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The Traditional Law Firm Business Model
Advice is at the heart of every law firm’s business model, so why are law firms automating it? The answer to what seems like a contradictory practice lies in first understanding how traditional law firms currently operate. Law firms at their core, are revenue making machines. When a client has a legal problem, law firms provide advice and generate legal documents. These activities are billed in six-minute increments, so why would lawyers want to automate these processes if inefficiency increases revenue? The simple answer is this: Law firms are driven by their clients and partners. With automation becoming more prevalent in the legal space, clients and partners are driving law firms to innovate for several reasons, including efficiency and revenue generation around the clock.
4 Reason why we are seeing automation in law firms
1) The rise of fixed fees
Clients are demanding fee structures for simple types of work. Accelerated by the emergence of NewLaw, Big4 pricing models, alt legal services, and new players in the market, law firms are now being driven towards commoditising these services. However, if fees are fixed, lawyers are now incentivized to do more work, faster. The problem here is that efficiency in the current law firm model is constrained by the number of lawyers and the number of hours these lawyers work. Therefore several firms have now turned towards automating fixed fee work to provide services around the clock at a competitive price point.
2) No fees
A lot of work done by law firms is not billable. Non-billable work must be done in order to maintain relationships or is considered “value-add”. An example of this is loss lead work which is often done for business development and obtaining new clients via free work. By automating non-billable work, lawyers can free up time for expert analysis instead of focusing on generating business for the law firm.
3) Innovation to win work and retain clients
As innovation becomes more prevalent, panel tenders expect law firms to be using automation to drive efficiency and retain their position on the panel. With panel clients focusing strongly on efficiency, it is more important than ever for law firms to show that they are innovating and can provide their services at a competitive price point.
4) Productization to create models of value and revenue
Traditional law firm business models are being challenged, particularly because clients are starting to expect less strictly legal advice based outcomes but more business outcomes. Because of this shift, law firms are now looking to use automation to maximize profit around the clock. Law firms currently are constrained by the working hours of their headcount but with productised legal services, clients can access the law firm and generate outcomes around the clock.
But if we automate advice, what do we have left?
If this is what law firms fundamentally do as a business then why would we automate it? Thinking about this makes some lawyers quite uncomfortable but it’s important to understand that automation does not apply across the entire business.
Expert and lawyer work falls into 3 key stages:
- Gathering and organizing facts by asking questions through interviews, back and forth emails, and other inefficient channels of communication.
- Applying analysis which is rules or expertise based.
- Actioning tasks such as generating documents, writing emails, and providing legal advice However, if you look at the diagram above, it becomes quite apparent that not all of this can be automated and lawyers should actually be spending more time on expert-based analysis and actions from expert-based analysis.
How are some law firms automating advice already?
There is a traditional way of automating advice which includes building your own tech from scratch but from our experience, this has never been the right way to go about the process. Lawyers are experts in legal advice and should not be expected to be software experts as well.
Therefore the types of advice automation tools currently being used by law firms include:
1) Internal tools: used by law firms to internally arrive at an answer
An example of this is the Foreign Investment Review Board. When you make an investment into Australia, you may need to report to a particular board depending on the nature of the investment and take into account factors such as the country or where the investment is coming from. Our client was an international law firm who needed to query if FIRB applied in their engagement. Oftentimes when working beyond borders, this process can be fragmented, non-billable, and induce long turnaround times due to people operating in different timezones. As a result, our client built a self-serve tool to assess eligibility on their own, providing faster and accurate information 24/7 across all time zones.
2) Internal – client tools: used by the law firm when interfacing with a client
When clients are looking to set up a new business, lawyers conduct non-billable manual meetings that identify the scope and gaps in their business. They often seek answers to questions such as do you have a shareholders agreement?, have you registered an ABM yet? Have you issued out assigned IP? All of these questions are followed up manually by the lawyer and is often an inefficient process because the expertise of corporate law is concentrated between 1 or 2 lawyers. As a result, our clients designed a Checkbox app that guides lawyers to ask the right questions and provide the right advice, made available within incubators as a value add and build brand equity
3) Client-internal tool: used by the client who is then directed back to the law firm
When completing an unfair dismissal application, all inquiries are completely manual, requiring lawyers to complete the discovery and interview process manually. Typically this kind of process is a huge waste of time for lawyers because inquiries are incomplete and clients generally don’t know how to instruct their lawyers or describe their problem. To resolve this issue our client built a checkbox app, made available on their public website for self-serve preliminary assessments which guided clients to answer the right questions. This saved the law firm 4 hours of work per applicant and improved acquisition from 8 to 60 per month.
4) Client tool: used by the client indepdently to arrive at an answer
An example of this insurance claims eligibility. This is where our clients has insurance companies as clients and needed to assess wheather claims were eligble against their insurance policy. One of the biggest problems our client encounrtered was low visibility on claims below the line aka in-house claims. To mitigate both issues, our client build a checkbox app and offered it to their client to asssit with eligibility determination and triage. This further enabled the law firm to better understand and track their client’s business.
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