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ANALYSIS: Can Innovation Save Law Firms?

May 18, 2020, 8:31 AM

Last year, I wrote that in 2020, innovative would be the new prestigious, with successful firms disaggregating and streamlining work to cut costs. But as the economy reels and in-house budgets tighten, innovation may now be law firms’ key to survival.

The Great Recession prompted changes to the legal industry that persist today, such as legal operations and the rise of offshoring, alternative legal service providers (ALSPs), and alternative fee arrangements. If this recession dwarfs the last one, even more innovative change is needed.

“Firms are not going to be able to discount their way out of this,” Nicole Auerbach, founding partner of ElevateNext, a firm aligned with law company Elevate Services, said. “The budget cuts and staffing cuts that law departments are facing are going to require them to do the business of law much differently. And that’s going to require innovation.”

Innovation Management Needed

Wendy Butler Curtis, chief innovation officer at Orrick, thinks “innovation management” will be crucial in this downturn and beyond.

Innovation management is “a program and process to collect, analyze, select, pilot and implement innovative systems and processes within the legal department,” according to the Association of Corporate Counsel’s 2020 Legal Operations Maturity Benchmarking Report. Of the 15 legal operations functions studied by the ACC, innovation management was found to be the least mature, a shortfall Curtis thinks is significant.

“Those law firms and legal departments that have already invested in innovation management are going to have a significant advantage over those that have not made innovation a strategic priority,” Curtis said.

Bloomberg Law’s 2020 Legal Operations Survey showed a mixed picture in terms of law firms’ adoption of legal operations practices, a marker of innovative approaches.

Only three in 10 respondents from smaller firms (those with fewer than 500 practicing attorneys) said their firms have adopted project or program management processes, and approximately one-quarter have hired alternative staff to handle legal operations. Notably, more than one-third of respondents said their firms have not implemented any legal operations practices in their organization.

The largest law firms are generally more innovative, with 58% of respondents from the largest firms (those with 500 or more practicing attorneys) saying their firms have project or program management processes. More than half of those respondents say their firms have hired alternative staff to implement legal operations practices. Fewer than two out of 10 say their firms haven’t implemented legal operations practices at all.

Law Companies Win

The recession creates an even greater impetus for law firms to partner with ALSPs that offer offshoring, flexible lawyering, and other solutions, lest they lose business to those same providers.

According to Auerbach, in-house legal departments now are looking to outsource invoice and contract reviews, turning to flexible lawyering solutions, and re-examining how “business as usual” matters can be handled more efficiently at a lower cost. Early case assessment to avoid litigation is also a popular request, Auerbach said.

Firms that offer their own tech-driven service options also may be more insulated from a downturn.

Business Pros Still Important

Though firms are tightening belts, laying off legal operations and business professionals may not be the best way to cut expenses.

“Business professionals at the client and law firm are increasingly important,” Curtis said. “They define the job to be done and how value and success will be measured.”

“The firms that understand what needs to be done will continue to bring on other professionals and empower them. Short-sighted firms will potentially see them as overhead and let them go,” Daniel W. Linna Jr., law professor and director of Law and Technology Initiatives at Northwestern Pritzker School of Law, said.

Don’t Let a Crisis Go to Waste

Firms can no longer afford to lag behind industry trends.

“Other than maybe the go-to, ‘bet the company’ firms that can sustain themselves the way they’ve always been doing things, those in the industry who don’t innovate are going to suffer tremendously,” Auerbach said.

“The recession breeds fear, and fear can be a really powerful driver for change or it can be a force that completely chokes creativity,” Curtis said. “For firms that have an innovative culture, the necessities of a recession will accelerate innovation as they strive to solve all these new problems. But for a firm that hasn’t embraced innovation, I worry that fear will make them less receptive to change.”

“There’s huge opportunity for everyone in the legal industry to rapidly accelerate digitization in this space,” Linna said. “If we don’t have leaders, in the courts, in bar organizations, in law firms, in corporations, in law schools, who create a vision for the future and say ‘Don’t let a crisis go to waste,’ we won’t get nearly as much progress as we could have.”

Innovation itself won’t insulate law firms from this recession. But there is an opportunity for law firms to save themselves by continuing to innovate.

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