Law Firms: It’s in the Data – You Must Innovate to Survive

It seems everywhere you turn, there’s talk about the legal industry undergoing radical change. Some trends end up being fly-by-night hype, while others usher in wholesale, long-term changes. The key is for firms to separate the hype from reality and respond accordingly. One terrific source for those purposes is the annual survey “Law Firms In Transition,” conducted by Altman Weil, a management consultancy that focuses solely on the legal profession. Now in its 9th year, the most recent survey of 386 firms (including 350 of the largest US firms) and 50% of the AmLaw 200 has surfaced some findings that should both concern and inspire law firms.

You can download the free 124-page report. But before you do, read on for insights that Altman Weil principal Thomas S. Clay shared with us about this year’s survey results.

Firms Struggle to Keep Up with Pace of Change
As someone once said, nothing endures but change. In fact, 72% of the survey respondents expect the pace of change in their industries to further increase.

According to Clay, law firms are trying to adapt to stay in tune with the market and their clients, but the pace of change can be daunting. Especially when market forces are triggering changes to the underlying law firm model.

A growing number of alternative providers have entered the scene offering competitive services quickly and at affordable prices. Many clients are gladly turning to them instead of their tried-and-true law firms. In fact, $8.4 billion is going to these alternative service providers annually.

Hand in hand with this, demand for traditional services is on the wane and billable hours are down. “The survey found that two-thirds of firms are losing business to their clients’ in-house legal departments. Whatever the cause for less business, in many firms, you’ll find offices filled with lawyers sitting idle. Firms simply can’t give them enough work to keep them productive and profitable,” explains Clay. 52% of firms report their equity partners are not sufficiently busy. Overall, 61% of respondents said overcapacity is diluting their profitability.

As a result, law offices face an identity crisis. In many cases, they will only survive by radically changing their staff makeup and portfolio of services. “It takes strong leadership to guide an entire firm in a new direction and that’s a tremendous challenge. Yet wait too long and it may be impossible to catch up,” warns Clay.

Fighting Efficiencies
The survey found that 94% of respondents said a focus on improved law firm efficiency will be a permanent trend. However, only 49% of law firms said they have changed their approach to more efficiently deliver their services.

Clay chalks up this gap to the fact that many law firms are not feeling enough economic pain to make them see serious changes as being worthwhile or necessary – yet. “Right now they resist change because being more efficient means fewer billable hours and lower revenues.”

That said, the writing is on the wall. To compete with alternative service providers, law firms will need to find ways to build efficiency into their practices. As Clay says, this raises a major cultural issue within firms: the tier of non-equity partners. Sixty-one percent of firms report their non-equity partners are not busy enough. “Firms will need to tackle this issue head on because if these partners can’t produce, the firms won’t be able to afford to keep them around.”

What Sets Successful Firms Apart   
The good news is that firms embracing new tools and technologies such as artificial intelligence (AI) and machine learning are successfully adapting to thrive in today’s economy. Simply put, these technologies promise to revolutionize law practices. Yet only 7.5% of firms are using legal AI tools. Another 29% are starting to explore their options. But a full 64% are doing nothing with regard to these new technologies.

The report warns that turning a blind eye could cost firms dearly. As Clay explains, it’s essential that firms wake up to the new realities and find a way to take advantage of AI and other tools. He says the key lies in lawyers overcoming their bias and being open and willing to go down a new path. In fact, he emphasizes that the new technologies are available to firms of every size – even IBM Watson is available for free. In other words, technology can truly level the playing field and position firms to effectively compete. But they must be willing to take the leap. Right now, 65% of law firms say their partners resist change.

Opportunities to Innovate
At the same time, firms can take other steps to innovate. The report includes an extensive section outlining innovations that firms are pursuing in 2017. Some are as simple as creating an alternative staffing model – in other words, they are innovations any law firm can put into play.

No matter which of these a firm chooses to prioritize, Clay points out that innovation quickly dies on the vine without the necessary human and monetary resources. As he says, if a firm isn’t willing to invest dollars and time in innovation, it won’t likely see a return. But the firms that see these initiatives through stand much to gain as the market is craving innovation and clients want their firms to be more effective and efficient.

Take the Next Steps
You can download the full report today. But as you read it, bear in mind Clay’s advice: the survey findings are useful only when shared with rank and file. As Clay says, “You can never expect a groundswell of change if only top leadership is aware of pressing trends and needed changes. This is data for the masses, not just leadership. If lawyers can focus on the opportunities for change, firms will see many great things come of it.”

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