Jul 17 '14
In this concluding article (click here for the last one), reviewing the LTFH report, we look at the future. What did those surveyed think the industry would look like over the next decade? What technology will be important and when? How will firms differentiate? What role will IT play in all of this?
Top five factors that will have the greatest impact on legal industry firms over the next 10 years:
- Commoditization of legal services – 62.7%
- New players (non-law firms) entering the market – 58.2%
- Alternative fee arrangements – 57.9%
- Increasing privacy and security concerns – 49.9%
- Adoption of new business models – 48.9%
Key points quoted from the discussion on this:
- Interviewees and survey respondents see the U.K. market as being more innovative than the U.S. in terms of business funding and ownership models. Many believe that this will see firms increasingly leaving the U.S. and other jurisdictions in favour of the U.K. in order to secure the growth funding they need, not least to finance increasing investment in IT.
- Clients and law firms alike are expected to pursue increased outsourcing of legal services (37.3%) and competitive pressures are also expected to drive an increasing number of sector mergers and acquisitions (27.8%), with third party investors (19.7%) expected to play a growing role.
- Some argue that the focus on billable hours could lead to inefficiency and that more innovative pricing models are inevitable. To address this, firms are expected to increase the use of pricing groups using a range of software tools and analytics, comparing historical data and project characteristics to explore the impact of different pricing strategies. A key role here is using the tools and resulting outputs to communicate with and persuade clients that they are getting the best deal. A majority expect growth in the trend towards alternative fee arrangements (57.9%) that has already been seen in many markets. More radical shifts in the adoption of new business models (48.7%) are also anticipated as firms come under growing pressure to compete for business and share risk with their clients.
- While some expect competition for the best talent to remain intense, others believe that the sector could witness chronic oversupply. This could drive down fee rates as displaced lawyers pursue the independent route. Smaller firms and specialist providers in particular might find themselves in direct competition with talented individuals who operate as sole traders, carry little or no business overhead and form into larger ad hoc teams as the need arises.
The future of the industry – top five likely outcomes:
- There will be an increasing number of fully automated legal service providers – 52.9%
- There will be growth in opportunity for very specialized boutique firms – 52.8%
- Mid-sized firms will increasingly struggle to survive – 44.7%
- Mid-sized firms will increasingly focus on developing specialist niches – 44.4%
- Small firms will increasingly seek to cut costs by sharing support functions such as finance, procurement and research – 34.7%
Key points quoted from the discussion on this:
- The trend towards online provision of legal services in the consumer sector is expected to spread into the business market. This will drive commoditization, with an expectation that there will be an increasing number of fully automated legal service providers (52.9%). Small firms and technology-centric entities are expected to be among the early adopters of a range of online offerings coming to market over the next few years.
- The ability to deploy IT for competitive advantage is seen as a top three enabler alongside deep client engagement and a truly long-term and strategic approach to business and operational planning – which may lead a handful of four to six truly global legal powerhouses may emerge, establishing a differentiated and defendable position and truly international brand.
- In the face of competition from large and growing firms at the top end and automation of services to smaller companies, specialization is expected to increase. For example, the majority expect that There will be growth in opportunity for very specialized “boutique” firms (52.6%), and that, in parallel, Mid-sized firms will increasingly focus on developing specialist niches (44.4.%) rather than pursuing growth across the board.
- There will still be clients who value extensive local knowledge and deep personal relationships with their law firms. In order to compete, some expect that Small firms will increasingly seek to cut costs by sharing support functions such as finance, procurement and research (34.7%). There is also a view that there will be an increasing number of spin-offs of specialist teams and legal work into independent firms (28.4%) and that we could see Growth in opportunity for local firms (27.2%).
What top five factors will most differentiate law firms in the eyes of clients:
- Service quality – 66.9%
- Depth of understanding of client business strategies and challenges – 60.5%
- Ability to build and sustain trusted client relationships – 57.8%
- Speed of response – 57.8%
- Technology-enabled efficiencies reflected in lower fee rates – 57.5%
Key points quoted from the discussion on this:
- IT is seen as playing an increasing role in service quality with the emphasis placed on Technology innovation to enhance service delivery (53.3%) and the Quality, clarity and timeliness of information provision (44%). The approach to relationship management is expected to be a critical underlying factor here. The priorities are making efficient use of client time, deploying collaboration tools effectively at the client interface and providing timely information.
- The expectation is that clients will increasingly be looking for lawyers who can also act as strategic business advisors and help navigate a growing level of complexity. Greater emphasis is expected on the role of thought leadership, with a particular focus on emerging markets and industries. Providing IT-enabled, compelling and interactive delivery of distinctive research and opinion is seen as a key mechanism to demonstrate the firm’s understanding of current and emerging issues in key client sectors and geographic markets. IT can also play a critical role in monitoring competitor thought leadership activities, scanning current issues for key clients and sectors and tracking relevant new ideas and emerging thinking.
- Key enablers of trust and transparency are identified as Fee transparency (50.6%), Reputation and brand identity (47%), the reliability of Information security systems, processes and procedures (38%) and Process clarity and transparency (35.5%). Technology is seen as a vital enhancer of trust, transparency and visibility in the client relationship.
- The shortening and acceleration of business cycles is driving demand for Speed of response (57.8%). This is expected to grow as clients seek to fast-track decision-making, cut the “time to market” for launching their new offerings and complete transactions faster. Clients will initially value and then expect the ability to produce quick and error-free material whether in a legal brief, an analysis or a recommendation. This continued time compression means lawyers will have less time to provide a thoughtful response and will need to free up time for critical thinking and insight. They’ll rely increasingly on IT to mine news feeds, social media sites and big data very quickly to provide supporting information and deliver analytics on demand or on a pre- emptive basis. Predictive analytics could help anticipate what a client may ask for based on issues arising and their past patterns of inquiries.
- IT is seen as a core enabler of the key differentiator of Cost control (55.4%).
The report also put together a technology timeline, which was enlightening in terms of the groups and types of technologies those surveyed expect to see becoming commonplace within law firms, over the coming years.
What are the marketing and business development considerations of this?
- An increase in mobile use (including wearable and embedded devices) as well as the consideration of auto-translation and augmented reality (eg in a courtroom setting, AR could assist with the three- dimensional visualisation of crime scenes, re-enactment of critical incidents and building up complex data sets and storylines layer by layer in fraud cases), gesture recognition technology, eye tracking, and thought-controlled computer interfaces will have an impact on the websites, apps and digital communication techniques firms employ.
- The report suggests that an industry-wide set of standards for internet and social media software and solutions, preventing the current competition and proprietary systems, is likely.
- Social media is expected to have diverse applications in a legal context. Increasingly, firms will adopt sophisticated intelligent automated social search and analysis algorithms. This will enable systems to push information to internal users and clients as it becomes salient rather than waiting for lawyers and paralegals to find it via explicit searches.
- The growth of social media and social commentary and comparison sites will continue to drive transparency and how firms are perceived by clients. Clients, competitors and investors alike will be able to search social networks and use interconnected data to build a real-time picture of current activity and draw insights and inferences about what is happening to a particular firm.
- Throughout the study, a clear emphasis has emerged on the need for deeper and wider IT-enabled collaboration, particularly with clients and between devices. This is seen as having potential to enhance delivery at multiple levels — encompassing client interaction, presentation of information, workflow transparency, time and budget reporting, process integration, data exchange and even to the extent of developing shared systems and infrastructure. A greater focus will be placed on tailoring information to the differing needs of clients, which will place even more focus on the sophistication of the information and knowledge management tools that are deployed.
However, the report does give one whiff of hope for those of us that like human interaction: ‘despite concerns over the extent of automation, there is still a belief that clients value human interaction and quality of advice above all…. clients will always be willing to pay more for bespoke legal services provided by a human lawyer (79.2%). At the same time, the expectation is that technology will be leveraged extensively in the provision of those services to meet client demands around efficiency and information provision’.
Footnote: About the report, what it aims to achieve and how they did it
The Legal Technology Future Horizons foresight research study (ED: more words in the title = more credible study) was commissioned by the International Legal Technology Association (ILTA) and undertaken by Fast Future Research between January 2013 and March 2014. Their collective aim was to explore how advances in IT could impact on the legal profession over the next decade. They spent a lot of time talking to law firms (and the people in them) both in meetings and through two surveys. The first survey looked at the ways firms were using IT within the business. This received 499 responses. 72% of the respondents were from the legal sector and included lawyers as well as professional staff from finance, HR, IT and other support functions. Responses were received from 29 countries, with the two largest groups coming from North America (78%) and Europe (15%), followed by Australasia, Asia and the Middle East. The other survey looked at establishing a timeline for emerging technology. They received 223 responses, 61% of which came from the legal industry. Responses were received from 22 countries, predominantly from North America (76%) and Europe (14%). Additional responses were received from Australasia, Asia, Africa and the Middle East.