Innovation Part 2: Insights from Experts

04.03.19 | Posted By: Susan Duncan

The 2019 Legalweek conference hosted presentations by many experts who represented various players in the legal ecosystem: law firms, in-house lawyers, technology companies, ALSPs and consultants.  In our prior post, Innovation Part 1: What It Is and What It Isn’t, we provided the framework for how to think about innovation in law. In this post, we have summarized highlights from three of the programs at Legalweek:

  1. The Future of Legal Services
  2. Legal Innovation at Work: Demystifying AI for the Business and Practice of Law
  3. Market Segmentation and Risk Points

The Future of Legal Services – Bill Deckelman, General Counsel at DXC

 

As noted in a recent American Lawyer article, Bill Deckelman, Executive Vice President, General Counsel and Secretary of $25B DXC, has migrated much of his legal work away from elite firms and towards smaller, regional firms and ALSPs.  He is noted for cutting his legal expenses by 30% in part due to an alliance with UnitedLex. At a panel on the Future of Legal Services at Legalweek 2019, Bill Deckelman shared his views on innovation and why law firms are not measuring up and adapting to the changes he and others require.

Innovation is all about thinking differently about what you do, how you do it, analyze it and improve upon it.  It’s about disaggregating and using process, methods and data to solve problems.  This is important because many law companies and law firms that are innovating too often come up with a tech solution to something they assume will solve a problem, but often does not.  The problem should be narrowly and well-defined in order to design the right solution so that the focus is not on the tool itself.

Bill believes law firms are still using their resource model from the 1950’s whereby most production of work is done by partners and associates.  This is very expensive when you consider an associate at many firms is now starting out at $150,000 to $200,000 per year and also that there is much of the work that could be automated and completed by legal technicians, contract lawyers and data analysts.  We need to change the resource model (see our article The Shape of Things to Come) and the financial model, i.e., what is the cost of producing the work? Firms also need to get rid of the lines between lawyer and non-lawyer as not only is it a derogatory distinction, but it ignores the fact that clients benefit from multi-disciplinary teams comprised of different experts. Enlightened firms are sending project managers, pricing specialists and data analysts along with a partner or two and associate to pitch for new work.

“The winners will provide solutions that prevent upstream risks, e.g., to avoid litigation – triage and analyze data before issues become problems.”

“For law firms that get innovation, they have an extraordinary opportunity as the timing is perfect.”

 

Demystifying AI for the Business and Practice of Law – Brian Kuhn, IBM Watson Founder

 

Eighty percent of global enterprises invest in artificial intelligence (AI). In the legal industry, it is being used for high volume, repetitive tasks that require less legal analysis. Rather than threatening to take work away from lawyers, this actually will free lawyers up to do higher level work.  AI doesn’t actually work on low volume tasks as it requires volumes of data to be able to be predictive and accurate.  Since AI allows people to make better decisions like “what is going to happen next?”, this is an important context in which AI can be very helpful to lawyers who hope to identify fact patterns, evaluate risks and predict outcomes.

Brian noted the following as top law firm challenges and priorities:

  1. How to control the costs of their services since cost is the # 1 priority of legal departments
  2. How to compete with their clients – 48% of legal spend is in-house
  3. 43% CLOs will terminate their outside law firm in favor of insourcing or outsourcing to ALSP
  4. 66% legal departments give more work to firms that demonstrate meaningfully valuable innovation

What can law firms do?  Brian offered the following suggestions:

  1. Don’t guess at a need or solution – work with clients to identify a problem, then work on a solution to that specific problem
  2. Don’t focus only on cutting costs – focus on a better process and outcome/results
  3. Align solutions to business goals – don’t form separate innovation business units. Imbed the solutions team within the practice
  4. Use “know me” insights and make your end users your North Star – understand their business goals and workflows.

 

Market Segmentation and Risk Points – Nick Bruch, Jae Um and Bruce MacEwen

 

Jae Um, Director of Strategic Pricing at Baker McKenzie, opened her remarks with a compelling scatter graph of the top 200 law firms. Across the horizontal axis was size and scale, and along the vertical access was PPP. There were two outliers – one at the very top left of the curve (which we assume to be Wachtell given its high PPP but small size) and one outlier at the far, lower right. There was a dramatic clustering of approximately 130 of the firms in the lower left quadrant of the curve. These are firms that have neither the highest PPP nor largest size/scale.  According to the panel, it is these firms that could be the most negatively impacted in the next recession.

 

Client Selection Criteria Developed by Bruce MacEwen of Adam Smith Esq.

Maroons Greys
Truly distinctive “destination” capability Efficient, predictable, reliable, transparent
Price is no (real) object Price-sensitive from mildly so to least cost wins
Rare events in corporate lifecycle with boardroom visibility “Run the company” not “bet the company”; cost of doing business legal services

Bruce MacEwen further suggested that there are threats and scarcity for both models:

  • For the Maroons, they require the highest level of talent and if they cannot find them, they settle for teams of B players. They also tend to have a high level of complacency. The scarcity is finding enough of the highest level of legal talent plus business savvy in the same individuals.
  • For the Greys, the threat is their own self-delusion that they are Maroons. The scarcity is that they lack expertise in continuous improvement, driving costs out and assembling networks of suppliers.

The panel recommended that instead of pouring money into branding and marketing that firms should focus on what they want to be really good at since most competition happens at the practice level, not the firm level. This requires looking at the strategic options and figuring out how to exit business lines.