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NextLaw for BigLaw: disruptive innovation fuelled by technology
Practical Law UK Articles 1-618-3106 (Approx. 4 pages)
NextLaw for BigLaw: disruptive innovation fuelled by technology
by John Fernandez, Dentons
| Published on 27 Aug 2015 • United Kingdom |
John Fernandez, US Chief Innovation Officer and partner at Dentons and Global Chair of NextLaw Labs, discusses the relationship between technology and the business model of large corporate law firms.
For decades, the legal profession has referred to large corporate law firms collectively as BigLaw. Whether regional or global in scope, firms fitting under this umbrella share a number of similarities and characteristics, including at least 100 employees, a list of large to mid-size corporate clients and a wide range of practice and industry sector offerings. But a combination of new competition, new technology and new client demands arising from the global financial crisis of 2008 is challenging BigLaw like never before. It is too much to say that BigLaw is dead, as some headlines claim, but one thing is for sure: the legal sector is changing.
The fall of BigLaw
The 1980s saw BigLaw firms expand rapidly through strategic hiring or by merging with complementary firms. For over 30 years, the demand for legal services seemed limitless, and law firms were able to recover all of their costs back from the client. Some were even able to turn a profit on the orange juice and bagels served at the morning conference! Times were good, billable hours were easy to come by, and law firms took advantage of this, and grew. Then the financial crisis of 2008 happened.
This endless demand contracted overnight, and the seller's market quickly turned into a buyer's market as if someone had flipped a switch. BigLaw's billable hour pyramid, where experienced partners funnel work to junior associates, was challenged by clients. Alternative fee arrangements, expansion of in-house legal teams and virtual law firms became not just industry norms but requirements for doing business. In short, large corporate clients began to demand far more for far less, and BigLaw has struggled ever since.
It is true that the legal profession has seen turbulence before and has adapted by making relatively minor tweaks. But what makes this post-2008 environment different is that even as the rest of the economy has recovered, the legal profession is still shedding jobs: a marker of poor health. Previous downturns saw the profession rebound with the economy and their clients' good fortunes, but that is not happening now.
In fact, by some estimates, since 2008 there has been no new net legal work created for BigLaw. In other words, new billable hours for one law firm are another's loss. Even as the economy starts to expand, the demand for legal services has not bounced back to pre-2008 levels, and it is not coming back.
The rise of NextLaw is happening
This new business climate has forced the legal profession to take stock and re-examine best practice by finding new ways to work with clients and other law firms, and developing new business models. It is simply not enough to change prices and, for the first time in decades, many firms are responding to this new dynamic. The heads of some of the profession's most recognised law firms are not only listening, they are more than willing to introduce ground-breaking and transformative initiatives.
BigLaw is finally beginning to talk about NextLaw. NextLaw is the blending of technology into the business model of BigLaw. This leads to the question of how technology, which is affecting every other industry, can complement the BigLaw platform. Answering that question is a challenge, as lawyers by their very nature are risk averse. However, although the stereotypical image of a lawyer as an older man surrounded by books and stacks of paper in an old-fashioned office definitely still exists, it is also starting to change.
Law firms are rebuilding their physical office spaces to accommodate a new way of doing business. It is an obvious step, as it is a quick way to shed overhead costs. But more importantly, this is only possible because of technology, and this is just one way in which technology has started to take on a much larger role at law firms. From digitising the library, which shrinks the office, to mining client and matter data, which provides more input on how to price services, technology is gradually reshaping the practice of law.
For most of BigLaw's existence, technology has played a relatively minor role, despite the presence of online resources, e-discovery and other litigation management software. Now, law firms are studying how technology can reshape their day-to-day work, and are finding ways to harness its power to complement every aspect of their practices and their client relationships (see box "Case study: Pfizer Legal Alliance"). Machine learning, predictive analytics and advance cognitive computing, such as artificial intelligence, are now being deployed. This is changing the nature of legal services and how lawyers actually work.
Internally, law firms are maximising value by centralising and streamlining support services, and hosting them offsite in cheaper locations. While the firm's client-facing lawyers are still located in city centres near to the clients but where office rents are high, the firm's back office, which handles the non-billable tasks, may be located hundreds of miles away. This type of major restructuring requires planning as well as the speed to deliver real-time results. Technology offers that ability.
In order for NextLaw to succeed, it requires: more data, more accuracy, and more speed. The only way to deliver this, and for firms to unlock the potential of technology, is to find a new way of training the workforce. That starts with law school.
Law schools and NextLaw
Despite their impressive academic legal studies, new law graduates are not trained to actually practice law and consequently require extensive training once they start work at their law firms. Clients, however, are not willing to pay billable hours for this training.
Law schools need to rethink how to better prepare their graduates to make a material impact at the law firms and legal departments that hire them. Integrating applied technology and information science into the curriculum will empower the next generation of lawyers to build on the innovations that are starting to take root in the legal industry.
Through this new technology-focused curriculum, law schools have an opportunity to offer students an education that will be useful to the profession's largest employers. It would provide a bridge that is currently lacking for any new trainee. With this technology training, new trainees would be able to provide valuable insights to their firm and, in return, gain the necessary training and guidance that only on-the-job experience can deliver. For the law schools, this is an opportunity to bring back some of the allure of training to become a lawyer. After all, as BigLaw has suffered, so has enrolment at most law schools.
There are a number of law schools in the US that are already doing something like this, such as the Center for Computer-Assisted Legal Instruction at the Chicago-Kent College of Law, and Columbia Law School's Digital Age Clinic. It is likely that other law schools will follow their lead because technology will soon be a fundamental element in any lawyer's practice. Ultimately, with more training on how technology can transform the practice of law, legal educators can help BigLaw to regain its footing.
NextLaw Labs
Dentons has made the decision to jumpstart this process by investing directly in new technology companies through the formation of NextLaw Labs, a global collaborative innovation platform focused on developing, deploying, and investing in new technologies and processes to transform the practice of law around the world. The firm recognises that technology is reshaping the legal profession, and is keen to drive new service delivery models that enhance client support and deliver higher quality services.
It is no longer enough to just practise law; lawyers and firms need to constantly innovate to stay relevant, just like their clients. A top-to-bottom assessment of the practice of law, from law school to the day-to-day demands of the practice, while arguably overdue, appears to be gaining traction.
John Fernandez, US Chief Innovation Officer and partner at Dentons and Global Chair of NextLaw Labs.
Case study: Pfizer Legal Alliance
The Pfizer Legal Alliance (the alliance) is a ground-breaking example of the law firm-client relationship that faces legal dilemmas every step of the way: from product development, market penetration and the after-effects. The alliance is composed of 19 law firms and pharmaceutical companies, and is headed by a multinational pharmaceutical company.
The alliance is not merely a virtual firm that brings together different businesses: it embeds them in a long-term, mutually beneficial relationship, and connects them through technology. Pricing data provides predictability for the alliance, and law firm-client collaboration software enables smoother communication between the pharmaceutical companies and the law firms.