There’s an interesting piece in Legal Business recently where their editor Alex Novarese brings together thoughts from a group of leading partners in large City firms to suggest things that can be changed to improve the fortunes of Big Law (£). The list of problems that need to be tackled included are concerning:
- Developing more stable (yet ‘flexible’) remuneration, promotion and de-equitisation models, with the desire to maintain some of the virtues of lock step over more red in tooth and claw ‘eat what you kill models’.
- A need to retain more profit in partnerships (and so reduce partner remuneration in the short- and possibly medium term) and reduce debt
- The now accepted view that new associates are too expensive and (perhaps) under-trained yet need to be paid a lot to attract the best at the milk-round stage
- A need to internalise hourly rates (that is move away from hourly billing and see hourly rates as an internal cost management issue not a mode of billing) and the associated need for better information on profitability and pricing to enable them to do that.
- Shift from superficial added value (such as training for clients and bog-standard (my phrase not theirs) newsletters and research notes to ‘proper’ research and development which is incisive, more heavyweight and related to service development.
It is the last point that is most interesting and a reminder of how far big law may have fallen behind rivals in other professional service firms:
Though many large companies spend between 3% and 14% of turnover on research and development (R&D) depending on industry, law has avoided this approach. While the economics and business of a law firm obviously don’t call for anything like the investment cycle of pharmaceutical or information technology companies, there is a perfectly good case for modest and targeted research functions once you get into the realm of £500m law firms.
One model is for a centralised team focusing on big picture ideas, wider trends, the business model and what can generally be viewed as process innovation in the delivery of law. This would not have to be large – most likely it would consist of a smaller core group, drawing on regular secondments and cross-team working. One aim of such a group would be to liaise with other teams likely to be working with innovation, most crucially technology and knowledge management teams. This R&D team would be ideally placed to evaluate potential game-changers like artificial intelligence (AI), technology that has major implications in law in using algorithms to sort and process document-heavy tasks like e-discovery, due diligence and contract review. A second function of this R&D team would be to focus on actual product innovation: how developments in law could be put together and marketed to clients and how to come up with ideas in how services could be packaged more effectively. This sub-team would need strong lines of communication with groups focused on sales and industry analysis. To work, the team would have to be sponsored by a partner of considerable standing.
AI is the huge wild-card. This raises the possibility that in ten years it won’t be a debate about if you are doing a certain kind of work in Mumbai or London it will be whether you can handle this with an algorithm
But there are some steps being taken in this direction, for example Allen & Overy (A&O)’s ‘innovation panel’, which is overseen by partner Jonathan Brayne. The biggest challenge in law firms is not that there are not increasing amounts of sporadic experimentation going on – there are – the challenge is to more effectively foster it, co-ordinate it and deploy it commercially
Big Law has the enormous benefits of scale scope and (should it work out what to do with it) data to drive innovation. They also have, in the short term, less to gain from innovation than fleeter of foot entrists. The Novarese piece suggests a degree of awakening amongst the big beasts. The conventional innovation story is that scale and size leads to inflexibility and that innovation will come from outside. Such conventions are largely based on free-er markets where there are not the monopolies that protect the professions (albeit that this protection is weaker than previously). Accountants might be a better analogy than (say) Kodak. But my (superficial) understanding is that they seem to invest more to develop for the future.