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Why law firms need to innovate (or else..!)

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By Steven O’Donnell

A story like the one I’m about to mention would have once been a jarring exception in the annals of corporate client-outside counsel relationships.

But nowadays? It’s nearly old news: Teva Pharmaceutical’s CLO, David Stark, has decided to slash the number of outside law firms handling his business.  His primary goal? Significant discounts, which he sees as something he can obtain from “hungry” firms. In his mind, he’s not seeing sufficient value at the rates being charged by many of the rest.

He’s quoted – ‘disapprovingly’ – on how “growth rates of law firms are far exceeding the growth rates of the pharmaceutical industry.”

What he’s doing is not an isolated instance. In-house legal departments, CLOs and GCs and their staffs are under ever-tightening pressure to do more with the same – or even less – in terms of budgets and resources. That pressure, naturally, is passed along to law firms.

More pressure from multiple directions

Legal “consumers,” both corporate and individual, are more informed about what they’re paying law firms, and what they’re getting out of it. They’re forcing new billing models, but they’re also implementing e-Billing and financial management technologies to manage the challenges of controlling legal spend and maximizing value received.

Until the global financial crisis of a decade ago, there were few pressures on the legal industry (or some others) to change. Law firms could cut internal costs rather than invest in innovation, and lawyers have a historical aversion to adopting new practices anyway.

Today, however, law firms are being forced to transform themselves or perish. Client pressure is not the only factor at work; competition – from other firms and alternative service providers – is very real, and even the judicial system is getting into the act, as judges press companies (and, by implication, their law firms) to utilise technology tools to do a better job in areas like collecting and collating e-discovery and legal hold data.

In an instance like Teva Pharmaceuticals, a law firm is faced with blunt choices: To innovate by making itself more efficient and agile in order to deliver a high level of service while still maintaining profitability; to stand pat, and endure shrinking billings and margins; or to wave goodbye to that client in hope of finding another who’s satisfied with the “traditional” paradigm. The first is technologically feasible; the second is risky and difficult; the third is wishful thinking and incredibly expensive, since it costs a firm 10X more to obtain a new client than retain an existing one.  

Technology offers innovation tools that can make law firms more competitive, responsive, and efficient. But any tech tool, or suite of technologies, isn’t enough. To leverage them effectively, there are three key pillars that must be in place:

1 • Be bold

Having the courage to move forward is vital. As Stephen Embry and others have noted, law firms haven’t felt much heat to evolve until recently.  But entities like CLOC, already driving the Legal Operations movement for in-house legal departments, are now extending opportunities to law firms to become part of the “ecosystem” of innovation and collaboration that have already manifested results in Legal Ops.

Solutions like SaaS workflow automation are relatively easy to adopt and use and can reward law firms with “quick wins” that make further technology adoption more palatable. Digitizing and automating the processes underlying legal services renders them standardized and efficient, which rewards the law firm’s initial courage with bottom-line results.

2 • Embrace co-innovation

One strength of technological innovation? How it creates opportunities for co-innovation, where law firms can build internal forums for sharing ideas, or even become partners in that “ecosystem” I mentioned, which includes clients and service/technology providers, where not only platforms and services are shared, but ideas and collaborations.

Some law firms have even taken the lead in building these ecosystems on behalf of their clients, rather than waiting for clients to force innovation on them. Keesal, Young & Logan have partnered with Mitratech in a  Keesal Propulsion Labs initiative through which they advocate for the creation of “legal service centers” within client companies, serving as enterprise transformation centers where Keesal can help clients ensure legal and compliance best practices are “intertwined throughout existing processes at the start and middle, rather than just the end,” as KYL’s CIO/CISO, Justin Hectus, has explained.

In our own case, we’ve launched a TAP Co-Innovation Center where users of our own workflow automation solution – law firms included – can share workflow designs and ideas. It’s a service that’s been roundly embraced by our user base, and that’s another indicator of the sea-change in attitudes that’s happening in the industry.

3 • Empower the right people

The courage to change and a willingness to co-innovate are futile without having the right people in place to move innovation forward. They’re as important as any technology asset, maybe more so.

The human factor is obviously central to everyday operations, and it’s even more key to making innovation a reality. People with a willingness to push modernization forward should be complemented by processes, assigned roles, and a set of goals that allow them to institute the kind of positive changes that can give a law firm a reputation for efficiency, agility, and client-centric innovation. That reputation is a yardstick that more clients than ever are applying in evaluating outside counsel.

About the author
Steven O’Donnell is Head of Product Marketing – Legal Operations at Mitratech. He has a wealth of knowledge and experience about the challenges facing legal professionals. He is also a regular speaker at industry events and webinars, and provides in-depth insight into how technology is transforming the legal industry.

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