square footage per attorney, more open environments, more agile work settings and a move towards more collaboration within the workplace.
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OPENNESS & TRANSPARENCY
COLLABORATION
Legal workplaces are becoming increasingly open, as firms adopt progressive configurations. While perimeter offices often remain, daylight permeates through glass fronts to inner areas. These changes are giving way to natural light, stronger sightlines, and more human connectivity.
Collaborative spaces for lawyers are unique and require appropriate consideration. Current law firms demonstrate ratios as high as 1.3 collaborative seats per attorney. This means for every attorney, there is at least one additional seat available for use within the office. This can include seats in conference rooms, huddle rooms and booths, informal collaboration areas, team rooms, etc.
MAXIMIZING UTILIZATION
TECHNOLOGY INTEGRATION
As legal practices continue to reduce the amount of real estate they occupy, firms seek to make the most of their spaces. Layouts are more efficient, streamlined and flexible, utilizing concepts like universal offices, multi-purpose spaces, and turning the focus towards more communal areas.
Collaborative projects between global teams, law firms, clients, and even alternate industries, are becoming common, encouraging teams to use joint management tools and web-based technologies. New legal delivery models are emerging, prompting greater knowledge management and business development skills. Technology is replacing the need for law firms to archive physical copies of information and house libraries, reducing the need for such spaces.
LONG & SHORT-TERM FLEXIBILITY On a macro-level, spatial flexibility can ebb and flow with staff growth or contraction. Proper planning will ensure such spaces can accommodate headcount on ‘Day One’ (move in day), after a few years, and through the end of a lease. Flexibility on a micro-level allows an organization’s workplace and/or furniture to be reconfigured to meet changing business needs. This can result in multi-purpose spaces, or designing spaces that allow occupants to convert a room or multiple rooms for alternate uses.
MENTORSHIP Given the growing age gap between equity partners and younger attorneys, mentorship is becoming an important part of the legal workplace, and commands specific workplace design elements. Developing spaces for peer-to-peer engagement such as enclosed meeting rooms, semi-private huddle booths, and informal settings, can serve as conducive spaces for dialog.
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AMENITIES
SPECTRUM OF CHOICE
Potential employees often consider whether or not to join a firm based on initial impressions of the workplace and organizational culture. In order to stay competitive, companies are now incorporating a variety of exciting amenities within the workplace, including areas for socialization and respite – like cafes, lounges, etc.
There is no right/wrong answer in approaching workplace design. Rather, a spectrum of options exist that merit attention.
A legal practice can fall anywhere along this spectrum and can implement a number of these different options, often resulting in hybrid workplaces.
ASSOC. IN OPEN PLAN NON-DEDICATED OFFICES
ALTERNATIVE WORKPLACE STRATEGIES There are now more ways than ever to work. Spaces that promote mobility, free address, and even virtual working have given employees the opportunity to work from anywhere, at any time. Though some of these alternative workplace strategies may seem far-fetched to law firms, the idea of mobility and virtual working is starting to become common-place among progressive legal practices.
PARTNER/ASSOC. OFFICES UNIVERSAL SIZE OFFICE SUPPORT FUNCTIONS OFFSITE FLEXIBLE SPACES & FURNITURE
CLOSED
CAREER ASSOCIATES
OPEN
DIMINISHED LIBRARIES LOWER ATTORNEY TO NON-ATTORNEY RATIO
DOUBLED ASSOCIATE OFFICES GLASS FRONTS/TRANSPARENCY INTERIOR ATTORNEY OFFICES
SUSTAINABILITY Utilizing sustainable materials and methods is becoming important across all industries. Many law practices have taken it upon themselves to ensure their workplaces are designed with employee well-being in mind, while having less impact on the environment. Some firms have even begun to pursue LEED Certification.
TRADITIONAL Private Perimeter Offices High Attorney to Non-Attorney Ratio Formal/Fixed Conference Rooms Multiple Standards by Hierarchy
FORWARD-LOOKING 100% Open Telecommuting Collaborative Teams Free Address Third-Party Locations
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STAY IN-PLACE TRANSFORMATION CHALLENGE
Revamp a multi-floor law firm, while shedding an entire floor within a building not conventionally suited for law firms, without disrupting operations.
OPPORTUNITY
Take a less than ideal floor plate for a law firm and create a space that reflects the law firm of the future.
IMPACT
Progressive workspaces house various features including large partner offices and boardrooms, to shared associate offices and compact service areas – all while maintaining a low overall RSF/Attorney count.
BEFORE
SHARED ASSOCIATE OFFICES
INTERIOR ATTORNEY OFFICES
MULTIPLE CONFERENCING AREAS
GLASS FRONTS THROUGHOUT
BREAKOUT AREA / CAFE
AFTER 24 23 22
22
21
21
20
20
19
19
TOP FIVE STRATEGIES IN ACTION LONG & SHORT-TERM FLEXIBILITY MAXIMIZING UTILIZATION COLLABORATION
203,000
341
595
1.2 : 1
OPENNESS & TRANSPARENCY
Total Rentable Square Feet (RSF)
Attorney Headcount
Total RSF / Attorney
Conference Seats to Attorney
MENTORSHIP
Through progressive planning, the client was able to shed an entire floor, while making the new space more flexible for future growth. THE EVOLVING WORKPLACE – LEGAL | Issued September 2015 | 23
FUTURE-FORWARD LEGAL WORKPLACE CHALLENGE
Design a flagship U.S. headquarters for an international legal practice that embodies core values of innovation, client focus and excellence.
OPPORTUNITY
Accommodate future configurations by designing for flexibility, and adopt shared offices to spark ideas and dialog.
IMPACT
A sustainable and state-of-the-art space with the latest technologies that fosters innovation and collaboration across time zones.
GLASS FRONTS ON ALL PERIMETER OFFICES
CONFERENCE CENTER WITH GLASS FRONTS
LIBRARY
SHARED OFFICES
TOP FIVE STRATEGIES IN ACTION LONG & SHORT-TERM FLEXIBILITY MAXIMIZING UTILIZATION TECHNOLOGY INTEGRATION
30,417
53
574
0.8 : 1
SUSTAINABILITY
Total Rentable Square Feet (RSF)
Attorney Headcount
Total RSF / Attorney
Conference Seats to Attorney
COLLABORATION
As a global niche legal practice, the client was looking to impart a lasting impression for its U.S. headquarters. THE EVOLVING WORKPLACE – LEGAL | Issued September 2015 | 25
ACCIDENTAL UNIVERSAL OFFICE PROJECT CHALLENGE
Leverage dynamic spaces for a forward-thinking law firm to accommodate projected attorney growth within limited square footage.
OPPORTUNITY
Develop a highly-dynamic setting that will encourage progressive attitudes, help attract and retain younger talent, and ultimately influence the firm’s vision and culture.
IMPACT
Implement a modern, streamlined layout introducing universal office sizes, doubled-up associate offices, and more opportunities for collaboration, while eliminating barriers.
UNIVERSAL OFFICE SIZE
GLASS FRONTS THROUGHOUT
TOP FIVE STRATEGIES IN ACTION MAXIMIZING UTILIZATION LONG & SHORT-TERM FLEXIBILITY ALTERNATIVE WORKPLACE STRATEGIES
54,137
98
552
1.3 : 1
OPENNESS & TRANSPARENCY
Total Rentable Square Feet (RSF)
Attorney Headcount
Total RSF / Attorney
Conference Seats to Attorney
COLLABORATION
A VARIETY OF CONFERENCE SPACES
A universal plan was not the original intention. It became a natural progression as a result of conversations with the client. THE EVOLVING WORKPLACE – LEGAL | Issued September 2015 | 27
Key Takeaways A recap of today’s legal industry climate and the future of space
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Citations
Index
1. Legal Sector Survey Points ot Unprecedented Changes in Law Firm Decision Making. (2013, July 10). Retrieved August 21, 2015, from http://www.cushmanwakefield.us/en/news/2013/10/lsag-surveyresults/
9. Fry. R, (2015, May 11). Millennials Surpass Gen Xers as the Largest Generation in U.S. Labor Force. Retrieved August 25, 2015, from http://www.pewresearch.org/fact-tank/2015/05/11/millennialssurpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/
2. Henderson, J. (2015, March 31). Report: Law Firms to Keep Chipping Away at Real Estate Costs. Retrieved April 6, 2015, from http://www.americanlawyer.com/id=1202722219405/ Report-Law-Firms-to-Keep-Chipping-Away-at-Real-EstateCosts?slreturn=20150712162450
10. ABA Lawyer Demographics. Retrieved August 13, 2015, from http://www.americanbar.org/content/dam/aba/administrative/ market_research/lawyer_demographics_2013.authcheckdam.pdf
Figure 1. Drivers of Change. p. 6 Figure 2. Snapshot – Legal Industry Real Estate Utilization. p. 7 Figure 2. Snapshot – Legal Industry Real Estate Utilization. p. 7
3. McQueen, M. (2014, August 25). Real Estate Roundup: Big Firms Move to Smaller Spaces. Retrieved February 12, 2015, from http://www.americanlawyer.com/id=1202668019958/Real-EstateRoundup-Big-Firms-Move-to-Smaller-Spaces 4. Levitas, S., & Cross, A. (Eds.). (2015). Colliers International Law Firm Services Group 2015 North America Outlook Report. Retrieved August 12, 2015, from http://www.colliers.com/-/media/Files/ MarketResearch/UnitedStates/2015-Market-Reports/Law-FirmServices-Group-Outlook-Report-2015
Figure 4. Alternative Business Structures. p. 13 11. Kitroeff, N. (2015, March 19). Law School Applicaitons Set to Hit 15-Year Low. Retrieved August 20, 2015, from http://www.bloomberg. com/news/articles/2015-03-19/law-school-applications-will-hit-theirlowest-point-in-15-years
Figure 5. Industry Comparison – Evolving Workplaces. p. 14 Figure 6. Industry Comparison – RSF/Person p. 15
12. Kennedy, D. (2014). Annual Tech Report 2014: Cloud Computing. Retrieved August 15, 2015, from http://www.americanbar.org/ publications/techreport/2014/cloud-computing.html
Figure 7. Legal Workplace – Trends. p. 17
13. Cohen, A. (2014, October 29). Survey: Data Security Is Chiefs’ Top Worry. Retrieved April 6, 2015, from http://www.americanlawyer.com/ id=1202674274535/Survey-Data-Security-Is-Tech-Chiefs-Top-Worry
All figures, diagrams and renderings are proprietary and have been created by TPG Architecture.
5. Teisch, R. (2015, May 5). Trends in Litigation Support Outsourcing | JD Supra. Retrieved August 13, 2015, from http://www.jdsupra.com/ legalnews/trends-in-litigation-support-outsourcing-57054/
14. D’Amico, A., & Johnson, C, (2015, August). A new order for law. Retrieved August 17, 2015, from http://www.mckinsey.com/insights/ operations/a_new_order_for_law
6. Kane, S. Top Advantages of Outsourcing. About Careers. Retrieved August 13, 2015, from http://legalcareers.about.com/od/ careertrends/tp/Outsourcingadvantages.htm
15. Williams, J., et al., (2015, June). Disruptive Innovation: New Models of Legal Practice. Retrieved August 17, 2015, from http://www. uchastings.edu/news/articles/2015/06/Disruptive-Innovation-NewModels-of-Legal-Practice.pdf
7. Gaffney, N. (2015, June 15). A Shift in the Financial Landscape for Law Firms - ABA Law Practice Today. Retrieved August 14, 2015, from http://www.lawpracticetoday.org/article/financial-landscape-lawfirms/
Figure 3. U.S. Generational Trends between 1980-2030. p. 11
Figure 8. Legal Worplace – Key Takeaways p. 28
16. Poje, J. (2012, Dec 01). Online Rain: Survey Says a Virtual Presence May Pay. Retrieved August 25, 2015, from http://www. abajournal.com/magazine/article/online_rain_survey_says_a_virtual_ presence_may_pay/
8. Hallgarn, H., & Björk, A. (2013, August 30). Future of Legal Service and the Development of Legal Knowledge Management. Retrieved September 3, 2014, from https://blog.law.cornell.edu/ voxpop/2013/08/30/future-of-legal-services-and-the-developmentof-legal-knowledge-management/
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