The successful law firm of the future will be almost unrecognizable to most law firm members today.
Unprecedented workflow leverage will create opportunities for exponential increases in productivity and unprecedented challenges to manage it.
This is the fifth of a series of nine posts that will describe and explore seven characteristics[note 1] that will determine which law firms remain successful in the legal services industry of the future, and what law firms can do now to build them into their operations and professional cultures.
Exponential improvements in productivity and workflow leverage possibly could be the most important factors in the sustained -- and, indeed, increased -- profitability of law firms in as soon as the next ten years.
It's important to distinguish between the two forms of leverage. Staffing leverage is simply the ratio of the number of partners to the number of associates. It counts people, not the volume of the work they produce. Workflow leverage, by contrast, is more important. It is the ratio of the work produced by partners to that produced by associates. In most law firms today, the staffing leverage has been somewhat greater than the workflow leverage. When there is a significant discrepancy betwee the two ratios, this can be a useful diagnostic indicator of missed opportunities for the delegation of more work to associates.
In the law firm of the future, however, staffing leverage will become largely irrelevant. Workflow leverage is what will drive profitability and, ultimately, a law firm's financial performance.
Artificial intelligence systems will soon have the potential to boost workflow leverage in law firms at least ten-fold and, in some practice specialities, up to a hundred-fold -- and perhaps even higher. Consider the implications. They are almost mind-numbing. For example:
- If a law firm can perform legal analysis or documentation that used to take ten hours of billable associate work in only 10 minutes, that will certainly reduce the cost of the service, even after including the investment in and ongoing maintenance of the technology. Client awareness of, and expectations for, these new capabilities will create further downward pressure on the fees as law firms can do the same work faster, at lower cost, and at a much reduced fee, with greater profits margins than before.
- A leverage ratio of one partner to four associates has traditionally been a rough benchmark for profitability in most law firm practice specialties. But what if that increases by ten times, to 1-to-40, or even one hundred times? Based on law firms' experiences with the impact of past technological innovations, such as word processing and internet-based communications, a prediction of a ten-fold increase in productivity is probably too low. But could even this relatively modest increase in workflow leverage by ten times make large law firms, with hundreds of associates, too unprofitable to survive beyond the 2030s? What will happen when one associate, for example, can produce in one hour the work product that currently takes 40 hours? This could have a dramatic impact on the need for associates in most law firms, as well as the partner attention and effort that will be needed to manage the quality of such a tsunami of legal work. It might even render the traditional partner and associate structure obsolete. Most law firms haven't begun to factor these increasingly likely developments into their strategic thinking.
It seems almost counter-intuitive today, with all the hype in the legal press about "Big Law," but large law firms might find it much more difficult to make these adjustments. Smaller firms, which frequently have been understaffed, might already have the experience and skills to "do more with less" because that is the way they have been operating for years.
This also has implications in the current discussions about strategic growth of law firms. I believe that the focus of many of these discussions is misplaced. For most law firms the real strategic growth must be in productivity and capabilities, not size. This will be not only a strategic challenge but, for many law firms, an existential one.
1The seven defining characteristics of the law firm of the future are:
- A conversion from a "factory" model for the production and delivery of legal services to a "shipyard" model
- Closer, ongoing client relationships
- Sustainable profitability
- Very high workflow leverage
- "Anytime, anywhere" service delivery capabilities
- An intense focus on quality management
- A predisposition for innovation.
For more information about the Walker Clark "futures practice," contact the author by e-mail.