Law Firm Innovation & the Limits of Current Tactics: Altman Weil’s 2017 Law Firms in Transition Survey

Topics: Client Relations, Efficiency, Law Firm Profitability, Law Firms, Leadership, Legal Innovation, Surveys

innovation

The latest Altman Weil 2017 Law Firms in Transition survey includes a number of insights around the elusive search for innovation in the legal industry.

As the introduction to the report notes, the law firm leaders who took this survey are acutely aware of the pace of change in the legal market and the permanency of a number of big changes, such as increased price competition, a need for efficiency, new types of competitors, and the influx of technology-driven change.

The problem is that they can’t seem to get their firms to innovate and change fast enough — and certainly not fast enough in their clients’ eyes. Only 2.2% of respondents think law firms are “highly serious” about changing service delivery models to provide greater value (beyond simply reducing rates). Another 36.4% see “moderate” seriousness, and fully 61.5% give law firms low marks in this regard. Clients’ view of the situation is even dimmer, with only 1% thinking firms are serious about this kind of change, while 14.5% seeing firms as moderately serious and a whopping 84.5% thinking law firm seriousness about change is low.

And yet, elsewhere in the survey, the same respondents are asked why their firm isn’t doing more to change the way it delivers services. More than half (58.7%) say that clients aren’t asking for it. Other reasons for the slow pace of change? Some of the highest-ranked responses are remarkably internally-focused: partners resist change (65%); firms aren’t feeling enough economic pain to change (60.5%); and partners are not aware of what they might do differently (56%).


Respondents are asked why their firm isn’t doing more to change the way it delivers services. More than half (58.7%) say that clients aren’t asking for it.


So, there you have it. Law firms aren’t changing fast enough because clients aren’t asking for it, and partners are resisting or incapable of change.

And yet, change is all around! The introduction to the survey notes that, in fact, there is plenty of evidence that clients are “asking for it,” even if firms and rank-and-file partners aren’t hearing them. For one thing, more than two-thirds of respondents (67.9%) report that they are losing business to their own customers, who are in-sourcing a greater share of legal work. And 20.2% of law firms see client use of technology as a factor that is costing the firms business. Law firms are also losing business to non-law firm providers and non-traditional law firms. The Altman Weil report cites the recent Thomson Reuters/Georgetown/Oxford study of Alternative Legal Services Providers and the $8.4 billion in legal spend that is going to those alternative providers.

Yet, if law firms are admittedly and demonstrably losing business to clients who choose to do the work themselves, or who find some non-law firm provider to do it instead, then it’s probably safe to say that clients are, indeed “asking for it.”

Aside from this doom and gloom, the report does have some valuable clues as to what is and isn’t working (yet). One new question in the survey this year asks about a number of efficiency tactics that a firm is using, and how effectively they are leading to improvements in performance.

This year, the winning tactics seem to center around who does the work and how much they are paid. The most successful tactics are: shifting work to contract or temporary lawyers (69%); shifting work from lawyers to para-professionals (49.5%); and rewarding efficiency and profitability in compensation (46.3%).


The good news in this data is that the sense of urgency about the need for innovation seems to be growing among firm leaders. The bad news is that the rank and file is still not ready for it.


But those tactics — while likely effective in terms of profitability and innovative in their own right — don’t really represent the sort of strategic change in the way work is planned or delivered that we think of as innovation. The tactics that have the most capacity in that regard have been found to be less successful: using technology to replace human resources (39.4%); re-engineering work processes (35.8%); using non-law firm vendors (35%); knowledge management (28.7%); and project management training (24.8%).

It’s likely that those lower success rates are simply a matter of execution and experience, or lack thereof, with those more fundamental changes in the way legal work is designed and resourced. In the end, it comes down to culture and the ability to manage change, and in that, the Altman Weil data gives at least part of the answer: the share of firm leaders who say their partners resist change efforts has actually grown, from 44.4% in 2015, to 64.4% in 2016, to 65% in 2017.

The good news in this data is that the sense of urgency about the need for innovation seems to be growing among firm leaders. The bad news is that the rank and file is still not ready for it. It’s not enough to foist new technology on people and expect them to leverage it. Experience from other industries shows that this kind of culture change needs to be prepared for and managed, in a way that turns innovation into something everyone takes part in and drives forward, not just a handful of innovation champions.