Disruption Creates Opportunity

 “The future of legal service will be a world of virtual courts, Internet-based global legal businesses, online document production, commoditized service, legal process outsourcing, and web-based simulated practice. Legal markets will be liberalized, with new jobs, and new employers, for lawyers.”

Would you agree?

This is the future for the legal industry, as foreseen by academic and author Richard Susskind, who is an independent adviser to international professional firms and national governments in the area of IT and the way it is changing the work of lawyers.

Although this sounds shocking, Mr Susskind is not alone. According to a recent Deloitte Insight report (Feb, 2016), 39% of jobs in law will become automated as the profession reacts to the changing demands of clients.  According to the report, the tipping point will come in 2020 – just four years away – as law firms are forced by the needs of clients and employees to develop new strategies to remain competitive.

Deloitte’s report also predicts that in 10 years time there will be fewer traditional lawyers in law firms; a new skills mix among elite lawyers; greater flexibility and mobility within the industry; reformed workforce structure and progression routes and a willingness to bring in people from non-legal backgrounds.

The way the legal industry is being disrupted and the opportunities that this brings to us all is at the core of the Allygroup philosophy. First, what are we talking about we say legal transformation?

This issue has hit our clients first because business is dynamic and business leaders are under constant pressure to deliver more with less, more quickly. The legal industry is slowly adapting to the disruption that clients have been facing; this is an evolving process. 

Changes in the areas of legal technology, legal project management, alternative free arrangements, legal process outsourcing and the flexible workforce are all disruptions to the current model of legal practice. Each presents many new opportunities for our profession. 

Disruption number 1 – Legal technology

We are all aware of the benefits that technology can bring to process automation. At the highest level, technology solutions cut out manually burdensome tasks, remove room for error and accelerate results; the end result is that lawyers are freed up to do the lawyering. Just think how much time LexisNexis and Westlaw saved lawyers over the years by wading though a plethora of cases in seconds! 

Investment in areas such as process / document automation (for example, automatic creation of templates) can save thousands of hours over the years. 

The challenge is choosing the right tools and technology that are going to deliver the best results Firstly, analyse what is currently out there in the market. If nothing suits, partner with another company to develop a solution that will work for you and your clients.

So what is happening now?

  1. Global NewLaw giant, Elevate has recently acquired Legal OnRamp. Legal OnRamp’s technology is a powerful shared platform that has enabled Cisco to connect its legal department to its law firms. Legal OnRamp has also done some innovative work with artificial intelligence (AI) using IBM Watson cognitive technology.

  2. In Australia – Hive Legal’s Jodie Baber is focussing on AI tools to assist in-house teams to navigate complex regulatory frameworks. Recently Hive Legal partnered with Neote Logic to launch the Hive Legal Super App. This app helped regulated super funds to streamline and bring greater consistency to their breach assessment process.

  3. UK firm Riverview Law has developed KIM, a tool to manage and distribute work and save lawyers' time. It is now available in Australia. The focus of this AI technology is to capture data that helps capture legal functions and ensure that the right work is done in the right place by the right people at the right price. This is a key mantra of Allygroup.

The next stop for Riverview is to roll out a tool to actually perform legal work. The firm anticipates a tool being launched later this year which will do lower-level legal work and provide suggestions for what advice should be given. 

Some law firms in Australia are also operating in this space. Norton Rose Fulbright announced in April 2016 that they have joined legal start-up LawPath, to offer a cheaper alternative to traditional legal services to emerging small to medium sized businesses. It does this through an online platform which generates legal documents. In particular, LawPath’s technology provides access to simple pre-prepared legal documents online. The alliance will further offer a subscription service that includes pre-paid hours with a lawyer from Norton Rose. Other law firms such as Gilbert+Tobin have invested in legal tech start-up Legal Vision. 

Disruption number 2 – Legal Project Management

The disruption of LPM is an area very important to Allygroup.  This provides real value to users of legal services – particularly complex commercial transactions and large-scale litigation where spiralling unaccountable costs are one of the major stressors for General Counsel (GC). We often hear “we can’t possibly budget for complex cases because we don’t know what is going to happen”. 

Our response is “change lawyers or engage someone to manage the projects”. 

This process reverses the general trend of “doing” before “thinking”. It values planning – how do you know what should be done if you don’t know what success looks like and what options you have to achieve it?

What opportunities are created by LPM for GCs?

  1. Cost savings; 

  2. Confidence that only necessary work is being done by the right people at the right time;

  3. Confidence of stakeholders that there is a clear strategy and plan; 

  4. A plan / budget to monitor and report on;

  5. Ability to look at what is working well and what can be improved; and

  6. Best means of demonstrating value.

For law firms, adopting this approach can mean being the firm of choice for companies, which in turn means repeat business.

Disruption number 3 –Alternative fee arrangements

Why does the billable hour fee model still dominate the legal industry?

No-one would disagree with the proposition that fee arrangements based on the billable hour have the potential to:

  1. discourage efficiency in the provision of legal advice;

  2. push the work down to junior lawyers where firms can make much greater profits; and

  3. lead to a growing misalignment of law firm and client interests.

The reason that time billing still exist seems to us that:

  1. Law firms are unwilling or unable to change their business models;

  2. GCs are often unsure that the quality of legal services will be maintained under different fee models. In addition, their finance/procurement arms are comfortable with reporting on reduced hourly rates achieved from re-tendering OR re-negotiating their external legal service requirements.

We regularly told by GCs that managing external legal costs is one of their biggest challenges and in response they are beginning to insist on Alternative Fee Agreements (AFAs) from their firms. According to the 2015 Legal Benchmarking Results conducted by Macquarie Bank, 31% of firms said that billable hours would not be their primary billing method in the next 12 months. These firms said they were looking to other methods such as fixed fee, value-based or other arrangements.

What is working and what will the future look like?

  1. Obviously scoping work and agreeing a fee for key deliverables/outcomes provides GCs with certainty and forces the firms to be efficient.

  2. Risk-sharing models will become more common. Some of the commercial plaintiff firms have been working with clients on the basis that a part of their fees (25% can be achievable) will be paid on a successful outcome.

  3. We believe that variations on retainer models will become more common. It is easy for GCs with a routine volume of work to enter into these arrangements. But variants to annual retainers are being put in place for portfolios of work. 

  4. Not paying for firms to train their juniors. Some of the most profitable US firms are not charging for their juniors and instead are offering their partners and senior associates (SAs) at special rates pursuant to fee arrangements that clients perceive as good value. 

Disruption number 4 – Legal process outsourcing

Although capabilities amongst in-house legal teams, law firms, and legal service providers are converging, each has distinct strengths and weaknesses.  

  1. While law firms provide deep specialist experience, look good when bringing their "A team” to the table, and often operate in-time-zone, they are expensive and their costs, based on hourly rates, are hard to control.  They typically have limited process or technology efficiency innovation and so have rigid pricing structures.  

  2. In-house legal teams have the best understanding of the business, including valuable relationships between lawyers and the business and, like law firms they often provide in-time-zone support.  However, also like law firms, they often have limited process and technology efficiency innovation and there are rarely enough resources to meet demand. This means they lack the time to focus on true value-added work.  Their cost structure is also typically inflexible.  

  3. Legal service providers have developed corporate approaches to relationship-building and account governance.  They present capabilities in a way that makes their work look like the client’s process, not the service provider’s process.  They tend to be contractually flexible, very price-competitive, have strong process and technology efficiency innovation expertise, and have global footprints for onsite, onshore, and offshore service delivery.  One of the most advanced examples of legal services integration is Rio Tinto in global partnership with Elevate Services, a provider of legal services, technology, and talent. However, some legal service providers may be too deferential on some issues as they “try to find their place”, have newer, less experienced staff, and can over-promise.

The legal landscape is moving towards a kaleidoscope of providers, with legal operations expertise an increasingly important component of well-managed in-house teams. Best practice companies are adopting a range of delivery models, sourced from multiple providers and designed to handle the full range of legal and business functions, from simple to complex. Law firms can now exploit this fragmentation by matching some of the services that are already being provided by LPOs. For example, firms such as Baker & McKenzie established a legal services processing centre in Belfast, which completes bulk legal services for Baker & McKenzie clients across its international offices. Herbert Smith Freehills has a similar operation in Belfast and established a pilot program in Western Australia last year. 

Alternatively, law firms have the option of entering into partnerships with existing LPO providers with the aim to ultimately free up lawyers to focus on high value-added activities and save money. This will provide better value to clients while maintaining profits and market position.

The drive for LPO will inevitably continue to grow as clients live in a world of relentless cost pressures and technological advances. The secret here is to ride the wave of innovation; this will be best achieved by law firms, LPO providers and clients all collaborating with a view to finding the best approach to delivering value. 

Disruption number 5 - Flexible workforce

The demand within the industry for temporary contract lawyers and paralegals is rising.  Companies are increasingly seeking a variable workforce that allows them to manage costs and workload fluctuations. In addition, lawyers are seeking more flexible working arrangements. 

At the same time, according to the 2016 Commonwealth Bank legal market pulse survey, the top challenge listed by law firms in Australia was fee-earner utilisation - 74% firms are still struggling to keep staff fully utilised. 

As the market for flexible workforce grows, driven by client demand, the opportunity here is clear. For companies, this is a solution to control legal spend. 

Law firms can take advantage of the benefits that a flexible workforce can offer, which is having flexible costs and being able to meet pricing demands from clients. This in turn will mean that the fee earners' time will be better utilised. 

Secondly, law firms can provide a distinct service offering by leveraging their reputation and existing client base. According to the 2015 Annual law firms’ survey conducted by PwC in the UK, “Firms who can nail the art of flexible lawyering through use of contract lawyers will drive a real competitive advantage – just so long as it’s not at the expense of quality”

This can be done by either establishing their own flexible resourcing business model or partnering with another existing provider. A number of firms are choosing to invest in/forge partnerships to create a new opportunity from this disruptive influence.

The provision of legal services is rapidly changing, and law firms in order to survive will have to adapt to the disruptions of legal technology, legal project management, alternative fee arrangements, legal process outsourcing and the flexible workforce. So, how can you embrace the opportunities that the change presents?

  1. Think positive disruption – start with the mindset that disruption creates opportunity. 

  2. The disruptions described are here – it is only a matter of time that they become the “new normal” across the legal industry.

  3. When thinking about implementing some of the above opportunities, keep them simple. Overcomplicating the processes/technology is likely to lead to non-adherence.

  4. Help is at hand. Experienced NewLaw providers are working with GCs to optimise these new opportunities.