By J. Stephen Poor, Chair Emeritus, Seyfarth Shaw LLP
Five percent of Accenture’s workforce is no longer human.
One of Accenture’s managing directors, Michael Redding, shared that figure this month at a summit in New York on artificial intelligence. If five percent does not sound like much, note that, at Accenture, it equates to 20,000 full-time-equivalent positions.
These are not projected numbers. This is current state. This is the potential of A.I., and that potential is being tapped everywhere. Magellan Health, for example, utilizes a suite of programs – all under the banner of artificial intelligence – to handle a significant portion of its process for reviewing and approving requests for medical tests. Robot reporters are on the rise in journalism, including the Associated Press’s announcement this year that an automated writing service will begin covering 10,000 minor league baseball games annually. As I wrote in October, semi-autonomous trucking was tested in Europe this year to great applause.
What do these and other professions know that the legal industry does not?
A lot, it seems. With a few notable exceptions, our industry appears to be stuck in its historic patterns. According to the recently released Wells Fargo report on law firm performance, productivity is down in the first nine months of 2016, while attorney hiring and rates are up, the latter by 3.6 percent.
Given recent associate salary increases, these trends put pressure on margins. Bloomberg interviewed Joe Mendola, senior director of sales at Wells Fargo Legal Specialty Group to learn more. I found this observation from Mendola most interesting:
Big Law Business: What was your most surprising finding?
Mendola: One of the things I’ve been struck with is that demand is stagnant, and the industry continues to grow their attorney staffing. So attorney staffing was up 2.2 percent. That’s not a whole lot, but when you’re not growing your demand, your work levels, you have to step back and say why? Essentially, there’s more people and less work.
Certainly, firms continue to look at expense costs, like reducing space costs. For most firms, however, the obvious cost reduction measures have been taken over the last eight years.
In response to a flat market and rising expenses, the general response of the industry is to hire more lawyers and increase rates. This worked in the rising demand market of 2005. Perhaps firms are counting on an uptick in demand and a return to those days. Perhaps, with a radically different regime in Washington, regulatory change will even produce a short-term uptick.
Nevertheless, the nature of the industry has fundamentally changed since 2008. In a world of flat or declining demand for the services of Big Law, the reliance on rate increases to support profit growth is not a sustainable path for most firms.
So, what exactly is it that companies like Magellan Health, Accenture and others know that the legal industry does not? They know that, to compete and continue to survive, they cannot continue to operate in the same way. They know that it is essential to re-examine their business processes and continually redesign those processes to add value while removing cost. They know that current technologies can be a part of that redesign.
Take the example of Magellan Health. Magellan understood the need to redesign their process for reviewing and approving requests for medical tests. Their business problem included two variables: the need to reduce costs and eliminate unnecessary medical tests on the one hand, and the lack of tolerance for error on the other. Magellan used a combination of natural language processing, machine learning and predictive analytics. And, yes, they made a sizeable monetary investment (which, they assert, has produced a return on the investment).
I have previously written about Big Law’s need to invest in emerging technology. Yet if our focus is solely on the long-term power of technology (which is indeed exciting), the industry runs the risk of continuing to defer the evolution of its business model while waiting for the next great thing.
But forget emerging technology for a moment. Big Law business is currently failing to use technology that is already available — technology that can make a significant difference in the way the industry operates.
And it’s not so much about the power of today’s technology, but rather the legal industry’s ability to amplify the power of existing people with this technology.
Looking back at Magellan, their articulated goal was to make “average” doctors into “great” doctors and to make “great” doctors even better. They will tell you they achieved this goal. This meant more than simply buying computer applications. It meant understanding what makes a doctor great, the process involved, and the intersection between human intelligence and the augmentation that can be provided by machines.
A similar insight could drive the legal industry.
Do we need long-term investment into emerging technologies? Yes, we do. But other industries have applied existing technology to reduce cost and augment the work of people. Consulting and medical are but two examples. It is not an easy task to apply robotics and other automation techniques currently available to Big Law but personal experience and the experience of other industries show that it can be successful.
Simply raising rates and hiring more people on the hope for a change in the demand cycle is not a recipe for long-term success. Redesigning business processes to utilize existing technologies that can improve the work of current attorneys will provide a path for long-term success for those firms willing to walk it.
For more essays from Stephen Poor (@stephen_poor) and Seyfarth on change in the legal industry, visit Rethink the Practice.