There has been a fundamental shift in the legal landscape and it is not over yet.
The ‘credit crunch’ acted as a catalyst – driving and unblocking much needed change in the profession.
The need to transform law firm performance – to maintain and grow profits, retain valued clients and attract new ones – has not diminished as the economic outlook has brightened.
The true challenges of transformation are still to come and in order to not only survive but truly become distinguishable from the competition, lawyers and firms need to embrace and undergo significant change across their people, processes and technology.
To explore the dynamic between these critical components, LexisNexis held a panel discussion in the heart of the City of London. The event was chaired by LexisNexis Market Development Director, Mark Smith and centred on three areas:
Process Improvement: Clive Davies
Clive Davies, senior counsel at Fujitsu, examined the importance of process to make the right-shoring or outsourcing of legal work effective.
Technology: Barry Gross
Barry Gross, partner at Property giant Berwin Leighton Paisner, looked at the utilization of technology to improve core components of legal practice.
People: Tony Hodgson
Tony Hodgson from PwC described the barriers to change that law firms face at an organisational level.
“Companies rarely die from moving too fast [but] they frequently die from moving too slowly.”
– Reed Hastings, CEO Netflix
All the panelists shared the same sense of the key market driver: we are now firmly in the age of the client. Clients’ needs and expectations are now shaping law firms’ business models.
They no longer want to pay for the traditional and outdated model and expect legal work and solutions to fit their needs rather than the reverse. Clients expect to know the costs and projected costs of their transaction or litigation upfront and are increasingly intolerant of poor cost management.
“Lawyers are so poor on pricing. There is a market price for most of the work we do – and it’s not based on an hourly rate. It’s [about] placing value on the benefit to the client and then working out how to do that work for a profit.”
– Barry Gross, BLP
What’s more, traditional legal set ups foster a risk averse, near-term focused atmosphere. Rewarding staff primarily based on chargeable hours is seen as outdated and often driving the wrong behaviours, as is the traditional staff career structure.
The highest performing firms are now employing legal project managers, commoditizing low value repetitive work and using technology to reduce costs and improve efficiency across all areas of the firm.
Lawyers need to move up the value chain and more effectively match skills to client value.
The work which is low value and repetitive, and which was once the preserve of junior lawyers and paralegals, needs a more manufacturing mindset applied to it. Considering what adds most value to the client’s business and allowing the lawyers to concentrate on the high value work, whilst assessing what could be done differently with the lower complexity work, is a valuable exercise.
Clive Davies, Senior Counsel at Fujitsu, used an example of the use of NDAs in sales transactions to illustrate the value of this approach. Fujitsu outsources all initial stages of non-disclosure agreements to their legal function colleagues in India.
Every sales transaction requires an NDA yet his research showed litigation of NDAs was very rare. Even non-standard NDAs which do require lawyer input are first directed to their legal team in India, who can assess and refer to a more experienced UK lawyer where appropriate, but this process deals effectively with much of this work.
It has taken about a year to fully train the lawyers in the Indian centre, who all follow a strict process delivered by a playbook, but it has dramatically reduced costs and improved the client experience.
Measuring how effective the transformation has been can be hard to quantify and an ongoing challenge. Upfront planning that identifies desired and measurable benefits will assist with this.
It can include KPIs which can be put in place to measure progress (including increased turnaround time) and also has the benefit of enabling fee earners to spend time on higher value work.
“Put the transformation focus clearly on the benefit that the client will receive”
– Tony Hodgson, PwC
The process improvements and the matching of resource to task naturally lead to where technology can be applied to further speed up and increase the quality of those processes. The discussion therefore turned to technology and its role in transforming efficiency.
Firms such as BLP are using technology to improve a variety of processes across their business.
Barry Gross talked about various examples including an overarching case management system, a process mapping tool to identify ways in which they can streamline work and a near-shored legal service team in Manchester which utilizes cheaper resources to deliver the same work in a different way.
The technology also allows such work to be effectively and accurately costed. This has significant benefits for enhancing BLP’s pricing competitiveness in the market, increasing value for their clients and growing and maintaining the firm’s profit.
The technology doesn’t simply enable the process to work more smoothly. BLP use technology to assist with risk management. They use tools such as LexisDraft, which dramatically speeds up the basic proofreading task, to ensure a higher level of consistency and quality between the legal services team in Manchester and the client-focused lawyers in London, which significantly reduces risk.
“Changing technology necessitates changing working practice”
Barry Gross, BLP
Other identified needs for technology included common platforms to allow e-signatures for signing and witnessing contracts, deeds and documents. Both lawyers and clients have better things to do with their time than wait for a penned signature. There is an obvious cost benefit as well as reduced risk by ensuring every party has the same final copy of the document.
Turning to technology selection, Gross emphasized the need for technology to be driven by business needs rather than the technology itself. This highlights the changing the role of the IT department; IT needs to engage and encourage fee earners to find answers to business solutions. Lawyers need to be more tech-savvy generally; legal skills alone are not enough anymore.
Most pieces of software are sold to IT departments but most software is not used by IT depts. A change in technology cannot exist in isolation; a change in working practice is also needed, which links into the earlier ideas about redesigning and optimizing legal process. It is much easier to implement new technologies when leaders change how they operate first.
Finally, Gross, also provided a strategic overview of the implications for firms: technology can indeed assist with the low value commoditized work and let lawyers do more of the work that adds value and on which a profit can be made. This changes the traditional pyramid model but it is not going to herald the overnight demise of traditional law firms.
What it does mean is that it is likely that there will be fewer junior legal jobs in the near future as a result and the industry must still address the challenge of how to train and recruit lawyers to fill the senior positions when they are not able to learn and cut their teeth in the traditional trainee/junior assistant role that exists presently.
All of this naturally drew the discussion towards the final piece of the puzzle – the people and organizational structures and culture that law firms operate in.
The very nature of partnership structure makes change hard.
Tony Hodgson, from PwC, described the dilemma: the very nature of partnership structure makes change hard. What’s more, lawyers are often risk averse and traditionally do not like change. Involving and having input from staff to improve the firm is crucial and yet, until achieving billable target hours is not the only way to success and promotion, staff will find it hard to buy into the conversation.
Next, transformation needs investment and as a result lowers earnings for partners or increases debt. This means the need to change has to be compelling in order to drive it forward. That is the current dilemma: there is not enough of a burning bridge for law firms to really accelerate their transformation plans.
Finally, and linked to the above, the reward model inhibits change – despite challenges the legal sector has faced, Partners have remained generally well remunerated and aren’t really motivated to see significant change.
The historic system of people being heavily rewarded for solo and silo’ed behaviours of legal excellence leaves little time to build management and people skills or strategic focus.
“The impact of change on firms who do nothing will be telling”
– Tony Hodgson, PwC
Recognizing the above, Hodgson proposed some criteria for leading change that firms could use to ensure success:
Put your best people on transformation programmes to signal its importance.
Put strong governance on the programme led from the top, but with the team empowered to make changes.
Focus clearly on the benefit to the client.
Build a compelling case for change: review the wider market and the current and future competitive threats.
Look to other professional services organisations.
Partners who are the biggest rainmakers will need to be onside early; the respect that people have for them will communicate how the firm sees the changes.
Of course, change is not necessarily about revolution, it can be evolution.
Transformational change doesn’t guarantee to deliver the best outcome at the end and needs constant evaluation, including assessing the market and the industry as well as evolving business needs. However, the speakers made it clear that real benefits can be delivered by addressing process, technology and people issues inherent in the traditional law firm model.
Much of the change that the profession is currently facing has been successfully navigated by businesses in other industries. Aligning people, process and technology into a new operational model that better fits the needs of today’s clients is at the heart of this challenge.
While many firms are making great progress, the lessons from other industries are stark – many of the firms that don’t change, or don’t change fast enough, will find it increasingly difficult to thrive in the new world.