28 November 2018  | 

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Thinking about the future

These slides were used to introduce a panel discussion that I moderated at the International Bar Association’s ‘Building the law firm of the future’ conference in London, on 16 November 2018. I also co-chaired the conference, with Stephen Revell (Freshfields Bruckhaus Deringer, Hong Kong) and Rolandas Valiunas (Ellex Valiunas, Vilnius, Lithuania). The topic for the panel discussion was how law firm business models may be different in ~5 years, as a result of digital technologies and their disruptive effect on law firms, and on their clients.

My introduction set the context for a terrific panel, by challenging the conference participants to be open minded about the possibilities that might emerge, emphasising the need to avoid hype, and presenting data about emerging trends. The narrative accompanying the slides was provided to the panelists so that they knew what I intended to say. The informality of the wording is reflective of this.

From left to right:
Rob Millard
Director, Cambridge Strategy Group
Shruti Ajitsaria
Head of Fuse at Allen & Overy
Brian Kuhn
Partner, Co-Founder and Global Co-Leader of the Watson Legal Practice at IBM
Peter Lee
CEO, Wavelength Law
Dr Michael Smets
Associate Professor in Management and Organisation Studies at Saïd Business School, University of Oxford

Why is it that even the best informed of forecasts are so frequently wrong? Just four years ago, these were offered in articles in ‘The Lawyer’ as what the UK legal market would be like today. How accurate have they proved to be?

If the future is unknowable, then why even discuss what law firms will be like five years from now? If one wants
to get a better idea of the scenarios that might unfold, and what one might do about that, a good way is to get
a diverse group of experts to debate the topic. This works best when those experts are not afraid to speak their minds, to challenge convention and to be controversial. So that’s what we’ll do.

Another good way is to crowdsource ideas. The more informed the crowd, the better the quality of the input.

[Note: We used the slidi.com / sli.do app to poll the audience at intervals, testing their perceptions on key issues and allowing them to post questions as they arose instead of waiting until Q&A. This worked extremely well.]

Thinking about the future is always difficult, but it is easier when we recognise the blindspots that can trip us up. I will highlight just four.

Firstly, if one imagines a cone of uncertainty extending into the future, then that uncertainty increases exponentially over time. Some things are more predictable than others but when it comes to a wide array of trends that are relevant to law firms and their clients, the reliability of predictions trails off very quickly, the further one peers into the future. We need to constantly gather new intelligence, recalibrate, and challenge our assumptions.

The second blindspot is getting caught up by hype. We have always been preoccupied with robots. These comic books date back to when we were kids and our parents were kids – some probably even when our grandparents were kids! Robot lawyers don’t exist. Neither do robot judges. Algorithms don’t need human forms. It’s becoming commonplace today to call even quite dumb machine learning tools “robots.” Let’s ban the term from our discussions, unless of course we are talking about real robotics.

The third blindspot is the tendency to extrapolate what is familiar and ignore things that we don’t understand. This picture of a steamship exiting the sea onto railway tracks was one of a series of cards published by a German chocolate manufacturer in 1900, speculating on what Germany might be like in 2000. All the cards show either extrapolations of technologies that were mainstream in 1900, not emerging technologies like the internal combustion engine or automobiles, invented a decade before. What we don’t understand we discount or, if we see it as a threat, we even vilify. In 1900s, that may have been automobiles. Today, think distributed ledger technologies, or cryptocurrencies.

Finally, we have inertia. People hate to let go of what worked before, especially when it worked well. The people-leveraged, so-called ‘Tournament of Lawyers’ business model triggered an era of unprecedented prosperity for law firms, in the twentieth century. That model in turn was triggered by radical new technologies that emerged in the late nineteenth century, namely the internal combustion engine, distributed electricity, and radio + telephone.

These radically transformed commerce, industry and society …. so too client legal needs. Most current law firm business models are hardwired to the notion of selling value in increments of human effort, measured in time. It is what is measured most carefully and rewarded most in partner compensation systems. Transforming business models is more about culture, and mindset, and competencies, and then about business systems and structures and processes, than about the technologies themselves.

This is at once a challenge and an opportunity. Unlike many industrial companies, for instance, law firms are not shackled by massive investments in now-defunct analogue equipment. They only have to change the minds and behaviours of their people. Surely that is easier and cheaper?

So, let’s cut the hype. Let’s think about what we know we can assume as we think about how our business models need to evolve. And let’s do that around each of these five dimensions: our clients, our people, emerging tech-nologies, markets in which we compete for clients and work, and the impact that is having on strategy and on business models.

Over the next five years, we can expect the “more for less” pressures to intensify and the market will become more hyper-competitive. Firms are going to need to become even more efficient, and we can expect that tech-nology will play an increasingly important role in competing for work. What this diagram shows is that the most important new competitors to law firms, are those law firms’ clients themselves.

Furthermore, we know that alternative legal service providers and the ‘Big 4’ are intent on relieving clients of the additional work that they have taken onboard because they believe law firms cannot deliver it efficiently. This is dangerous because it allows these new kinds of competitors to cultivate relationships with those clients and to win work that still goes to law firms. One of the key questions that law firms need ask themselves is: whether they want to find ways of delivering those kinds of work, by adopting the same kind of business models as these new competitors are developing. And if so, how to do that profitably.

Millennials are no longer that group of youngsters that we need to understand and tolerate and that have strange ideas about work-life balance and how they expect to be treated. Demographic profiles have shifted. Millennials are becoming equity partners. Soon, they will be in the majority in most partnerships. Now, it is older lawyers who have the quaint ideas, that need to be tolerated … or not.

These youngsters, who are rapidly becoming the driving forces behind our firms, have grown up digitally native. For them, digitally transforming the antiquated systems and structures that frustrate them in their law firms is perfectly natural. They are intolerant of people who are intolerant of digital technology.

If Google searches are a proxy for society’s interest in a subject, then these diagrams paint interesting pictures. Firstly, AI is nothing new. People search for the term as much today as they did in 2005. Searches have ramped up since 2016, though.

Early this year, Cambridge Strategy Group published a paper titled ‘The Edge of Chaos,’ about digital transfor-mation in law firms. This can be downloaded for free from our website. In it, we argued that the heaviest transfor-mation is likely to come from the impact on clients and on the firms themselves of six key technologies, acting in concert. Those are: AI, blockchain, big data, 5G and whatever advanced wireless networks follow, the Internet of Things, and quantum computing.

The lower diagram shows that except the ‘Internet of Things’ and quantum computing, and big data (that trended up four or five years ago) searches on these terms have also grown significantly since 2016. 5G will be released widely in 2020. With bandwidths up to 100x faster than we have with current mobile networks, that will trigger a proliferation of the Internet of Things. Digital technology is morphing far more quickly today than it was ten years ago, five years ago … or even two years ago. Much of the really transformational change is also taking place in a part of the world largely unreported in western media, namely China.

This is not the forum to discuss economics in any detail, but let’s just acknowledge that the future of legal ser-vices and the evolution of new business models is playing out in a world where economic growth is elusive. Risks abound. There has never been a time when it has been more important for law firms to balance a strong sense of identity, purpose and direction …. with agility and organisational resilience.

This chart is especially stark. It shows how most law firms are responding to today’s pressures. Not by shifting away from the ‘Tournament of Lawyers’ model, beyond a little innovation at the fringes, but by ‘sweating their assets,’ trying to reduce costs as much as possible and make the model more efficient. That can only go so far. As the pressures for digital transformation accelerate, this may prove to be little more than flogging the horses hard-er in a world that is becoming dominated by automobiles.

Specifically, the chart shows that the number of ‘non-lawyers’ in law firms is declining as a ratio of total head-count. Most firms are still geared to lawyers and only lawyers as being the ‘producers.’ Yet new, ‘non-legal’ digital skills are essential in order to build, train and operate the digital algorithms that are emerging. Teaching lawyers to code as a solution is about as sensible as trying to teach computer programmers and data scientists to practice law. Headcount in law firm IT departments has been decimated as firms have moved to the cloud. That is different. Let’s look at the next slide, which will better illustrate what I mean.

It is facile to think of digitisation as being simply about replacing lawyers with technology.

A continuum of legal services and delivery channels is emerging, that one can categorise as shown in this slide. Category 1 is work done and delivered by digital means. Human input is limited to building the platform or the app, supporting it technically and updating it when necessary. Category 4 involves human input with almost no digital input, i.e. how lawyers have worked for most of the past century. In the middle we have two more cate-gories, where human and digital input is combined. In category 2, the algorithms dominate. Humans operate the technology. In category 3, humans dominate. The algorithms are tools that allow them to do work and deliver a level of advice that is far more sophisticated than would have been possible without those tools.

It’s fair to say that most lawyers today excel at category 4 and many also at category 3, at least with the tools that have so far become available. Many do not. Cultural, mindset, systemic and even simple competency obstacles exist that prevent many lawyers from using these tools. This becomes even more pronounced as we move to cat-egory 2 and 1, where we have the added problem of a shortage of digital talent in law firms, too. If we think about how value is created across the categories, and what kinds of people are required, and how services would best be priced, and what clients would expect from each, it becomes clear that the firm of the future will likely have not just one, but multiple business models.

So, over the next five years we can expect the pressure on client in-house teams to deliver more for less to increase and for them to continue to pass that pressure on to their external legal advisors. We can also expect a whole new generation of legal needs to emerge for clients as their strategies and business models are digitally disrupted. Law firms will need to reinvent both their knowledge and their tools in order to meet these needs.

We can expect economic growth in almost all leading markets for legal services to flatline at best, which means that barring bonanzas that spawn unusual demand, growth will only come to firms that outcompete their competitors in evolving their business models to align with new realities. Against that backdrop, we now have new generation digital tools emerging that offer radically new ways of creating and delivering legal work product.

What might law firms look like in five years, as a result? That’s a question for which we must turn to our panel.

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