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Profitability

Embracing a culture of change

Image Credit: REUTERS/Kacper Pempel

Competition in the legal sector has never been more fierce. Client cost pressures are putting downward pressure on fees, leading to some law firms ripping up traditional billing models, and offering alternative pricing structures instead. As a result, profit margins continue to be squeezed.

Some 47 percent of Finance Directors at the UK’s top 100 law firms cited that downward pressure on fees as the biggest threat to their profitability, according to a 2019/20 Thomson Reuters survey. A further 39 percent listed competition between law firms over fees as their second biggest concern.

Against this backdrop of pressures, firms face an urgent challenge to arrest this race to the bottom. By turning to technology and promoting cultural change across their organisations, firms can start to reverse this trend, improving the productivity of their fee earners while delivering better value to clients.

Of the survey respondents, 59 percent of law firms said they would be using artificial intelligence (AI) technology in the following year for document review and drafting. Over half of firms (55 percent) expected to be using AI for regulatory and legal research. The view is that AI allows law firms to deliver services at much lower costs and drive other efficiencies—allowing them the option of more competitive pricing or greater profits that can be reinvested.

“As less and less of our work is being charged on an hourly basis, the internal considerations of billable hour targets are becoming less prominent and replaced with a more holistic look at productivity in a wider sense”, says Nicholas Perry, Managing Partner of Bird & Bird’s London office. “We have to take care of the economics of course, but we always keep in mind what is most valuable for our clients—a real understanding of their business and what they are trying to achieve, as well as providing them with the in-depth industry knowledge we have to offer. It is vital that time spent on these activities is considered as equally productive.”

Implementing cultural change is not something that can be done in isolation either—firms have to be aware of how their culture will resonate with clients.

“Clients are incredibly aware of how they interact and work with law firms, and they are now choosing firms not just on how they embrace technology but also their ways of working”, says Alistair Johnson, Chief Operating Officer at RPC. “So, if firms aren’t aligned with clients, that will draw a wedge between them. We are very much focused on that client experience, which drives our decisions around our digital focus, our technology but also our structure and culture, and the people we bring into the firm.”

Firms also face the challenge of convincing lawyers to embrace change and be more open to new ways of working. At Allen & Overy, for instance, the firm’s tech incubation space Fuse allows lawyers to get hands-on experience with new technology, which helps to break down the natural reluctance non-digital natives tend to have when being asked to use digital tools for the first time.

“If you present people with a vision that’s inspiring and you treat it as an opportunity and not as a threat, that can have a huge impact”, says Jonathan Brayne, Partner and Chairman of Fuse.

Other firms stress the need for demonstrating the benefits of change to lawyers rather than simply imposing policies from above.

“Everybody is always in favour of innovation, but until you actually experience the benefits both lawyers internally and clients will not necessarily really embrace digital transformation, so it’s essential that when we roll out legal tech solutions that we make clear to people why we’re doing it and what the issue is we’re trying to resolve”, says Bas Boris Visser, Global Head of Innovation and Business Change at Clifford Chance.

Management also needs to take ownership of change and lead from the front to ensure firm-wide buy-in.

“It is critical that leaders of groups and firms lead cultural change—you can’t do it from some change management outfit that is separate to the organisation”, says Ben McGuire, Innovation and Business Change Director at Simmons & Simmons. “It must be led by the people who are going to implement it and be accountable for it, and that works for digital transformation as well—if it’s seen as the IT director’s project or my project, it’s just not going to happen.”

While COVID-19 has caused widespread disruption in the legal industry, it may also encourage those who were previously reluctant to embrace change to rethink their stance.

“The pandemic has effectively turbocharged transformation within the sector, but also within our firm, and that has helped break down the behavioural and cultural challenges that exist in every business where there might be some resistance to change, because we’ve all had to make substantial changes in the way we work”, says Ben Bennett, Chief Operating Officer at Shoosmiths. “There is now a greater belief that people themselves can adapt to new ways of working.”

Given those softening attitudes, there has never been a better time for firms to make the case for change and advance their digital transformation efforts.

“The legal sector has traditionally been slow to adopt new working practices and new technologies”, says Chris Jekiel, IT Director at BLM. “What they’re now realising is that they can leapfrog their competitors by thinking more innovatively and embracing cultural change because they can see the benefits and the value it can bring for their people, the firm and for clients.”

For more information on innovative legal technology, please click here.

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