Law firms can drive efficiencies by employing a greater range of legal tools and technologies in their operations, yet there’s almost universally low investment in technologies from established firms. When compared to other professions, the established legal sector does seem to have comparably low rates of investment into technology.
It’s possible that firms are reluctant to increase the amount they are investing in legal tools and technology in order to create a lean business model and save their client costs. But it’s a false economy.
Among clients, there’s consensus that efficiency is a key differentiator among law firms. Clients see efficiency as a way for law firms to distinguish themselves in a crowded marketplace – yet it seems law firms aren’t prepared to invest in the tools that can improve their efficacy.
Survival of the fittest
According to a benchmarking report by Crowe Clark Whitehill, a large proportion of small and medium-sized firms felt that technology would be their most important investment in the next 1-2 years. The report also concludes rather ominously that “With a slowing economy, and uncertainty resulting from the Brexit vote, it may well turn out to be a survival of the fittest and the fittest rarely stand still.”
This implies that firms in the UK are going to need to adapt to survive over the next few years – technology investment is one way to gain a competitive edge as well as to fail badly if this investment is misjudged.
The authors also expressed concerns that firms weren’t showing an appetite to invest in their businesses by leveraging financing options. This is despite the fact that the firms they surveyed all described upcoming challenges that would probably require investment to overcome.
Uncertainty over the fall-out of the Brexit vote is one of the main factors suppressing firms’ confidence to invest at this point in time.
The Law Gazette highlights the difficulties of mid-sized firms squeezed by competition and struggling to make profits. Most are adopting a strategy of cost control to remain lean and efficient, reducing headcounts, downsizing or seeking out mergers and acquisitions rather than taking the route of investment. The Gazette urges them to consider alternatives to just tightening their belts and hoping for the best.
If they have the confidence to make strategic changes, firms can also consider options such as improving their procurement techniques and using innovative sourcing methods. They can invest in business intelligence, making sure they have the applications in place to make the right decisions.
By mastering their data assets, firms can perform cost/profitability analysis that can make them stronger without necessarily trimming staff – which is the usual choice for cost-cutting firms.
Historically, the legal profession has always been low-tech, and for many firms, the idea of making sizeable investments into technology means taking a whole new approach to the budget. Not all partners are on board with this. There’s also a reluctance to embrace alternative sources of finance – most firms only seek funds from their bank or from existing partners. This tends to limit options and opportunities somewhat.
Tackling integration problems
Many firms are dealing with the legacy of past acquisitions, meaning they have a host of business systems that aren’t necessarily speaking to one another. Overcoming that by integrating systems is a costly business, but it’s one that could bring great benefits to newly-merged firms.
For example, with staff costs, a key component of every firm’s cost base making better use of human resources gives a real competitive advantage. Amalgamating systems can provide actionable information to support better use of human resources by law firms.
Using better tools to support admin processes such as raising invoices can also significantly improve efficiencies and even cash flow. If billing data is held across multiple systems, it can take a while to amalgamate systems and bill correctly.
Improving the way data is held and accessed can add significantly to the efficiency of billing and invoicing processes.
Although your average law firm isn’t splashing the cash on new tech tools, globally there’s a high rate of investment into legal technology. More than 5 times the number of patents on law-related technology were filed in 2016 compared to 2012.
These high rates of investment into new technology applications aren’t being made by standard law firms changing the way they do business. Instead, the patent activity is tending to come from unconventional law service providers, such as the providers of online legal advice and virtual law firms.
Perhaps traditional law firms aren’t making significant investments in technology because they know they can’t compete against virtual and online legal service providers.
These new-style law providers tend to have low cost operating models and focus on a narrow set of legal services. But even traditional law firms are still competing against their peers, and technology investment can really help boost competitiveness by raising efficiency.
Traditional law firms can still gain an advantage – or just keep up with the competition – by employing tools that streamline processes and reduce costs.
Many firms are using technology to help them outsource legal services including due diligence, document review, and admin. If tough times continue, it’s going to be essential for firms to keep abreast of technologies like this just to compete.