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A new report by LexisNexis and the University of Cambridge’s Judge Business School examines how the top 50 UK law firms have approached the business of law since 2015. ‘Lead or follow? How law firms adapt to a changing market’ looks at the various shifts to law firms over the past five years and discusses why certain firms are leading the way while others are simply following.
The report noted many key differentials between leaders and followers. One was the willingness to change. Firms that are leading the way are able to shift business models, pivot workplace culture to enable innovation, and make bold strategy decisions to prioritise long-term competitiveness.
Another key differential is the attitude towards tech. Leading firms automate repetitive tasks, implement and integrate the latest tech, and reimagine processes through innovation. In contrast, the firms that are following simply look over their shoulders and implement the same tech as competitors.
In this article, we look at the report in more detail and consider why the willingness to change and the need to embrace tech has become essential for law firms. The article argues, in short, that firms of the future can no longer afford not to change.
The report demonstrated that firms who made bold decisions became larger firms than those who were ambivalent. Successful firms were those with a vision, who were proactive in tackling emerging risks and seizing potential opportunities. Successful firms, in short, were the ones willing to change.
The report noted four essential barriers to change – automation, business model, culture, and disputing the counterfactual. The so-called ABCD of barriers to law firm transformation have been overcome by leading firms, but have prevented firms that follow from progressing.
One example is business models. Leading firms shifted business models, often due to recognition of the importance of client impact. The changes meant that leading firms were better positioned to evaluate risk, avoid risk, and seize market opportunities.
Another example is law firm culture. Leading firms adopt a culture that welcomes change, recognising change as an exciting prospect. Firms that follow, according to the report, usually adopt a culture of risk-aversion, prioritising business-as-usual, which means that opportunities are often missed.
For some firms, the unwillingness to change is not seen as particularly problematic. Many firms do not realise that they are in danger because the threat is not imminent. But evidence from research across the sector shows that profit margins have stagnated or declined for many years, which means that many firms are indeed at risk: slow decline is an underappreciated but nonetheless serious risk.
Simply put, the unwillingness to change is unsustainable in the long-term. The law firms that follow, the firms that do not accept the need to innovate and change, will be left unable to compete in a fast-moving sector that demands action. A willingness to change is not simply desirable. It is necessary.
The benefits of embracing tech are clear. Tech allows law firms to streamline processes, save time and resources, improve client and employee satisfaction, and broadly improve competitiveness.
The report found that tech has had a profoundly positive impact across numerous operational areas over the past five years, including workflows, document management, discovery through artificial intelligence, and so on. In short, implementing and integrating tech has allowed leading firms to thrive.
Implementing legal tech requires planning, strategy, investment, and optimisation. That means the returns on investment are seldom immediate. And, according to the report, the absence of immediacy deters some firms from embracing tech. Firms that follow seem to mainly focus on short-term gains.
Take automation, for example. The report suggests that many firms are reluctant to invest in tech that supports automation, as they fail to appreciate long-term benefits. The irony is that automation does require time and money, but successful automation will save far more time and money in the future.
Firms that follow practice short-sightedness and seem to adopt a present bias. Leading firms, on the other hand, look into the future, prioritise the long-term, and therefore embrace tech.
And leading firms do not simply embrace any tech. Firms that follow check out the competition and broadly implement similar levels of tech. They are, in short, moving along with the crowd, constantly catching up. But leaders rebuild and experiment with tech, they reimagine and streamline process, they innovate to save resources and cut costs, always attempting to stay ahead of the curve.
Mark Smith, Strategic Market Director at LexisNexis, says the firms who have thrived most are those that have ‘reimagined and rebuilt internal processes, operating models and culture to fundamentally change their ways of working’. The leading firms are questioning, innovating, adopting a willingness towards change, an enthusiasm towards tech, and an eye towards the future.
The report builds on five years of work, showing that the successful firms are in a state of constant evolution, continuously adapting, integrating, optimising, and finding new routes to success.
Ultimately, the unwillingness to change and the reluctance to embrace tech may not seem like a risk. Firms may not notice the danger, because it does not feel immediate. But the firms that follow are falling further and further behind. And, in the future, they may be unable to keep up.
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