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A new business model for legal services

Cover Story

Cite as: (2003) 77(3) LIJ, p.28

In the growing and highly competitive global market for legal services, the development and implementation of Internet-based workflow project and matter management technology will provide the basis for new ways of doing business.

By Elizabeth Broderick and Stuart Jones

In the growing and highly competitive global market for legal services, the development and implementation of Internet-based workflow project and matter management technology will provide the basis for new ways of doing business.
By Elizabeth Broderick and Stuart Jones

In most industries and professions, when you request a service or product there is a system to ensure that it is delivered, it arrives on time, is at a particular cost and is of a particular quality. But there are still some professions in which no such system exists, law being one of them. Depending on which law firm and lawyer contacted, the client may or may not get the advice on time, at the agreed price or of the expected quality. That’s just the way it is.

Bringing about the cultural change necessary to make new business models succeed is never easy, but it is particularly difficult in industries such as law which are so steeped in tradition. However, in a growing and highly competitive global market, clients are increasingly demanding transparency. They want greater access to legal services and service-level guarantees and they want fixed prices – if not for the entire transaction, then for large parts of it. These changes mean that law firms have two choices – either to respond to the demands or to sit back and watch a large part of their market disappear to a new breed of legal supplier, one with a technology-enabled business model.

There are particular challenges in Australia. It is not a major global financial hub, which means the volume of legal work is limited. For this reason Australian law firms need to be more innovative. The increasing standardisation and “commoditisation” of services within many practice areas such as property law, insurance litigation, immigration law, intellectual property law, employment law, insolvency, commercial law, retail finance and consumer credit, to name just a few, means that the way services are delivered needs to change. What is occurring, perhaps more quickly here in Australia, is a slow shift of legal work towards the lower-value end.

Even today, many lawyers think that technology will not impact on the higher-value areas of legal practice such as major legal transactions. The fact is, no matter how much high-level creative thinking is required to initiate and complete a successful transaction, there are elements of the process of buying or selling an asset, for example, which remain fairly standard. By automating standard elements of the legal process, even among high-value legal matters, lawyers can be freed to concentrate on the more complex parts of the process. More routine tasks can be pushed to a lower cost resource – one armed with appropriate knowledge to carry out the task. In this manner, a more consistent, higher-quality product can be delivered faster and cheaper.

There has been significant debate about the rate at which these changes are occurring. Most full-service firms are facing a decision as to whether they should simply exit all commodity or process intensive areas of law, and move away from a full-service strategy. This would mean giving up many aspects of legal practice. For the majority of firms, this is not a commercially viable option.

Some large Australian-based firms and a number of global law firms have taken steps in this direction. However, more recently some of those firms are revisiting their decision. This may be in light of tighter market conditions or because standardisation and “commoditisation” is occurring faster than expected. The alternative to exiting commodity practices is to aggressively reinvent them where this makes sense. Unless firms do this they may find themselves failing to maintain a competitive position.

THE UK EXPERIENCE

In the UK the past 12 months has seen the emergence of niche firms with technology-enabled business models geared to high-volume low-margin work.

Two excellent examples are the law firm Enact, a separately branded and operated division of UK law firm Addleshaw and Booth, and Hammonds Direct. This entity was originally established by the UK-based law firm Hammonds Suddard Edge to address the issue of maintaining profitability in quickly commoditising areas of legal practice.

The challenge for these firms will be the reintegration of valuable aspects of the new business model and culture into the main business. The objective in doing this will be to benefit from the learning gained through the new entity.

TECHNOLOGY-ENABLED BUSINESS MODELS

Given the changes occurring in the legal market, lawyers and firms will discover, if they have not already, that they need to alter the way they deliver services in certain areas. The significant issue is that the new technology-enabled business models change everything about being a lawyer. From working in what was once a very opaque environment, lawyers are now being called on to embrace transparency and to become excellent project and process managers.

The response to these changes has been slow. One main reason for this is that until recently there has been no commercially available technology to support workflow management in law firms. There have been “one size fits all” sophisticated offerings, but nothing tailored to law firms. This has been a major obstacle, particularly when the critical success factor is the degree of cultural change that can be effected within the law firm. To be successful, it is important to use technology that understands the way lawyers work and the language that lawyers use.

For many firms the trigger to consider workflow management technology often occurs when a significant client tenders for legal services in a process intensive area of law. The client is usually looking for a price sensitive solution and certain guaranteed service levels. Often the firms tender on their normal basis fully expecting to win – but don’t.

Over the past few years, Blake Dawson Waldron has worked with corporate counsel in many industries to understand their technology needs. Delivering their “best imaginable future” has centred around bringing full transparency to the legal process. Corporate counsel want the same level of transparency that they receive when they ship their goods via FedEx or UPS. They want to see at any time of the day or night exactly where their matters are up to, how much is on the clock, what tasks are outstanding and whether the service levels have been met. Workflow management technologies underpin a new business model which will allow firms to better meet these demands.

The technology allows the law firm to systematically manage and expose selected information about each matter. And if the overall profit of a law firm is the sum of the profitability of all the matters undertaken by the firm, managing these matters in the most efficient manner seems to make sense. The technology enables the supervising lawyer to see at a glance how much time is being spent on each task, which tasks are outstanding, and a range of matter management information. For the lawyer conducting the matter, each task has embedded in it all the documents (or knowledge objects) necessary to carry out the tasks. And for clients there are benefits too.

On occasions, clients complain that they could more cost-effectively carry out individual tasks in a transaction than the law firm. Until now it has been very difficult to “unbundle” transactions to allow this to happen. In the future, clients and lawyers will be able to collaborate on matters through a common workflow and shared electronic file. Certain tasks can be assigned to the client and the output collated and recorded in the system. When every person working on a transaction does so through the workflow management technology, the system collates real-time status information. This allows the client to see how the transaction is progressing. And where clients have many matters, they can see consolidated information for a group of matters. When clients are able to see at the same time as the lawyer which tasks are outstanding, a much greater level of transparency than ever before is possible. However, the real test will come when clients demand real-time financial information. An excellent example of this is the information delivered by law firm Kemp Little in the UK. It allows all its clients to view unedited time billing information in real time. The senior partner Richard Kemp said this changes for the better the relationship between lawyer and client.

IMPLEMENTATION OF WORKFLOW MANAGEMENT TECHNOLOGY

There are two ways to implement workflow and project management technologies. For commodity legal practices they are best implemented as an end-to-end workflow and project management system. For high-end legal practices the technology is best implemented as a smorgasbord of sub-processes to be accessed when the lawyer needs to reuse knowledge. The reason for this is that high-end legal practice is much less process intensive and requires a significant level of analytical thinking. Standardising the parts that can be standardised allows the lawyer to concentrate on those parts of the transaction which are unique.

Introducing a matter management or workflow management system as described in this article is one of the most significant change management exercises a law firm can undertake. However, the technology on its own is insufficient to drive the new service model – people need to support it.

If the technology is presented as the total solution, then the focus remains on the tool rather than the objective, which is the need to increase profitability in commoditised areas of law. For this reason, it is important to consider how the change is presented. Introducing it as part of an overall package around transforming a legal practice is the recommended approach. Sustainable competitive advantage will come from the cultural change a law firm can achieve on the back of the new business model.

ORGANISATIONAL CHANGE

How do you evoke the organisational change necessary to underpin a new technology enabled business model? Organisations need to ascertain whether they have the necessary commitment to change, and whether the time is right.

Ordinarily, before rolling out a technology as transformational as workflow technology all stakeholders would have to feel the need for change. This is the first phase of organisational change. While some practitioners in areas of law being significantly impacted by these changes should consider themselves to be on a “burning platform”, experience suggests that most do not. Instead of reaching out for a lifeline in the form of a new business model, many lawyers will deny that their business is being adversely impacted and continue to fall further and further behind.

How should change be introduced? Lawyers need to be encouraged to get on board with the vision and then be given the option to experiment with the new business model. At the end of the day, sustainable change will only result where lawyers have been given the opportunity to voluntarily embrace the change. Younger lawyers can be more accepting of new practices, and boards can lead change, however the bulk of people in the middle, partners and senior lawyers, often have significant reservations. The degree of change being requested can be just too much.

Some senior lawyers may feel that the system is only of benefit to secretaries and junior lawyers who need more guidance. They may be sceptical that, given the pressure and demands on their time, the final benefits fail to justify the time required to learn to use the system. The unfortunate thing is that these viewpoints fail to recognise the changing nature of the relationship with the clients, many of whom are demanding greater transparency, improved service levels, fixed price work or value-based arrangements. And, of course, there will always be those who argue that there is no incentive for lawyers to use a system that makes them more efficient when billing is on a time basis for each matter.

The implementation of workflow management technologies like Niku 6, ServicePort, Solicitec, Infographics and others will challenge many of the cultural norms which are so deeply ingrained in the legal profession. The truth is, the real value comes not from the technology but from the organisational change delivered as a result of the technology.

It is often easy to underestimate the cultural resistance to technology change. The key to minimising this is to identify the values, behaviours and assumptions that underpin both the existing culture and the new culture. One can then devise strategies to support the positive aspects of the culture while neutralising or replacing the negative aspects.

One example is the way in which lawyers think about time. Lawyers and support staff are under constant pressure in their daily work and minutes count. The organisational changes introduced through the use of workflow technology may redistribute time between tasks and people so that the overall time to complete the transaction is reduced. Our experience is that if the time taken to complete any single step in the new workflow is greater than in the old, the change is much less likely to be accepted. This is the case even if the time taken overall is significantly reduced. Culturally, time is measured in small gradations in law firms so time to do a small series of tasks in minutes is more tangible for the individual.

The forces driving change to legal practice will continue and are likely to accelerate. We cannot afford to wait and see where the future leads, we need to be experimenting and evolving a culture that is not afraid of change. Law firms that do not accept the need to provide greater transparency, and that fail to implement systems to help them achieve this, will ultimately pay the price, as technology is quickly setting new benchmarks and clients will be quick to catch on.


ELIZABETH BRODERICK is a partner with Blake Dawson Waldron. She has overall responsibility for the Legal Technology Group. The Legal Technology Group specialises in developing and implementing technology solutions for lawyers and clients. This includes Internet-delivered legal services for major litigation, mergers and acquisitions, and computerised legal products in the areas of trade practices, trade promotions, workplace discrimination and advertising. She has also been responsible for the implementation of the firm’s workflow management technology.

Ms Broderick was Telstra’s NSW Business Woman of the Year and winner of the Telstra Australian Business Women’s Awards (Private and corporate category) for 2001.

STUART JONES is a change management consultant with Blake Dawson Waldron and has led the firm’s change management initiative in relation to workflow management technology.

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