Why Haven’t Client Facing Systems Blossomed?

Large law firms face intense competition and price pressure. Such forces drive innovation – often based on technology – in other market. Yet in legal, we see few notable instances of law firms deploying client-facing technology that achieves real differentiation or results in winning new client work. This article examines theories that might explain why.

This article was published by and first appeared in the premier issue (March 2013) of Legal It Today, available for download and subscription here.

Why haven’t client facing systems blossomed?

By Ron Friedmann

Large law firms are facing intense competition and downward price pressure. In other markets, these forces drive innovation, often involving technology. Yet we see few notable instances of law firms deploying client-facing technology that achieves real differentiation or results in winning new client work. Here, leading consultant Ron Friedmann suggests explanations, and develops future scenarios where legal tech plays a bigger role. We will also be seeking your help to confirm or reject these so please look out for and participate in a discussion and survey that will be published very soon in the Legal IT Network on LinkedIn.

A bleak picture of strategic technology

Two recent surveys found that few firms use technology to achieve substantial client impact. In May 2012, I surveyed large firms to update a list of client-facing systems that I compiled six years ago. The list excludes extranets, deal rooms, and training systems because all are sufficiently widespread that they cannot be considered competitive differentiators.

I relied on past research, web searches, and most importantly, personal sources to update my Online Legal Services list. I was surprised by how few new online services I found. Assessing the impact of these online services on firms or clients is difficult but anecdotally, my sense is that few have significant impact. (For a more detailed analysis, see my blog post on ‘The Current State and Future of Big Law Online Legal Services’.)

In November 2012, the FT issued its US Innovative Lawyers 2012 report, based on survey research and interviews. Commenting on it in my blog post ‘Two Ways Law Firms Can Compete – FT Innovative Lawyers Awards’, I noted that large law firms can compete for business in two ways: (1) innovation in law practice and (2) innovation in service delivery and client value. For US firms, the report shows little of the latter. Only a few award listings relate to technology to serve clients and the FT discussion barely mentions technology.

The dearth of legal tech innovation

Many hypotheses could explain why we see so little apparent legal tech innovation. I offer a range of reasons to consider, in the order I consider most to least likely

Firms lack interest: the Innovator’s Dilemma. Large law firms have fallen into theInnovator’s Dilemma trap, made famous by Clayton Christensen, who was recently interviewed by the BBC. As he explains, successful businesses at the top of their game tend to keep moving their products and services upstream, that is, to more profitable but narrower market niches. Doing so requires only incremental change, which is easy and seems obvious. This approach, however, cedes a big swath of the market to new competitors. For example, minicomputers displaced mainframes and, subsequently, PCs displaced minicomputers. Christensen tells us that this process occurs across markets, that successful companies typically adopt a ‘go up the value chain’ strategy. It can work in the short term, but leads to an eventual demise. In the legal market, many large firms are trying to move ‘up market’ to high stakes work. At that high end of the market, firms consider client-facing technology irrelevant.

The CIO has no time. In theory, CIOs can and should lead their firms in developing or deploying technology to improve the client experience. In practice, however, circumstances force even visionary CIOs to focus on maintaining and updating core infrastructure. My blog post ‘What’s Keeping BigLaw CIOs Busy?’ reports on the April 2012 Hildebrandt Large Law Firm CIO Forum, which I co-chaired: “CIOs spend most of their time on core infrastructure projects, with particular focus on security, document management / search / information governance, Windows 7 and Office 2010 migration, mobility, and virtualization. Many CIOs want to help firms grow the top line but have little bandwidth to do so.”

Individual partner and institutional firm interests diverge. Smart firms want to institutionalise client relationships. Technology to improve the client experience helps achieve that by making relationships ‘sticky’. So although firms may like the idea of client-facing technology, individual partners, typically want to keep their book of business portable. Consciously or not, many partners see risk in initiatives that tie clients more to the firm and less to the partner. So supporting client-facing technology is not just a cost and distraction from billable work; it can threaten portability. This thinking makes it very hard for management to gain partner support for tech beyond infrastructure.

Lawyers are too risk averse. Lawyers and firms avoid risk and uncertain outcomes. Initiatives that do not work are considered ‘failures’. Firms do not handle failure well; they do not see failure as a learning opportunity. Innovation, however, requires experiments; failures inform and drive it. Technology development especially is notoriously risky and subject to ‘failure’. In sum, there is neither the institutional structure nor the individual interest to experiment or risk failure. (How many CIOs want to be blamed for a failed initiative?)

Firms lack investment capital. Technology innovation can be expensive – firms must muster sufficient investment. Law partnerships amass very little capital, and this limits their ability to invest. Firms pay out all profits every year. So investment rests on bank borrowing or relatively small partner capital contributions. Since the fall of Dewey, firms have become reluctant to borrow from banks. Partner perceptions amplify this financial constraint: lawyers expect payback in weeks or months, not years. Serious systems and software requires more investment than fits with this either this thinking or financing method.

Firm management has no time. Firms face a difficult business environment. Management must cope with addressing crises, hiring lateral partners, sizing incoming classes, staunching discounting losses, reducing overhead, and managing mergers. They simply have no time to consider how technology might benefit the business.

Law and legal advice are too complex. Law is too complex. It can be neither captured nor delivered via technology. Similarly, law firm service is so personal that no aspect of it can be automated.

Clients lack interest. Clients like the status quo, which meets all of their requirements. Therefore, more technology cannot add value. Even if there is some room to improve, clients so value the safety of brands and comfort of existing relationships that little else really matters. Law firms understand this and thus rationally decline to invest more in tech.

Potential future scenarios

Potential future scenarios might encourage the deployment of high-impact, client-facing technology. Infrastructure will continue evolving if not transforming, but that is a topic for another article. Again, these scenarios are in the order I consider most to least likely to occur.

Alternatives to BigLaw gain share, in part with technology. The last decade has seen the rise of several alternatives to large law firms for some or all of what BigLaw does. These include new model law firms such as Clearspire Law in the US or Riverview Law in the UK, staffing and managed services companies such as Axiom, legal process outsourcing (LPO) providers such as Pangea3, and managed document review companies such as DiscoverReady.

The types and numbers of alternative players likely will grow. For example, Christiansen might predict that today’s consumer-oriented legal websites such as Legal Zoom or Rocket Lawyer will move upstream to corporate law. Or the deregulation of the legal market to allow alternative business structures (ABS) in the UK may unleash completely new approaches, including heavy investment in technology. Though the US legal market remains regulated, it is hard to imagine that widespread ABS success in the UK would not eventually affect the US market.

For both established and new alternatives, technology plays a more important role in delivering legal and client service than it does in BigLaw. If corporate clients are not satisfied with BigLaw, if they seek better value and service with technology, then they will increase the share of their work they give to alternatives that invest in technology. If so, we could see acceleration from a virtuous circle: As alternatives grow, they generate cash to invest and simultaneously learn what new things work. They can then apply their experience and cash to increase market share and move upmarket.

Some large law Firms Innovate and Market Shares Shift. A few large law firms have developed useful and innovative technology or processes that change client experience, improve law firm operations, or streamline the delivery of legal advice. Examples include King & Wood Mallesons PeopleFind, King & Wood Mallesons TalentNet, Littler’s CaseSmart, Seyfarth Lean, Seyfarth’s Legal Project Management, Baker Donelsen’s BakerManage, and Bryan Cave’s Technology services. Innovative as these are, we cannot easily assess their impact on market share or law firm profitability.

Over time, however, we could see clients shift work to firms that use technology to offer better value. That might force other firms to compete by using technology to improve service delivery in addition to innovating in substantive legal thinking. If tech innovation turns out to matter, it will be interesting to see how firms without a heritage of technology innovation react. Filling that gap is not as easy as plugging a practice gap with lateral hires.

No change. Never discount the impact of inertia. If clients, in spite of their oft-voiced clamor for value, do not fundamentally change their buying behavior, then the status quo could continue. This is not to say that BigLaw would return to its heady pre-2008 days. Rather, economic pressures will force continuing change. The impact on technology, however, could be neutral. Or it could even be negative as firms continue to cut costs.

Clients act on their own. Clients may get fed up with outside counsel. They could give up the hope that BigLaw will offer better value. In reaction, they might form consortiums to develop and deploy technology on their own. This raises many intriguing ideas – and challenges – and we cannot rule it out.

Conclusion and survey

It would be great if readers responded with irate comments saying that I am wrong about the status quo, and that in fact there are many instances of client-facing systems that have had major impact. Absent that, we all need to consider why we do not see more. One or more of my theories may be right, or you may have your own. And our theories of what constrains the market today should inform our view of possible future scenarios.

Ron Friedmann, a consultant with Fireman & Company, has spent over two decades improving law practice and business with technology, outsourcing, and knowledge management. Ron managed tech at two large law firms and worked for two legal software companies. He has a JD from NYU Law, is a trustee of the College of Law Practice Management, blogs at Strategic Legal Technology, and Tweets @ronfriedmann