Change is nothing new for the legal sector.

The tag line of one of the industry stalwarts, Lexis Nexis, reads “The future of Law. Since 1818”.

Much has happened over the past 201 years and every legal services firm has their own unique history on how they adapted and thrived, but this success has been predicated on one thing: The fundamentals of the legal profession have remained intact.

That is to say, no matter the challenge, it was met by smart, highly trained legal professionals carrying out difficult and rigorous analysis to ensure the best result for their client.

The legal sector has confronted change before, and it’s confronting it once again… but this time it’s different. More fundamental, more far reaching. While the current zeitgeist is focussed on the “digital” aspect there are two other, even more significant, factors disrupting the industry.

The “digital” aspect of digital disruption is clear, Artificial Intelligence has begun to replicate human judgement, Intelligent Automation enables routine tasks to be automated away, Blockchain has the potential to securely track any and every asset.

As the venture capital firm a16z boldly stated in 2011, software is eating the world. Anything that can be software, will be software, and the best software company in each industry will win. We have well and truly begun the journey of software eating legal.

However, “digital” is only one part of the disruption facing the industry. There are three key problems, intrinsically linked, that must be understood.

1. Embracing technology: As digital transformation permeates through the industry how firms adapt, develop and adopt the best technology will be key to ensuring long term survival.

2. Evolving the operating model: This embrace of technology will call for an evolution in the operating model to fit the 21st The successful firms of tomorrow must redefine their business model, manage a fluid workforce and attract and retain people with skills previously not needed.

3. Managing heightened expectations: As with all great periods of disruption, technology is merely enabling what customers really want. This is the most fundamental piece of the puzzle, but is largely forgotten by legal service providers.

1. Embracing technology.

LawTech was seen in the early days as the preserve of tech companies, followed by a growing niche ‘start-up’ scene. This has developed rapidly, with a 484% increase in legal services patent filings over the last five years globally.

Now that we’re seeing many of the large and Magic Circle law firms getting heavily involved, the tipping-point of mass adoption is just around the corner.

This is particularly interesting for two reasons.

The first is the more obvious. Software, providing it works correctly, operates multitudes faster and more accurately than a person ever could. We’ve already seen several AI based LawTech’s come to the fore, from Kira Systems for reviewing contracts, Luminance for M&A and Lex Machnina for predicting court case outcomes.

“We get AI to do a bunch of things cheaply, efficiently and accurately — which is most important. It leaves lawyers to do the interesting stuff.”

Wendy Miller, partner and co-head of real estate disputes at BLP

The second reason is what this enables. The legal profession is locked in a race to the bottom with non-qualified providers, from the Big 4 accountants to information providers such as Reuters, tempted by the lucrative chunk of legal work not reserved to qualified lawyers. The rise of LawTech enables alternative legal providers to compete on equal or more favourable terms than the law firms.

Automation is enabling the unbundling of legal sector products and services, breaking down full-service firms into their constituent parts. The inevitable outcome will be the most profitable, unregulated elements getting picked off by LawTech and alternative providers. The law firms of tomorrow need to have a fundamentally different outlook on their industry, and disrupt themselves before they get disrupted.

2. Evolving the operating model.

The bottom line is software has started eating legal, and it will open up avenues that many might not expect. The successful firms of tomorrow need to take a step back now and understand how software will play a role across the organisation, from front office to back. Re-evaluate what jobs are actually trying to be done and imagine what the firm would look like if you started today with a blank sheet.

There are two sub plots that will impact the operating model, regarding talent and the partner structure & fees.

Talent

Any industry that sells people by the hour knows talent is what a firm lives and dies on. However, across the legal industry attrition is at an all-time high and the model of the 20-year career in one firm is starting to fade out.

This is significant in monetary terms, the average large firm (400+ licensed lawyers) has an annual attrition cost of over $25m, but also in terms of lost knowledge and time spent getting new hires up to speed. Knowledge sharing, knowledge management and flexible career pathways are critical.

Yet this knowledge now needs to go beyond legal. The most successful law firms of the future will not be pure law firms. Instead, they will be a highly evolved business delivering superior legal services through a collaborative mix of lawyers, knowledge engineers, innovation specialists, LawTech, and business professionals. Agile multidisciplinary teams will partner with clients to help them achieve their corporate goals by delivering empathetic user-centric legal solutions.

To get there, and survive in today’s tech disrupted market, traditional firms will need to employ people with a range of different skillsets, from innovation and change strategists to software engineers.

The partner structure and fees

As the talent needs of the firm changes, so too must the organisational structure. The 20-year career from associate to partner is fading out and in its place something new must evolve.

Not all software engineers will want to manage people, not all leaders of the business need to be lawyers. The career ladder needs to transform into a career climbing wall, with multiple entry and exit points across the organisation.

Quickly scaling, getting the right people in the right places at short notice will be paramount for the future firm.

Hourly billing and a timesheet ‘cost’ mentality will be replaced by a value creation and delivery ideology. The partnership model will reluctantly, but out of necessity, acquiesce to a profit generating corporate structure. Able to invest where the firm needs to and break down the silos across the organisation.

3. Customer / client expectations are rapidly changing

The changes to the business model are from both a push and a pull standpoint. On one hand, the firm must change in order to meet the new tools available and avoid being left behind.

On the other hand, the way companies purchase their legal services is beginning to change, and so to maximise potential the firm must understand their new target audience and adapt their service model.

There is a disconnect between client and firm, with clients becoming frustrated across the three primary areas – Offering, quality and delivery.

Increasingly, clients are approaching legal firms with broader business problems, expecting wholistic solutions. Buyers of legal services have moved away from relationship-based sales and towards value. Firms must be able to demonstrate and deliver tangible value, differentiated from their competitors.

Firms need to think long term, understand their client’s business intimately and redefine their approach to be significantly more customer centric, flexible, visible and responsive.

While it is true that the legal sector has thrived through all the previous industrial revolutions, this time it truly is different. A perfect storm of evolving client demands, employee expectations all underpinned by radically different technology means the legal sector must take stock, re-evaluate and define what the coming years will look like.

See how The BIO Agency can help.

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