How digital innovation is trickling down to small law firms

How digital innovation is trickling down to small law firms

Over the past five years, as the use of alternative legal services providers (ALSPs) has grown, the Big Four accountancy firms have been carving out significant space in the legal sector.

The increasing popularity of larger firms is not particularly surprising. The Big Four – Deloitte, PricewaterhouseCoopers (PwC), Ernst and Young, and KPMG – are able to offer services that small- and medium-sized firms are currently unable to match.

As the LexisNexis report on The Big Four reshaping the future of legal services demonstrates, the Big Four are leading the way with digital innovation, mastering the art of automation, and utilising their extensive networks and international scope.

Their combined technologies, streamlined processes, and large-scale operations allow them to handle high-volume, low-value work at a reduced cost. Smaller law firms, with their reluctance to innovate and propensity towards the risk-averse, are struggling to compete.

The trend of digital innovation

In the legal sector and beyond, the brave new world is digital. The use of tech has become not simply desirable, but necessary, and the Big Four have long been embracing tech-driven solutions. Even prior to the pandemic, they invested heavily in existing tech, scoped out new tech, and incorporated tech from across their professional services into the legal sector.

Juan Crosby, Partner and NewLaw Leader at PwC, explains that the Big Four are taking advantage of scale when optimising and integrating tech. Crosby says, for example, that PwC uses tech from a range of business functions and siloed systems to provide client solutions.

The Big Four’s competitive advantages have proved disruptive in the legal sector. Fiona Maxwell, financial services senior correspondent at MLex, explains: “They are positioning themselves as disruptors…The Big Four are offering tech‐enabled solutions that are better value for money and can be done in half the time.”

The Big Four have an obvious attraction, particularly when the legal sector moves at such a fast pace. According to the 2021 Bellwether Report on small law firms, for example, 88% of respondents believe the legal sector is changing faster than ever. Law firms must keep pace, providing quick and cost-effective client solutions to emerging problems.

That puts firms prioritising tech on solid ground. Clients are increasingly expecting quick solutions – they expect tech innovation, automation, and streamlined processes.

David Wilkins, Lester Kissel Professor of Law at Harvard Law School, sums the situation up neatly: “The Big Four can offer a far higher integration of technology, project management and process management; they employ a huge number of people across a huge range of specialties and they are way more global than even the most global law firm. This is why, for many kinds of issues that companies face, it’s a very attractive offering.”

Download the Big Four report for free here

Small law firm problems

The Big Four have proved disrupting. And smaller firms are struggling to compete for myriad reasons. As mentioned earlier, smaller firms are well-known for risk-aversion. They are slow to accept transformation. The SRA survey on technology, for example, found that firms serving large businesses are more likely to introduce new services, introduce new tech, and improve existing tech. Simply put, bigger law firms are more likely to scope out innovative solutions.

The survey also highlighted other issues facing small firms. They lack the financial capital for one-off investments in high-tech, for example, and lack the in-house expertise required for adequate assessment of new tech and optimisation of existing tech. In addition, small firms often struggle to gain support from senior management and do not always receive buy-in from teams. And, importantly, the scale of operations for small law firms leads to regulatory uncertainty and other legal barriers to tech adoption.

The trickle-down effect

The above issues are obstacles that can, and must, be overcome. As Maxwell and others claim, the Big Four have positioned themselves as disruptors – and, without question, the legal landscape has been disrupted. The Big Four have provided a necessary impetus. Small law leaders need to act and that action could provide lots of additional benefits.

As Craig Chaplin, Partner at DWF and Commercial Director of its Mindcrest Division succinctly explains: “ALSPs are bringing disruption into the market and forcing traditional law firms to think a bit differently and for those firms on the front foot that will be for their good.”

Digital innovation will trickle-down from the Big Four to small law through the impetus of competition and the evolution of client consumer expectations. The Big Four have demonstrated the cost-saving efficiency of automation and the streamlining effects of innovation, which effectively lays a gauntlet for smaller firms.

As clients expect cheaper solutions, smaller law firms can meet such challenges. They will not have the same capacity as the Big Four, but can innovate in cost-effective and pragmatic ways.

For example, Mari Sako, Professor of Management Studies at Saïd Business School, University of Oxford, claims: “For small law firms, especially those that provide services to small businesses, what would be really helpful for them and their clients would be the introduction of some kind of standardisation of tools.”

Sako says smaller firms need to adopt essential tech that leads to cost-saving and efficiency.

Small firms should accept the challenge from the Big Four and aim to meet clients’ needs through realistic and sensible optimisation of existing tech and adoption of new tech. 

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About the author:
Dylan is the Content Lead at LexisNexis UK. Prior to writing about law, he covered topics including business, technology, retail, talent management and advertising.