A blog by Joel Barolsky of Barolsky Advisors

Archive for the ‘Legal Technology’ Category

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The empire strikes back

In Articles, Commentary, Legal Technology on 8 October 2021 at 11:20 am

The full text of my opinion piece first published in the Australian Financial Review on 7 October 2021.

The biggest structural change in the Australian legal market over the past 30 years has been the growth of in-house legal teams.

But while the vast majority of current in-house solicitors received their initial training in private law firms and then moved across to the client side, I predict that the next decade will see a reversal of this trend, particularly at more senior levels.

In comparing the employee value proposition of in-house versus private practice, there are five areas where law firms are fighting back.

Flexibility

In a post-COVID-19 world, very few law firms will return to a work schedule of 9 to 5, five days a week, in the office. They will be far more accommodating of lawyers seeking to work from home for part of the week, or those wanting to work across different time slots in the day or to limit the number of workdays.

Any perceived advantage that in-house roles were more flexible has been eliminated by law firms learning to operate effectively in an anywhere anytime model.

Workload

For many years, the lure of in-house has been roles with more work-life balance, less stress, and no timesheets. 

While no timesheets are still a point of difference, most in-house lawyers are now reportedly working extremely long hours and are stretched thin. The pressure for them to do more with less is incessant, and the demands on their time are likely to grow rather than diminish. 

On the other side of the fence, many law firms are rejigging the workload of graduates and early career lawyers to be far more sustainable. They have also stepped up their programs focused on employee mental health and wellbeing.

Technology

Association of Corporate Counsel research suggests General Counsel are constrained in adopting technology by restrictions on capital expenditure and a lack of time to implement new systems.

Many law firms, in contrast, are ramping up their technology investment and experimentation. The recent Thomson Reuters State of the Legal Market found that law firms spent over $22,000 per lawyer on legal technology in FY21. The same paper revealed that 30 out of the 50 largest law firms in Australia now have an innovation function.

Over time, the technology gap between in-house and private will grow. A career move in-house may become to be seen as a step back in time – a move to a job using old and blunt tools of the trade.

Income

Data from legal recruiters Mahlab suggests in-house teams pay more for 3 to 7-year PQE lawyers, but after that, the differential starts to swing the other way. Equity partners in premium law firms are now earning incomes that far exceed their peers in in-house roles, save for a few GCs of major listed companies that enjoy exceptional incentive arrangements.

Private practice salaries and benefits are estimated to increase by 8 to 10% in the coming years. It will be very hard for in-house to price match given budget constraints and the need for consistency across organisation-wide pay scales. To the chagrin of many CFOs, in-house lawyers are already the most expensive people on their payroll outside the C-suite.

Culture

“It’s a boys’ club”, has been a common refrain of female lawyers leaving private practice. With an industry average of just under one-third of female law firm partners, their complaint may have had just cause, till now.

Most of the top 30 law firms across Australia have fully committed to a 40:40:20 or an equivalent diversity goal at partner level. Significant efforts are being made to address unconscious bias and to eliminate sexist language and behaviour. More senior leadership roles are filled by women. Comprehensive diversity and inclusion programs are now the norm.

The progress is slow, but the prevailing culture across many law firms is shifting on gender issues.

If trends in the five areas described above persist, the employee value proposition of in-house will become less compelling. With increasing demand, in-house teams will have to build their own capacity by hiring more graduates and invest in early-career legal and commercial training.

This is good news for law firms; after years of training young talent only to lose them to in-house roles, the shoe will comfortably fit on the other foot.

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How law firms can do more with less

In Articles, Commentary, Legal Technology on 5 March 2021 at 6:22 pm

The full text of my opinion piece first published in the Australian Financial Review on 4 March 2021.

Commercial law firms face constant pressure from clients to do more for less.

They can respond in three ways: say it can’t be done and risk losing out to competitors, drop their prices, or make a step change to improve productivity.

Most are pursuing option 3 and are looking to legal operations to make it happen.

What are legal operations?

Legal operations usually include some or all of these disciplines:

  • Business Management – commercial managers focused on improving profitability, increasing revenues and optimising efficiency.
  • Service Design – workflow and client experience specialists that evaluate, accelerate and support legal process improvement projects. They also often assist with new product development and act as incubators for new business ideas.
  • Legal Project Management – project professionals that make legal work tractable, trackable and transparent, for both lawyers and clients.
  • Pricing – pricing experts that help partners to have better client conversations, align price with value, protect margins, and where appropriate, use alternative fee arrangements.
  • Alternative Legal Services – a team of paralegals, legal technologist and lawyers focused on high-volume process work including e-discovery, transactional and dispute support, language editing, document review and IP management.

Australian experience

In Australia, some very large national firms have embraced a centralised approach to legal operations. Others have adopted a more decentralised model with each major practice group acquiring the resources specific to their needs. 

Over time, I would expect most firms will move to a model of centralised governance to avoid duplication and facilitate the sharing of knowledge and applications. At the same time, operational specialists need to work right at the coalface to find smarter ways to deliver more for less.

Innovation roles will be also subsumed into legal operations. Legal secretaries and assistants will still work directly with local lawyers but will be more connected with and directed by legal operations.

In medium-sized and smaller law firms, a new business service function will likely emerge with the status of HR, marketing and finance. It will often start with outsourcing basic IT services – hardware, software and helpdesk – and the insourcing of specialist tech-savvy resources to help lift productivity and client connection in key practice areas. Once this is established, other roles involved in supporting legal service delivery will enter the legal operations orbit.

New career pathways

This emerging area of legal operations is also creating an alternative – and attractive – career path for lawyers.

They benefit from a deep knowledge of the intrinsic needs within a legal workflow, but also enjoy the respect of the various stakeholders involved in migrating to a new way of working.

MinterEllison offers new lawyers the option of entering its Legal Operations Graduate Program. The program gives candidates exposure to lean six sigma, design thinking, change management and agile methodologies. The firm recently graduated its first cohort and is reported to be delighted with the outcomes so far.

The growth of legal operations is not just confined to law firms.

Stuart Fuller, the global head of KPMG Legal Services, recently predicted that “half of the [in-house] legal team will not be lawyers by 2025”.

Fuller says the use of automated solutions, chatbots and other forms of productised legal services will rise, and these will need support from lawyers as well as a more multidisciplinary workforce with different skill sets. As a result, the proportion of legal work done by paralegals, data analysts, operational experts and other specialists might rise to the point where legal professionals become a minority.

The key message is that the path to improved productivity is not pressuring lawyers to bill more time, but rather working smarter with the evolving disciplines of legal operations.

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Love the tech you’re with, at least for now

In Articles, Commentary, Legal Technology on 11 May 2020 at 11:16 am

Full text of opinion piece first published in the Australian Financial Review on 7 May 2020.

One of the key decisions law firms need to make during the COVID-19 crisis concerns investment in new legal technology and innovation.

While some firms are keeping their R&D spend intact, anecdotal evidence suggests the majority are going into some form of hibernation.

AFR op-ed May 2020 copy

Regardless of whether your firm decided to stop, reduce or continue, there is a strong business case for getting more out of what you already have. It’s not quite as exciting as playing with shiny new tech toys, but sometimes – as in the words of that great Stephen Stills’ song – it’s better to “love the one you’re with”.

To make more of your existing technology it’s important to ask three questions.

Can our partners and lawyers use it well? 

Taking Microsoft Word as an example, my guess is that your firm currently uses it semi-well.

Most partners and lawyers use basic features like track changes, automated numbering, cross-referencing, indexing and sections. However, I suspect only a handful would be good at using styles, templates, programmed auto-corrects, tailored designs and macros.

There is much to gain in terms of lawyers’ and clients’, time and money from investing in targeted Word training. Not having everyone at a base level proficiency in the basic tool of the trade is going to bite hard especially if you are looking to reduce secretarial support ratios or to have a more flexible work-from-home operating model.

Can we make it work better for us?

The COVID-19 crisis is also a good time to experiment with add-ins, plug-ins and tools that add power and functionality to your existing applications.

It is much easier to extend an existing technology with a familiar user interface than adopt something completely new. What’s more, existing apps are usually fully deployed, paid for and supported.

Taking Word again as an example, there is a growing number of complementary tools on the market that are worth investigating. David Bushby, a lawtech expert from InCounsel, has kindly curated this list:

Are we becoming too dependent on it or its vendor? 

During COVID-19 crisis, there has been a rapid uptake of Microsoft’s video-conferencing tool, Teams. It appears that the latter has become the favoured video application of many large law firms and the Federal Court.

Given the vast installed base of the Office Suite and now Teams, it’s not hard to imagine that Microsoft will attempt to monetize its strong competitive position further.

One scenario involves them adding code into documents and emails to capture data around document preparation time, quality, cost, originality, storage and authorship. Combining this valuable data with its established software suite and ‘voila!’ – they will control or strongly influence the entire legal supply chain.

In this scenario, it would be tough for individual firms to counteract Microsoft’s power. However, new collaborative application platforms owned by law firms, like Reynen Court in the USA, may point to a future with more options.

In this future, there may be opportunities to follow the advice of Wet Wet Wet rather than Stephen Stills – and make sure your “love is all around”.

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Five ways to improve your firm’s balance sheet

In Articles, Commentary, Legal Technology on 8 February 2020 at 4:19 pm

Full text of my opinion piece first published in the Australian Financial Review on 7 February 2020.

Law firm partners focus a lot their profit and loss statements but tend to glance over the asset section of their balance sheets.

This is a missed opportunity.

There are three main reasons assets are largely ignored. Firstly, in ‘zero-in zero-out’ partnerships with 100% dividend payout ratios tracking long-term asset value is relatively less important. Secondly, in some firms, the accountants lump all intangibles into a vague and unhelpful construct called ‘goodwill’. And thirdly, balance sheets tend to list boring things like plant and equipment.

AFR 7 Feb 20 Balance Sheet

Original AFR article

From a strategic management perspective, there is a significant benefit in framing goals around making the firm more valuable. This means identifying all the assets, both tangible and intangible, that the firm uses to create and sustain value.

A more detailed balance sheet can also be useful when it comes to partner performance management. Growth in asset value should be the heart of what’s expected of partners, especially in regard to their non-financial contribution.

Tangible assets are easy to quantify. The intangibles less so.

Here are five important intangible assets in your firm that are worth measuring, protecting and leveraging.

#1 Relationship capital

Relationship or social capital refers to the strength and stickiness of existing client relationships and, where relevant, referrer and community connections.

While there are no simple measures of relationship capital, good proxies include total client lifetime value, client commitment indices, net promoter scores, client loyalty rates, average service mix per client, share of wallet of platinum and gold clients, social network strength and percentage of sole-sourced work.

#2 Human capital

Human capital refers to the quality, performance and commitment of all partners and staff. Management reports often include data on salaries, recruitment, training and turnover, but these don’t get to the heart of tracking human capital growth or depletion. Additional measures might include:

  • Toe-to-toe analysis comparing the quality of key practitioners in the firm versus direct competitors
  • Loyalty and career intention indicators
  • Succession and talent development pipelines by practice area
  • Diversity and inclusion metrics
  • Glassdoor, Seek and social media ratings
  • Employee net promoter scores
  • Leadership capacity and capability
  • Culture maps, highlighting hot spots or blind spots
  • Real-time measures around staff morale, firm climate, employee experience and discretionary effort.

#3 Brand capital

This refers to the strength of the firm’s brand and reputation in key target markets. Traditional measures include brand awareness, consideration, preference, use, board room impact, recommendation and social media following. An ability to attract star recruits is also an indicator of its brand capital.

One benefit of a strong brand is the ability to command a price premium. By way of example, in 2019, Apple’s brand premium enabled it to capture 66% of smartphone industry profits, 32% of overall market revenue while only selling 13% of total handset units.

Proxy measures around the firm’s pricing clout impact might include the percentage of bids won where the firm was priced higher than competitors, depth of discounting and percentage of matters with supernormal margins.

#4 Data capital

Most firms are sitting on mounds of valuable data with most of it stored on disconnected databases collecting digital dust. The main data islands include:

  • client data such as matters delivered, interactions, service feedback, event participation, agreed pricing and billing,
  • staff data such demographics, salaries, tenure, engagement, training, feedback and performance records,
  • operational data such as time records, matters processed, productivity and utilisation, and
  • financial data such as revenue, margins and expenses.

Joining these data sets and applying some smart predictive analytics will allow firms to make much better decisions. For example, the analysis could point to using a specific team with a particular process to do a specific type of matter for a certain client category using a defined pricing model. Each of these choices might mean a 2% improvement, but accumulatively you’re looking at +10% gain without working any harder.

#5 Intellectual capital

The last category is for important bits of firm know-how that don’t neatly fall into one of the other four areas. This might include the proprietary legal products, algorithms, websites, domain names, precedents, templates, applications, patents and trademarks.

Growth in intellectual capital could be assessed by things such as the firm’s investment in research and development and its innovation portfolio. Quantifying the revenue from new products and services can indicate success or otherwise in this asset class.

A call to action…

Take a quick glance over your firm’s strategy papers and board reports over the past 12 months. Is there a way to elevate your firm’s strategic thinking by delving into the intangibles that will sustain your long-term success? I bet there is.

If you enjoy my articles, please consider donating to my team participating in the 100km 2020 Oxfam Trailwalker. Learn more here

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Legal technology products: A new trick for old dogs

In Articles, Commentary, Legal Technology on 29 November 2019 at 1:46 pm

Full text of my op-ed first published in the Australian Financial Review on 28 November 2019

According to The Economist, advice on strategy accounts for only 10 per cent of revenues for McKinsey and its peers, Bain & Co and Boston Consulting Group. The balance comes from sources including designing and developing technology products for their clients.

So if meat-and-potato strategy advice has become a side dish for the major consulting firms, will legal advice become a niche product for premium law firms?

I don’t think so, but some are seriously asking the question.

Screen Shot 2019-11-29 at 1.33.18 pm

AFR article print edition

Tier 1 law firm Allens currently has nine legal products in its a+ solutions portfolio. One of these, SmartCompile, pulls together publicly available company information for due diligence reports. The firm is also working on new risk assessment apps, a FIRB notification app and a contract workflow solution.

A quick review of other premium law firm offerings suggests the ripple of new legal products will turn into a wave in the years ahead.

With that in mind, I posit that law firms have to learn five new tricks to make their legal product strategy a success.

New measures

Current law firm KPIs (key performance indicators) such as utilisation, leverage and realised rates are irrelevant in a world of legal products. New indicators should cover factors such as product life-cycle cost, annual recurring revenue, channel profitability and subscription retention rates.

The time frame around KPI targets also needs a rethink. The rules of thumb around time to break even and profit cycles are vastly different for technology-based products. It took Amazon 10 years before it started to generate any cash profit, never mind recover its investment costs.

The challenge ahead is for firms to redesign their KPI dashboard to include service and product measures, but also balance short-term and long-term strategic objectives.

New channels

Most traditional commercial legal practices rely on two primary channels to market: direct selling to clients and referrals from intermediaries.

There are far more options when it comes to getting products to market: app platforms, a dedicated sales force, accredited resellers or agents, other technology vendors or via competitors.

Other channel-related choices include compensation payments, sales incentives, spotter fees, territory allocation and channel exclusivity.

New roles

Hall & Wilcox’s client solutions director Peter Campbell is tasked with providing technical support to the firm’s partners and clients as they develop and implement new products.

Other new roles like product manager, channel strategist and deployment specialist will start to emerge in law firms.

Existing positions will also be reshaped. Partners and senior associates will need to be trained to identify product opportunities and drive sales efforts. Marketing will need to hone their online retailing skills. IT will have to embrace working with both internal and external clients.

Interestingly, Allens has set up cross-functional “squads” to help develop new legal product concepts, test them and bring them to market – quickly.

New pricing

Technology-enabled products are usually priced via a licensing or subscription model. It can fluctuate based on the number of users or volume of transactions.

Setting the right price level will be tricky as there is often no clear frame of reference or way to compare prices for these products. In some cases, firms will be making the market or creating the category. Go too high, and there will be limited trial and take-up. Go too low, and the product will never be valued highly (or be profitable).

New norms

Many traditional law firms will need to adopt new norms in selling products.

Practitioners need to resist the buzz that comes from creating something new from scratch each time. The big egos need to get used to the idea of clients buying branded products, not them. Partners need to get comfortable with product-push campaigns rather than waiting for clients to call with a specific need.

In some ways, the most significant barrier for new legal product success is the firm itself.

If it does not adjust its business model, there will be little opportunity for these products to mature and flourish. Long-term, this will mean these old dogs won’t learn any of these five new tricks.

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