Law Firms in the Digital Age

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1 Law Firms in the Digital Age CHRIS BULL AND DAVID BASON PUBLISHED BY

2 Law Firms in the Digital Age is published by Managing Partner UK/EUROPE/ASIA OFFICE Ark Conferences Ltd 6-14 Underwood Street London N1 7JQ United Kingdom Tel +44 (0) Fax +44 (0) NORTH AMERICA OFFICE Ark Group Inc 4408 N. Rockwood Drive Suite 150 Peoria IL United States Tel Fax AUSTRALIA/NZ OFFICE Ark Group Australia Pty Ltd Main Level 83 Walker Street North Sydney NSW 2060 Australia Tel Fax Online bookshop Reports Publisher International Fiona Tucker UK/Europe/Asia enquiries Robyn Macé US enquiries Daniel Smallwood Australia/NZ enquiries Steve Oesterreich ISBN: (hard copy) (PDF) Copyright The copyright of all material appearing within this publication is reserved by the authors and Ark Conferences It may not be reproduced, duplicated or copied by any means without the prior written consent of the publisher. ARK2382

3 Law Firms in the Digital Age CHRIS BULL AND DAVID BASON PUBLISHED BY

4 Contents Executive summary...vii About the authors...xi Acknowledgements...XIII Forewords...XV Chapter 1: The organisation dimension... 1 The death of difference... 1 What is driving the elimination of differences?... 2 Our new normal is everybody else s old normal... 2 Lessons from other markets what happens next?... 3 Mergers and alternative growth models for the digital age... 6 Learning from the UK experience... 7 The MDP route to growth Stealing the new entrant s clothes Mexican wave Building geographic coverage Merger and acquisition: a new focus on post-merger integration Risk and opportunity in the digital age What next? Conclusion Chapter 2: The information dimension Impact of the information revolution Information to Impact: a core process for the digital age law firm A new business philosophy and model Big Data and social media The role of knowledge management in the digital-age firm Information risk in the digital age firm Conclusion Chapter 3: The process dimension Legal process improvement How process improvement is being managed in law firms III

5 Contents Business process re-engineering (BPR) programmes Benchmarking and prioritising process performance: using process maturity models Applying the process maturity model Using Lean and Six Sigma in law firms Conclusion Chapter 4: The infrastructure dimension Integrating virtual and physical resource management Aligning infrastructure with the changing workforce: the expectation gap Aligning infrastructure with the changing workforce: the mobility gap Aligning infrastructure with the changing workforce: the agility gap Aligning infrastructure to technology change Conclusion Chapter 5: The market dimension The root of law firm differentiation Customer intimacy Customer interaction in the digital age Rainmaking in the digital age Online client acquisition; the digital toolkit Client account management Conclusion Chapter 6: The people dimension The profile of the workforce The fourth turning How digital natives are driving the IT agenda Investment and prioritisation in transforming your firm s IT IT staff The agile and flexible workforce The agile law firm: the shift from fixed to flexible resourcing Conclusion Chapter 7: The finance dimension Funding sources for digital age firms Transforming Quote to Cash performance Pricing models Introducing a pricing portfolio: a structured approach to fixed-fee quotations, estimates, and budgets Conclusion Chapter 8: The risk dimension Beyond compliance Defining risk management IV

6 Law Firms in the Digital Age Introducing a risk management approach: Key components Risk management best practices Focus on data security and data protection Data security Sample data protection policy Conclusion Chapter 9: Technology Interview: Gary Assim Head of Retail and Intellectual Property Group Leader, Shoosmiths Cloud Social/Collaboration Bring your own Device (BYOD) ERP systems Data warehousing Mobile Big Data Being futurologists Beyond the digital age V

7 Executive summary LAW FIRM. For many decades, most of us would have been able to summon up the same clear image of what was meant by those two words, while acknowledging that there was a spectrum of shape and size, stretched wider as we moved into the first and then second decades of the 21 st century. And, certainly, we would visualise something different if we were told the firm in question was high street mainly serving private individuals as compared to commercial mainly serving organisations. The common components of our view of what a law firm was, however, would outweigh the variations. We would inevitably picture a partnership, owned and managed by qualified lawyers, predominantly male. Profit would be measured by counting how much remuneration a Partner-level lawyer took home, but with no consideration of how much of that truly represented a return on equity or investment, as opposed to remuneration for doing a job. That same profit would typically be distributed in full within a year or much faster in some firms (some of whom, not coincidentally, are no longer with us). Investments and major decisions would be made by the partner group as a whole inevitably slowly and often with reluctance if short-term drawings were likely to be at risk. Clients would be advised face to face, supplemented by some phone and contact but without the use of technology as a major part of that process. Not that the word process would be used, for fear of upsetting the partners; nor did such widely accepted business phrases as operations, margin, pricing, sales, or governance have a place in the law firm lexicon. The idea that this prevailing model was archaic and outmoded is hardly a new one. Critics, both inside the profession and outside of it, have become steadily more vocal. It has nevertheless survived, indeed prospered, for generations and into the 21 st century. Lawyers are smart, overwhelmingly professional, and still very much in demand; as business and government become more complex, global, and high stakes then bet the company legal issues proliferate, rather than reduce. The latter part of the 20 th century saw increasing connectivity between the business and legal worlds and that, without doubt, generated modifications to, and a very substantial scaling-up of, this established law firm model. But we did not see a revolution that truly challenged it. This report takes as its principal the underpinning conviction that a revolution in law firms is underway and that, within ten years, law firms will, in the main, look little like the picture painted above. We believe that the evidence of this revolutionary change to the law firm model is all around us, albeit still in its early phases. Our second underpinning assertion is that it is the digital revolution, which began in the 1990s to transform so many aspects of our personal and working lives, that is responsible for this challenge to the VII

8 Executive summary prevailing legal model. While economic malaise in the wake of the banking crisis and regulatory change has been a key catalyst in ushering in a new age, this report focuses on how it is the digital age which is creating a new type of law firm. The Digital Age sometimes tagged as the Computer Age, Internet Age, or Information Age is one of those few truly critical cultural and technological watershed periods in human history. The most regularly used parallel is with the Industrial Age that spanned the late 18 th to early 20 th centuries. As with the Industrial Age, the Digital Age was created via a dramatic, disruptive shift in society and driven by a dramatic leap forward in technological innovation. The Industrial Revolution occurred over many decades and so may the Digital Revolution. It is certainly clear that the changes in digital technology and the impact it is having on our lives is still accelerating and it is hard to call an end to this particular revolution anytime soon. However, it is clear that we are now living in the Digital Age and that a highly connected, knowledge-based society has emerged that is harnessed to increasingly global, technology-led innovation. The digital revolution can be traced from the advent of the personal computer in the late 1970s to the emergence in the early 1990s of the internet as a genuine commercial phenomenon, and the dramatic global adoption of the mobile internet in the first decade or so of the 21 st century. Already, every aspect of our lives has been touched by this revolution and, perhaps most importantly (and uniquely in historical terms), every part of the world, including developing countries that have not yet become fully industrialised. The digital revolution itself is work in progress and the impact of that revolution on law firms has lagged behind the dramatic changes in so many other sectors of the economy from retail to banking to entertainment. But the digital age has undoubtedly begun and very little about law firms will be the same again. The revolution has produced at dizzying pace, the death of distance, globalised competition, vastly more informed and aware customers, 24/7 always-on expectation, accelerated time to market and business cycle, and extended brand reach. Each one represents a core challenge to the old law firm model. Whether you think they were the good old days or (as some law firm clients might well think) the not-so-good old days, the old days are never coming back. Law firms in the digital age are transforming across every dimension of their business model. No element of it from the choice of partnership as the default legal entity to the exclusion of nonlawyers from ownership to the approach to branding, marketing, and selling is unchallenged. Even more fundamentally, the central importance of technology at the heart of the legal delivery model is creating the biggest change to the way legal advice is provided in over 100 years. Having met and begun to share our fascination with how technology and business best practice was impacting on law firms quite a few years ago, we began discussing how a report about the digital age law firm might look back in late Since then, we have spoken to many people inside and outside law firms to gauge their views and understand what is happening in their businesses. We have also evolved our perspective on the central issue. We are convinced that there is already no doubt that the law firm model is in the process of changing forever. We also VIII

9 Law Firms in the Digital Age believe that the new model emerging is already actually much clearer than most lawyers acknowledge. Most importantly, we predict that the overwhelming implication of the digital age for law firms is simple: it is the death of difference. The digital age law firm will operate more like a corporate organisation in any other sector and the unique, sometimes jealously guarded, differences that characterised the traditional law firm will be eroded. We begin with forewords from two experienced and insightful law firm managers, each with a different background in and perspective on the legal market but with a strong set of themes running through their observations. In order to explore forensically the impact of the digital age on law firms, we have structured the report around the essential areas of business management in a professional firm. Each chapter explores how the digital-age law firm will operate in each area of the business management model. Chapter 1 looks at the organisation dimension how new business models, funding structures, and alternative options for growing a firm are emerging. Chapter 2, 3, and 4 cover the information dimension, process dimension, and infrastructure dimension respectively. Each of these is gaining more importance as the digital age takes hold on the legal sector. While the first four chapters cover the dramatic changes in the four key business enablers, the next four chapters focus on what we believe are the four key business objective areas. Chapter 5 begins with the market dimension examining how the digital-age firm interacts with clients and potential clients. We then look at the digital age development of each of the people dimension, financial dimension, and risk dimension in more detail in Chapters 6, 7, and 8. The final section of the report takes a closer look at the critical enabling technologies that define the digital age. Too often these technologies are discussed or referred to without sufficient explanation and these chapters aim first to demystify and second to illuminate how these tools can be applied to law firms. Our aim is to give the lawyer and law firm manager plenty of stimuli to consider their own response to the challenges and opportunities the digital age offers. Not every reader will welcome the prediction of massive erosion of the way in which law firms are different from corporations in other sectors, but we hope everyone will find things they would like to bring to their own organisations. IX

10 About the authors Dave Bason Dave Bason is a seasoned IT professional, having spent 30 years in the industry with more than 17 years as an IT Director and CIO across many industry sectors, including legal, retail, manufacturing, and other professional services. He has worked for many leading organisations, including Shoosmiths. As the IT Director of Shoosmiths, he managed the major growth and transformation of their IT and was the winner of the Regional IT Director of the Year in He has an innovative outlook to the exploitation of technology and has been at the forefront of business transformation using new systems and technology in the industry sectors he has worked in. He is a Fellow of the IOD, and sits on the IOD policy panel and the Government ICT advisory board. He is also a regular contributor to articles and papers providing thought leadership in the legal sector. Dave has led a number of major outsourcing projects, combining off-shore, near shore, and on shore, driving significant business benefits. Dave has championed business continuity at board level and has extensive practical experience in business continuity planning and execution. Dave has recently set up a business of his own, Just You Limited, providing interim management and consultancy on all aspects of IT. When Dave is not learning Italian, travelling around Italy, and eating Italian food, he is running or cycling long distances and spending time with all the women in his life wife, daughters, and granddaughter. He is trying to come to terms with the shambles surrounding his beloved Coventry City. Chris Bull Chris Bull is a founding Executive Director of professional services consultancy Kingsmead Square. His consulting career stretches back to the mid-90s, when his focus was large financial services change projects as part of Ernst & Young s market-leading consulting team. The last two and a half years have been spent advising a wide range of professional service firms, with an emphasis on the legal market, on operational change and business management. Chris is a regular speaker and writer on all aspects of the management of professional firms. His speaking, writing, and advisory work draws on a long track record of senior roles in the sector. As well as spells with Price Waterhouse and Ernst & Young, Chris was a member of the leadership team of law firm Osborne Clarke as the firm expanded rapidly and built a strong market position amongst the best UK firms. His roles there included Chief Executive, Chief Operating Officer, and Finance Director over a hugely enjoyable 12-year period. As Chief Operating Officer for Europe and the Americas at professional services outsourcing firm Integreon, he led the development of a legal and business process outsourcing offering that created a legal market leader. Kingsmead Square was founded in 2013 by Chris and former-barclays executive Louise Fleming. The firm has rapidly built an impressive client base of some of the most innovative and fast-growing XI

11 About the authors professional service firms and new entrants to the market, including a roster of the most high profile alternative business structures and a number of large law firms. The firm s active engagement at the cutting edge of the legal and professional markets has informed the business management model structure used in this book and much of the market overview contained within. Chris lives on the slopes of the Mendip Hills in Somerset in the south west of England. He enjoys running there and wherever he finds himself on his constant travels, and spends most of his spare time chasing around after his two children. XII

12 Acknowledgements Dave would like to thank: Neil and Paul, for contributing the Forewords, and Paul for being an inspirational CEO and introducing me to the legal sector. Thanks also to my ex-colleagues at Shoosmiths, especially Gary the Gadget Man Assim for providing his insight into a lawyer s working practices, and Karen Carter for a modern view of business development in a law firm. Over the years, my ideas have been formulated through many discussions and debates with a vast array of people. There are too many people who have helped to shape my view of the world to be mentioned here, but thanks to you all. Chris would like to thank: The three people who have kept the show on the road in the last six months while we built the business and I wrote my parts of this report: my long-suffering wife Sarah, my fellow Kingsmead Square Director Louise Fleming for her many ideas and contributions (especially for the risk chapter of this report), and our Programme Manager Rebecca Townsend, for taking on some of the daily pressure and regularly chasing to see whether I had finished that chapter! Both of us have to thank: Our very patient editor Fiona Tucker who has put up with our attempts, sometimes futile, to balance work commitments with producing this report and provided that independent challenge to our ramblings. XIII

13 Forewords AS A preface to the report, we asked two respected peers, each with a different background in legal services, to give their thoughts on the significance of the digital age for law firms and their expectations for the near future. We will return to the themes that each of them outline below many times during the chapters that follow. Paul Stothard is that rare beast: a highly experienced law firm Chief Executive, who is not himself a lawyer, who has worked for a number of different and innovative firms (including Shoosmiths and Tees). We now find ourselves in a dramatically shifting legal marketplace, where many of the traditional barriers to entry have been removed and the old metrics for managing a law firm are no longer appropriate. The same competitive pressures that moved Shoosmiths and others to adopt a processefficient model ten years ago are now being felt across the whole legal sector and the smart law firms are adapting their process accordingly. Law firm clients are being faced with an increasing range of choices as to where they can obtain their legal advice and these options are invariably at a lower price than have historically been achieved by law firms. Unless law firms become more efficient, this price pressure will lead to reduced profitability and cash flow and, ultimately, failure. The legal press is full of examples where businesses have failed to respond to the changing buying habits of their clients and increased competition. This report leads the reader through many of the challenges facing the legal profession and explores some of the opportunities and responses that are out there. From an examination of that old chestnut, the Partnership model, and its ability to support the faster, commercial decision making required in this new competitive landscape, we are taken through the need to look at processes, flexible technical solutions, and the world of outsourcing. Ultimately, a reader of this report sitting uncomfortably at their fee-earning desk and contemplating a rather alien world out there could well feel overwhelmed by the scale of the challenge and the amount of change that needs to take place in law firms, big and small. However, doing nothing is not an option. Charles Darwin wrote that it is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. All law firms must respond to these changes and while this report may not provide you with all the answers, it will open your mind to the issues and opportunities that are there for law firms who truly embrace the changing market place in the digital age. Paul Stothard (CEO Trust Tees Plc and Teeslaw LLP) XV

14 Forewords Neil Davison has been Head of Information Technology with the highly respected London law firm Farrer and Co. since 2008, having previously worked for many of London s leading firms. The legal industry is changing more rapidly than ever before. In England and Wales, since the Legal Services Act 2007 came into force, we have probably seen greater change than we have seen in the preceding 100 years, with non-lawyers joining partnerships, external investment from entrepreneurs, and new entrants into the market who have no prior history of providing legal services. In parallel to these changes, technology continues to evolve and is now seen as one of the levers firms can use to drive efficiencies and improve processes which, if deployed properly, can ultimately have a positive impact on profitability. Having worked in four law firms, from the Magic Circle through to the mid-tier, for over 16 years, I have witnessed these changes take place. I remember when fax was king and was the pretender (who could have imagined the impact would have on our working day?). There was the paranoia around the millennium bug (possibly the biggest anti-climax of our time) and more recently the electronic filing and matter management systems that are increasingly taking precedence over the paper file, with firms moving towards paperlight rather than paperless. As a member of the editorial board at Managing Partner magazine and a regular contributor to the legal IT press, I have written, as well as read, a great deal about change and its impact on a business and I passionately believe that (to quote George Bernard Shaw), progress is impossible without change. This report looks at some of those changes that are needed for any firm that wants to be successful in the 21 st century. I have known both David and Chris for a number of years, mixing in the same circles as members of the legal management and technology peer group. I share a similar legal IT background with David, but he also adds his wide experience in other sectors at a senior level. Chris is one of the few people outside the legal IT fraternity who has constantly seen the strategic significance of technology in law and made it his mission to understand it better. Their broad experience gives them a different and refreshing perspective on the legal industry and they explore some particularly difficult partnership and change-related questions which most law firms face. I read with great interest their insights on Generation X, Y, and Z and how these generations have a different perspective on the work/life balance and their expectation that their firms can support them through technology. Certainly, in my experience, a week rarely goes by where a fee earner doesn t ask me how they can access their client file from their ipad, often wanting access from a train or a plane, and very occasionally where they have a less than reliable internet connection or no internet connection at all! This report brings together numerous strands from law firm management and the complex problems facing the legal industry today. These problems are explored and dissected but we also have insight into what can be achieved if effort is focused in the appropriate areas and there is sufficient desire for change. It is often said that if you are not moving forwards you are moving backwards and the contents of this report give a signpost to the future. Neil Davison (Head of Information Technology, Farrer & Co.) XVI

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