The importance of profits for law firms traditionally has elevated the need for a strong business case supporting any initiative to implement new technology. For firm executives to agree to spend, they want to be sure of an impressive return on investment that will save the firm money overall.
While this remains true, executives now are recognizing benefits of technology besides the obvious purpose to cut costs. In fact, 92% of law firm executives indicated they definitely or probably will adopt a greater use of technology for purposes other than to cut costs, making it the No. 1 strategy to improve overall firm performance, according to the 2021 Law Firm Business Leaders Report issued by Thomson Reuters in October.
What other purposes, exactly? For starters, firms are aiming to improve the client experience. But, in a remarkable twist, they’re also combatting the No. 1 threat to their profitability without really knowing it.
Technology at the core of value-driving activities for clients
The benefits of investing in advanced technology are coming into focus as more law firms adopt it. Thomson Reuters asked law firm leaders to rank the importance of six factors in the decision to use advanced technology, which it defines as solutions based on artificial intelligence or natural language processing. The most influential factor was to “provide value to clients,” which 60% of respondents ranked No. 1 and 83% ranked in their top three. (Cutting long-term costs ranked fifth at 4% and 22%, respectively.)
But that begs the question: What do clients consider to be valuable?
Well, Thomson Reuters asked, and responses show that clients want to be understood.
This value is not easily delivered. In many cases, a key barrier is the availability of a lawyer’s most valuable asset: their time. The more time a lawyer spends on administrative, low-value tasks, the less time they have to engage in substantive conversations that deepen their understanding of the client’s business.
Fortunately, the value drivers identified by Thomson Reuters are much more interconnected than one may initially think. When a law firm builds an action plan to deliver those value drivers to clients, technology actually is the first domino that knocks the others down.
The sequence goes like this: Technology that automates workflows will naturally bring operational efficiencies, which drive down overhead costs and reduce time required to complete tasks. A lawyer can then spend that time on higher-value activities, like building relationships with clients and internalizing their business issues and objectives.
Be cheaper? Check.
Unleashing the power of data after improving operational efficiencies
Technologies that have traditionally brought substantial operational efficiencies to firms include legal research, e-billing, enterprise financial management and document management. But those now provide, at most, a minimal competitive advantage to firms looking to differentiate. An overwhelming majority of firms are using e-billing (91%), legal research (86%) and financial management (82%) technologies, according to Thomson Reuters.
However, of the two dozen technology solutions about which Thomson Reuters surveyed law firm executives, the five most popular planned net-new investments enable data-driven decision making, not just automating workflows to cut costs.
Granted, each respondent firm planning to invest in these technologies is playing catch-up to some degree, with a notable number of firms already having implemented them. These investments predict that more and more firms will have access to a substantial amount of organized, accurate data. The issue of the future, then, will not be access to data or the volume of it; it will be how firms use it.
The issue of the future will not be access to data or the volume of it; it will be how firms use it.
An important observation in the chart above is that while AI-enabled price modelling is the second-highest net-new investment target, it has the lowest level of previous adoption by firms. For a firm to utilize cutting-edge technology like AI, its data must be collected, organized and stored in a structured, accurate and secure manner. Given that there is still a focus on technologies that collect and organize data—a critical first step to prepare for AI adoption—this signals that the majority of firms just aren’t ready yet.
Firms that are equipped with organized and intelligent access to data, however, are poised to adopt cutting-edge AI solutions that will ultimately provide a substantial competitive advantage by continuing to free up lawyers for higher-value activities.
Technology as a differentiator for attracting and retaining talent
An unappreciated benefit of investing in technology, as it turns out, is how it mitigates the greatest self-perceived threat to law firms’ profitability: attracting and retaining talent. In fact, according to the Thomson Reuters report, seven of the top 10 concerns that leaders classified as “high risk” center on staffing and talent development.
So what does technology have to do with attracting and retaining talent?
Canadian Lawyer magazine brought the connection to light in its inaugural survey in Dec. 2020 by asking lawyers what qualities are important for a firm to meet the needs of its employees. The 419 respondents ranked technology resources eighth—higher than bonus opportunities (ninth), reasonable billable hours (10th) and work-life balance (11th). (Competitive salary was fifth; team environment was first).
This aligns with the trends we continue to see with Gen Zers entering the workforce. A 2018 Dell Technologies survey of more than 12,000 Gen Zers (born between 1995-2002) in 17 countries found that 80% of them want to work with cutting-edge technology in their future careers; 91% said the technology offered by an employer would be a factor in choosing between employers.
Linking the benefits
Surprisingly, though, most law firms do not seem to embrace how technology investment can help retain and attract talent. Only 23% of respondents to the Thomson Reuters survey cited it as a reason to use advanced technology.
This blind spot exists probably because the majority of law firms are still building up their technology stack to address factors that enhance operational efficiency and data organization. Again, they just aren’t ready—yet. Their data landscape is simply not mature enough to implement the cutting-edge technologies that will provide them a marketable competitive advantage in attracting talent.
This will change in the near future, though, as firms that were early adopters of process automation and data organization start to implement AI. As shown earlier in the chart depicting the types of technology firms plan to purchase, by this time next year we could see an additional 16% of firms implement AI technologies. Subsequently, we expect firms to market those tools in ways that attract the many Gen Z lawyers who wish to spend their time on high-value activities with cutting-edge technology at their disposal.
Law firms today are slowly but surely investing in technology—apparently without being strategically motivated by the benefit of attracting and retaining talent. It’s a remarkable, fortunate coincidence that represents an opportunity for firms to be more mindful of all the different birds they can kill with the technology stone. Less remarkably, it also plays into the narrative that we’ve heard for years: that data is the currency of the future.