Part III: The Effect of Franchise Law Firms on the Cost of Performing Legal Services
A. Innovation
The second influence on the price of legal services is the cost of providing the service to individuals. Lawyers must incur many expenses when providing legal services, including the cost of legal research, salaries, advertising, and many other costs associated with running a business. Lawyers also must recoup the significant costs in legal training through paying clients. Several academics argue alternative business structures will lower the cost of providing legal services through efficiency and innovation, which will lead to lower prices for individuals. The relationship between franchise arrangements and innovation will be considered first, followed by efficiency.
To decide whether franchise arrangements will lead to innovation in providing legal services, it is useful to apply disruptive innovation theory to the franchise law firm. Clayton Christensen began
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Partners often demand high returns for capital, because of their large exposure to their firm failing. This lack of capital staying within the firm makes it difficult to undergo investment in new processes, systems, and technologies. Franchisors can help solve both of the above-mentioned problems associated with traditional law firms. Franchisors, receiving a share of the franchisee’s profits, can hold onto retained earnings without the danger of losing partners. They can use these funds to develop new systems and procedures for practicing law. This is a benefit of franchise arrangements where the franchisor receives a percentage of sales. The franchisee, who receives a large portion of the profits, continues to have an incentive to operate as efficiently as possible. The franchisor, also receiving a share, has an incentive to develop efficiencies in all aspects that they