In this century we have seen dramatic changes in the legal market. From a period of plenty, we moved to one of seeming scarcity. Many commentators suggest that the legal market has been, is being, or will be disrupted. I have a different point of view: if the 2007-10 economic crisis did not “disrupt” the legal market, I am not sure what would.
And anyone claiming disruption must look at how lawyers practice. When I do so, I see incremental and, in my view, minor changes. Probably the biggest changes in the last three decades were the advent of PCs and then the Internet – both over 20 years old. These tools, while hugely important, have not fundamentally changed the mechanics of law practice.
So I expect the future will reflect a continuation of trends we can see clearly today. I present here my take on where firms need to head if they want to succeed, starting with what should motivate change.
Law Firms Face Continuing Pressure to Change
Clients increasingly push law firms to deliver better value. They are also taking steps to reduce cost, including bringing more work in-house, using alternative service providers such as managed document review companies and legal process outsourcers (LPO), and shifting work to smaller firms and boutiques from large firms. We also see signs that technology will replace some lawyer work. These trends translate to flat demand and tremendous price pressure. To prosper, firms must adjust how they practice and how they run their businesses.
Legal Project Management (LPM), Pricing, and Profitability
Clients no longer allow law firms to “do whatever it takes” and “leave no stone unturned”. Today, clients make risk-adjusted decisions about how vigorously to purse legal matters. Law firms must tune-in to these client expectations.
For each matter, partners must have clear discussions about its scope before beginning work. They must then set budgets or fixed fees and, once work is underway, monitor performance against budgets. Budgeting and delivering within budgets or fixed fees are necessary new skills – whether matters are priced hourly or under alternative fee arrangements.
These pressures will lead to related changes. Across matters, firm management must consider profitability by matter, practice, client, and partner. To meet this need and support individual matters, firms now deploy software and staff to support pricing, budgeting, profitability analysis, and project management.
We will see continued growth in the number of pricing and legal project management professionals. As more partners understand the new mandate to manage costs and profits, they will use software to help. A new class of pricing and legal project management software is now displacing older systems that only accountants loved.
As lawyers and firms deploy more professionals and better software, they will learn what drives profitability. That will lead to changes in how lawyers work, specifically in staffing and use of technology…
Delivering value while maintaining profits requires some combination of more leverage and deploying lower cost lawyers. Some firms will leverage up. A handful of top end firms can maintain and increase profitability by driving the traditional partner and associate model, building the base of the pyramid bigger.
Yet that model will not work for many firms. Instead, many will need to de-leverage, at least with traditional associates. Instead, they will need to hire staff attorneys – non-partner track lawyers – at lower compensation than associates. To compete more effectively with alternative service providers, some firms place cadres of lower-paid lawyers in low cost service centers (e.g., in Kansas City, Dayton, and Tampa in the US and Belfast or Manchester in the UK).
Lawyers Will Use More Core and Practice Technologies
Technology will also help firms deliver more value by automating routine tasks, even in high-stake matters. I predict this reluctantly because tech uptake has been so slow to date. For example, document assembly is little used today even though it has been available since the 1980s.
But relentless economic pressure likely will force change. Moreover, many new tools do not require the upfront investment that document assembly does. Examples of new, efficiency enhancing practice technologies include predictive coding for eDiscovery, due-diligence enhancers, and deal management packages.
Some observers suggest that machine learning systems such as IBM Watson can replace large numbers of lawyers. Even if that is technically possible – and I have my doubts in a five-year horizon – the cultural and business model changes mean adoption will take much longer. Today, we see due diligence accelerated by machine learning systems but the impact of AI beyond this remains limited.
And lest we lose sight of the basics, we may see the rise of mandatory lawyer training on core office productivity tools. A fixed fee world places a premium on use tools efficiently. Recent audits of associate tech skills have shown very poor skills. Smart firms will fix that.
Firms Will Take Knowledge Management (KM) and Process Improvement Seriously
Both clients and lawyers have long worried about re-inventing the wheel. Knowledge management (KM) offers a variety of ways for lawyers to capture and more effectively re-use prior work product. It also helps them quickly locate their colleagues with relevant expertise. It turns out that experience location generally offers more value than documents. A short conversation with an experience lawyers yields both relevant documents and context for them.
Once a firm is large enough that lawyers cannot walk around a single office and talk to all potentially relevant colleagues, the firm needs a structured approach to KM. Fortunately, firms can choose from a variety of approaches and technology to create a KM program.
Lower cost lawyers, practice technology, and KM can only go so far in reducing cost. Increasingly, firms will need to reduce cost even further by improving practice processes. Firms must identify any repeated aspects of legal work, map these processes, and eliminate waste through process improvement.
Firms Will Continue Reducing Overhead
The pressure for value and focus on profit create continued pressure to control if not reduce overhead. Support staff and rent have long been two of the big costs (after associate pay).
The ratio of lawyers to secretaries has, over the last few years, move from 2:1 to 4:1 and higher. Many firms are also cutting the number of square feet per lawyer as they renew leases. For example, some firms now make all lawyer offices the same size, and smaller than in the past.
In the next five to ten years, we can expect to see a shift from simple cuts to a rationalization of support and space. Firms will centralize as many functions as possible. With centralization, firms can outsource support or move it to lower cost locations, at least for staff who do not need regular, in-person lawyer interaction.
Growing demand for large law firm services from the 1980s until the economic crash of 2009 allowed firms to develop many bad habits. We now operate in an era of permanent austerity. So these habits must be broken. To thrive, law firms will need to reduce costs and work more efficiently.