Forces and trends shaping the legal industry
“While a subset of corporate law firms is adopting new business models and all the ancillary values, many are still rooted in the billable hour and the traditional partnership culture. That will likely stifle innovation and make it a harder sell for legal tech…”
August was a pretty hot summer month, at least from my point of view. The (then current) research objectives required insights and vantage points of some of the most renowned thinkers and doers in legal tech and the business of law in Europe. We had tight deadlines, and the summer holiday wasn’t helping much. I postponed mine (the least I could do), yet, there was still a risk of trying to reach people while they were presumably sunbathing or enjoying their margaritas after a session of drift diving.
Luckily, a few kind people selflessly gifted me a portion of their time. In no particular order, I will mention them here, as a way of my THANK YOU – Holger Zscheyge, Tobias Heining, Jeroen Zweers, Gregoire Miot, Marko Porobija, Srdjan Dejanovic, Helena Hallgarn, Iga Kurowska, Hariolf Wenzler, and Raymond Blijd (more people made themselves available in September, and I will include their insights in the final report). Most, but not all, contributors are volunteering their time to ELTA – the European Legal Tech Association, a think-tank whose potential, in my view at least, might be underrated – at least as far as understanding trends in this sector goes, I will not forget your kindness; your insights have been most valuable too. Below I present one tiny part of the discussion, while the more detailed paper is yet to follow.
Legal Tech adoption is struggling
That headline might have been a bit click-baitish, but it isn’t that far-fetched, according to some respondents. When asked about the subsets of legal tech that aren’t getting enough adoption, I heard „all of them“ a few times during the interviews. Even if we would dismiss such statements as exaggeration, I found the reasons for such notions quite interesting.
When discussing law firms as a segment, I would usually hear „lack of pressure to optimize“, „revenue focus over the cost focus“, „the law firm Partnership structure and culture“, and „little to no perceived benefit of legal tech“. Of course, „the Billable Hour“ is potentially the biggest mentioned culprit.
According to respondents, some legal tech product categories might „go against the grain“ of the Billable Hour and the Partnership culture. In some cases, there could be concerns about partner autonomy or their leverage over their law firm. As creatures of habit, we tend to object to giving away any comfort that we’ve gotten used to.
At the same time, some of the legal tech solutions undoubtedly require different thinking and behavior overall.
Speaking of the Billable Hour…
I would hate to take more of your valuable time with this one, but I’d like to share an anecdote.
Many authors pondered upon the life and death of the Billable Hour and its compatibility with contemporary organizations, times and times again. We have all heard the rationale and arguments, both pro and con this business model. So, was it too naïve from my side to expect law firms to move away from this business model?
Well, “as naïve as the perfect square“ seems to have been the apt answer. The contributors have all mentioned selling hours as one of the fundamental influencing forces in the current state of the legal tech market. Of course, some firms evolved their way of doing business, and no two law firm segments are equal. But in the corporate sector, at least, it seems there is no lack of mandates, which maintains law firms‘ upper hand in the matter.
I did try to play devil’s advocate. I consulted a few researchers who’ve made it their life mission to help law firms bury the Billable Hour. I told them what I was hearing during my time on this research. I was quickly dismissed as potentially biased (i.e., the „if a vendor is conducting research, it naturally supports hourly billing so that it can sell more time trackers“ kind of an argument).
I did hear this argument before, and I admit it sounds logical and alluring. While I can’t speak for everyone, the front seat in this project gives me a clear overview of the objections of this research (and it wasn’t to justify the existence of the time-billing model).
Yes, the STP Group does have a time-based billing application, but there is so much more. There are so many exciting use-cases our whole business and product team is too happy to explore and pursue. Discussions with law firms have shown a market for innovating law firms‘ business models. Everyone in the company is delighted to explore such paths and learn about possible directions.
Looming war for talent in the legal services
Another point that nearly all contributors mentioned without leading questions is a shortage of good legal talent in the market.
All respondents agree that the pandemic period seems to have been quite good for law firms – traditionally, they tend to make money during both boom and bust times. What we were wondering, however, is whether the high demand for legal skills will remain in the coming part of the cycle. Sadly, no crystal balls were employed, and even if we did, the results of such an exercise wouldn’t be trustworthy.
What I also find worth mentioning is the influence of new generations entering the legal sector workforce. It seems upcoming generations have less appreciation for the law firm pyramid structure than their precedents. Young associates, I’m led to believe, don’t so much have faith in climbing up the partnership ladder anymore. At the very least, some of them feel the law firm structure got overly complex to render any such efforts viable; others yet don’t even feel like trying.
Coincidentally (and interestingly), if anything has enough leverage to budge law firms to move away from billing by the hour, it is the young professionals. It seems like many firms are concerned about how up-and-coming lawyers perceive them. If enough lawyers „vote with their feet,“ they might even drive law firms into new business and governance models faster than all the prior crises combined. Time will only tell, lacking the proverbial crystal ball.
What’s the biggest headache for law firm leaders?
The above was one of the open-ended questions asked in the interviews. Overwhelmingly, the answer was „finding and retaining talent,“ and „understanding why and what innovation is,“ took the second spot. Finally, there was a view that a subset of law firms felt no significant challenges at all. The former isn’t an actionable insight, so take this as you will, and (as I would recommend it) always with a grain of salt.
Looking forward to uncovering further insights from the market.
Intrapreneur & Managing Director,
STP Information Technology Bulgaria EOOD