Technology Powering the Modern Day Law Firms
The legal industry has seen a proliferation of technology designed to both improve law firm financial performance and improve the efficiency and efficacy of legal operations between law firms and their clients. By their nature, law firms have been relatively slow to implement technology for a variety of reasons including risk averse and technology-averse cultures. To survive, law firms will need to embrace technology in a world where they face intensified competition from other law firms, alternative legal service providers and, most importantly, their clients. To understand how technology can help law firms thrive in this challenging environment, let’s consider the client’s perspective.
The general counsel (GC) is the primary person law firm lawyers deal with, but the GC is part of a corporate management team that is also living in a more fiscally demanding world. In the past, corporate legal departments were not held to the same expense management and cost containment standards as other operating departments. However, those days are over as CEOs want accountability at every level and in every part of their business. To help get a handle on costs and budgets, corporate legal departments have turned to technology to help them monitor law firm matter budgets and bills. Organizations like the Corporate Legal Operations Consortium (CLOC) have become a powerful forum for corporations pushing law firms to change their business model and in particular, advocating for the greater use of technology.
To meet these client requirements, law firms can now look to new technologies to help prepare pitches, budgets, and track and bill matters. Law firms can use this technology to help understand the costs and profitability of the services they provide. In addition to providing tools to manage firm profitability, these tools can help price work competitively meeting the clients’ requirements for delivering value for money while ensuring they remain profitable for the law firm. Note, law firms’ focus on revenue will no longer suffice. This new world means that to remain profitable law firms will need to employ more sophisticated accounting and financial analysis systems to measure matter and client profitability. They will need to adopt a different mindset as they look at the data their new systems generate: like a manufacturer, they now need to consider how to take cost out of their product as competition will no longer allow them simply to raise prices to cover increased compensation and overhead costs.
Law firms must start mining the vast quantity of data they have to generate information useful for pitches, pricing and cost of matter management. Hiring data scientists to analyze data requires investments in both software and computing power that some law firms have only started to contemplate, others not at all. Undoubtedly, the computing power required means law firms will have to wrestle with the issues surrounding cloud computing, and perhaps most critically, issues of data/cyber security and client requirements around data governance These are significant and expensive issues to address and require the commitment of additional financial and human resources.
For law firms, new technology options now offer a path to change their capital investment requirements dramatically. For example, SAAS and cloud computing are alternatives to investing outright in the software and the machines to run it. With the pace of technological change and the need to keep up with clients and the competition, law firms should consider pursuing an asset-light strategy to allow for the rapid redeployment of expense dollars into new technologies. Monthly payments in lieu of large capital investments will reduce the pressure on law firm balance sheets and increased choices will keep technology vendors pricing lower than in the past as the pace of innovation accelerates.
The accelerating push into technology will put a premium on managing law firm expenses. Those firms that are the best at managing their costs will have the money to invest in technology and remain competitive, enabling them to meet their clients’ requirements. Firms that don’t invest in technology that is aimed at improving their profitability and their value proposition for their clients will disappear.