In focus: Identifying the challenges of tech investment by legal firms
Efficiency through Cost-Control: Mid-sized firms adopt cost-control strategies to stay efficient amid competition and profit struggles.
Fractured operations: Firms face legacy issues from acquisitions with incompatible tech systems.
Digital competition: Some traditional law firms avoid tech investment due to competition with more agile, online providers.
Law firms can drive efficiencies by employing a more excellent range of legal tools and technologies in their operations, yet there’s almost universally low investment in technologies from established firms. Compared to other professions, the established legal sector does seem to have comparably low investment rates in technology.
Firms may be reluctant to increase the amount they are investing in legal tools and technology 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 crucial differentiator among law firms. Clients see efficiency as a way for law firms to distinguish themselves in a crowded marketplace – yet it seems they 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, many 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 the survival of the fittest, and the fittest rarely stand still.”
This implies that firms in the UK will need to adapt to survive over the next few years – technology investment is one way to gain a competitive edge and fail badly if this investment is misjudged.
The authors also expressed concerns that firms weren’t intending to invest in their businesses by leveraging financing options. This is even though the firms they surveyed all described upcoming challenges that would probably require investment.
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 investment route. The Gazette urges them to consider alternatives to tightening their belts and hoping for the best.
If they have the confidence to make strategic changes, firms can consider options such as improving their procurement techniques and using innovative sourcing methods. They can invest in business intelligence, ensuring they have the applications 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, 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 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 could bring significant benefits to newly-merged firms.
For example, with staff costs, a vital 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 how data is held and accessed can significantly increase 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 investment rate into legal technology. More than five times the number of patents on law-related technology were filed in 2016 compared to 2012.
These high investment rates into new technology applications aren’t being made by standard law firms changing how they do business. Instead, the patent activity tends to come from unconventional law services 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 help boost competitiveness by raising efficiency.
Traditional law firms can still gain an advantage – or keep up with the competition – by employing tools that streamline processes and reduce costs.
Many firms use technology to help them outsource legal services, including due diligence, document review, and admin. If tough times continue, it will be essential for firms to keep abreast of technologies like this to compete.