Successful Law Firms Invest in Technology
Over the past few years the need for law firms to enhance processes and become more efficient in big law has become increasingly important.
There have been, and continue to be, big changes in the use of technology to improve the practice. Firms are investing in AI, expert systems, sophisticated search to deal with big data (ROSS and RAVN as examples) and more. Mobile devices and the supporting technology have made Attorneys more efficient. This trend will continue and accelerate.
There is strong evidence that investments in technology will be a critical success factor for law firms. As discussed in the, 2018 Report on the State of the Legal Market by The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Legal Executive Institute and Peer Monitor® – “Over the last few years, there has been mounting evidence that law firms proactively address the needs of their clients – e.g., by implementing alternative staffing strategies, pursuing flexible pricing models, adopting work process changes, making better use of innovative technologies, and the like – can achieve significant success. In a very interesting and informative study released by Thomson Reuters Legal Executive Institute in November 2017, and based on Peer Monitor® data, the performance of firms across the market during 2014, 2015, and 2016 was analyzed based on their compound annual growth in revenue per lawyer and total profit (net income before distributions to equity partners), as well as their average change in profit margin over the three-year period.41 The relative performance of each firm in each of these categories was placed into a weighted matrix that resulted in a single composite score. Those firms that fell into the top quartile in composite scores were designated as “dynamic firms” and those that fell into the bottom quartile as “static firms.” The study then examined the characteristics of firms in each of these quartiles to determine what might have driven their relative financial success.”
The one factor that differentiated between the two groups of firms may be counter-intuitive. Dynamic firms increased their indirect (or overhead) expenses in almost every category in the rolling 12-month period ending in December 2016, while static firms cut their expenses in many areas. There were two areas in particular in which the groups diverged by fairly wide margins:
- Marketing and business development expenses – dynamic firms increased by 4.6 percent compared to a 1.8 percent increase by static firms
- Investments in technology – dynamic firms grew by 3.2 percent while static firms added only 1.2 percent, all on a per-lawyer basis.
Dynamic firms said their technology investments were focused on improving workflow efficiency, as well as enhancing their ability to assess profitability and better analyze data.
What Should Firms Do?
There are challenges to law firms in making the right technology investments, achieving strong user adoption and implementing for success. These challenges can be addressed by looking at investments in technology as a key factor in gaining a competitive advantage. Process improvement and efficiency gains can be obtained in any practice area with appropriate investments in technology. Firms should engage in a strategic assessment of where process improvement should be made, what is important and available to them, develop a plan and implement the enhancements. Firms that are not looking at this process will find themselves at a competitive disadvantage.