By J. Stephen Poor, Chair Emeritus, Seyfarth Shaw LLP
A recent Gartner report observed that, “by 2022, smart machines and robots may replace highly trained professionals in tasks within medicine, law and IT.” The report goes on to conclude that the ability of automation techniques to substitute for a lawyer means that “what the enterprise previously considered value-added practices will become a utility” (Prepare for When AI Turns Skilled Practices Into Utilities, Gartner, March 8, 2017).
It is yet another voice in the debate over the impact of advanced technologies on BigLaw. In considering this issue, we tend to overlook the reality that BigLaw is no longer a monolithic industry. The most recent set of AmLaw data simply confirms the trend we have seen for a number of years — the industry is becoming increasingly stratified into groups of firms with different brand values and positions in the marketplace. For example, the top 20 or so “elite” firms have clearly broken from the pack with respect to economic performance. Beneath that group it is likely that we will see clusters of firms begin to emerge at various levels of the marketplace.
This change in the structure of the industry is largely driven by economic/market factors. Clients want and need different things from their legal service providers. They need predictable cost structures, efficient service delivery, smart deployment of technology, process, and project management — to name a few.
In the absence of an industry willing to meet these challenges, the buyers of legal services are speaking with their money. Elite firms (or elite practices within firms) continue to attract client business. And, while there continues to be work for other firms, increasingly clients are keeping work in-house or using alternative service providers. Thus, while the need for legal services is rising, the demand for services from traditional law firms remains flat.
Avoiding the Muddy Middle
We see this dynamic reflected in a variety of data spread over the industry. Of course, AmLaw data supports this conclusion. Similarly, in a recent Altman Weil survey, well over half of the firms responded that their partners were underproductive (Altman Weil 2017 Law Firms in Transition). Yes, there is still healthy money to be earned in the industry generally, but the struggle in the muddy middle of the industry to compete for scarce market share is quite clear. This is so because the nature of the business has changed. Mark Cohen captured this change perfectly by noting that “legal delivery is now the business of delivering legal services, not simply the practice of law” (“Are Law Firms Becoming Obsolete”, Forbes, June 12, 2017).
Now layer technology advances on this striated industry. The impact simply will not be felt equally. Technology — whether through cognitive computing, machine learning or other tools usually lumped together under the term “AI”— will shortly be in a position to handle the repetitive tasks generally associated with large swaths of the practice. The “elite” firms – those firms or practices that handle legitimately bespoke work will stave off the impact. For smaller firms or alternative service providers, it provides an opportunity to use technology to punch above their weight. It is the firms in the middle that will be squeezed. In another context, McKinsey has referred to this as the “barbell” economy (McKinsey Global Institute, A Future that Works).
Can firms in the muddy middle adapt to this challenge? Some will. Most will not. The problem is that adaptation requires change. The Altman Weil survey produced some interesting results in this regard. The overwhelming majority of managing partners surveyed see the increased price pressure, the slide of practices into “commodities” and the impact of technology as permanent trends.
Despite this recognition, 61.5 percent of the respondents said their firm was only moderately (or less) serious about change. Lest you think this is not a bad number: 81.5 percent of corporate counsel gave the same response about their firms. On the technology front, only 7.5 percent of firms have begun to use AI tools. Another 29 percent are “exploring.” The remaining 64 percent were either doing nothing or are unaware of the emerging opportunities.
The reason for this disconnect between belief and action is pretty obvious: 65 percent of firm leaders say their partners resist change. Hardly shocking. And why? 60 percent respond that they are not feeling enough economic pain to feel the need to change.
Indeed, the financial performance of the industry remains healthy. The speed of technological advances, however, is remarkable. Up until this point, the industry has had the ability to slowly adapt to market forces and emerge ever stronger.
That slow adaptation is unlikely to work this time. Existing market forces will only be amplified by the emergence of different technologies that will change the nature of the delivery of legal services. This is a tremendous opportunity for firms who embrace the challenge and change their delivery systems. For those who continue to believe they are special snowflakes that will escape—well, the odds are not in their favor.
For more essays from Stephen Poor (@stephen_poor) and Seyfarth on change in the legal industry, visit Rethink the Practice.