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Law Firms [Slowly] in Transition

Altman Weil recently released its annual review of law firms and the challenges they face, entitled Law Firms in Transition. There have already been a number of thoughtful comments about it, including the following:

  • Stop the AI madness, by Ryan McClead at 3 Geeks
  • GCs Now Do Less Law, by Ron Friedmann at Prism Legal
  • 9 Takeaways from the Altman Weil Law Firms in Transition Study, on the Business of Law Blog
  • Law firms in transition: Keeping up with the times, by Kim Covert at the CBA PracticeLink

The report summarizes responses from law-firm lawyers to questions about such things as price competition, commoditized legal work, contract lawyers, and the outsourcing of legal work. Since the questions are essentially the same each year, the survey offers results that can reveal trends.

My interest in the technological aspects of the practice of law leads me to leave aside issues such as pricing and focus on a couple of points in particular.

First, one question asks whether firms are losing business to non-law firm providers of legal and quasi-legal services. Almost 17% of response respondents said these service providers are “Taking business from us now,” while 38% said that this is [merely] a potential threat, while another 36% said that was “Not a threat.” (A very honest 8.8% said that they didn’t know.)

So, more than a third of respondents feel no threat whatsoever from alternative service providers. I am just guessing, of course, but, only a few years ago, at least that many taxi drivers may have felt that Internet-based tools such as Uber posed no threat to their business!

Interestingly, the larger the firm, the greater these alternate service providers were perceived to pose a threat: 40% of those from smaller firms (less than 250 lawyers) think they are not threat, as compared with 25% of large firm respondents. Perhaps the large-firm lawyers have more personal experience with technology changing their practice and therefore are more willing to extrapolate as to how technology might affect their practices in the future.

It was also interesting to note that, while in 2011, 70% of respondents thought that competition from non-traditional services providers would be a permanent trend, in 2015 that number is 83%. I’m curious, though, how 83% percent of respondents believe this is a permanent trend, and yet at least a third of respondents overall consider these service providers not to be a threat! Perhaps it’s a feeling of, “Well, they may take business from other lawyers, but my practice is unique and could not possibly be done by someone who does not have my years of experience.”

Tucked in at the end of the report, just before a description of Participant Demographics, is the “Bonus Question: Artificial Intelligence.” (This almost seems to me like one of Alex Trebek’s Double Jeopardy questions!)

The question asked was, “Can you envision a law-focused ‘Watson’ replacing any of the following timekeepers in your firm in the next 5 to 10 years?” [emphasis in the original]. Here are the answers (respondents were invited to select all that apply):

Paralegals 47.0%
First year associates 35.0%
2-3 year associates 19.2%
4-6 year associates 6.4%
Service partners 13.5%
Yes, but not in 5-10 years 38.0%
Computers will never replace human practitioners 20.3%

 

One could debate whether this is the best way to frame a question that is meant to gauge the profession’s sense of the impending threat posed by new technology. In the last few years, we have seen the alternative service providers start to eat away at law firm revenue from the bottom up. Over time, they have progressed to more and more complex activities.

It’s not unreasonable to assume (along with Richard Susskind) that there will be a continual movement from bespoke activities towards commodification, with alternative service providers providing more and more of those commoditized services.

The Altman Weil question, on the other hand, seems to envisage a Watson, J.D. that steps in at the top of the pyramid to replace the expert practitioners.

Leaving aside any quibbles about the phrasing of the question, though, there are at least a few things to note from the 2015 responses. First, to the extent that Watson is perceived to be a threat, it is clearly seen only in connection with “low-level” work of the type currently done by paralegals and first-year associates. (This is an appropriate time to note that, since there is no articling period in US practice, the “first year associate” category would correspond, in a Canadian survey, to “summer student.”)

Second, almost 40% of respondents believe that, while change will come, it will not come for a long time (i.e., not in the next 5 to 10 years). This reminds me of Bill Gates’s comment that people overestimate the amount of change that will happen in two years and underestimate the amount that will happen in 10. I am guessing that if this question were phrased as, “Not in my lifetime!”, the response rate would have been about the same.

Third, one in five respondents believe that this will never happen. Ever. There are, I might suggest, two ways to look at this response. One is to consider these respondents to be ostriches with their heads in the sand.

But another is to suggest that the question is flawed. The better question might be not whether computers will [entirely] replace [all] legal practitioners but whether technological tools will displace a significant portion of the work done by skilled lawyers. I would suggest that the proper answer to the question asked by Altman Weil is, in fact, “No,” computers will not entirely replace human experts. But if the question were rephrased to ask about AI augmenting the work of, and displacing significant numbers of, skilled practitioners, it would have homed in on the key issue.

Lastly, perhaps the most interesting trend in this report is shown in comparing the 2011 answers to this last question about Watson with the current answers: in 2011 46.0% answered “Never,” while that number has now dropped to (only) 20.3%. More than half of the people who, four years ago, said that this would never happen have apparently now changed their tune.

Lawyers are, I believe, coming to a greater awareness of the potential implications of technology on their practice. I look forward to seeing next year’s numbers!

Comments

  1. Support services will bring a bigger change to the way that legal services are provided than will automation. For example, a hydro-electric plant is a true support service. But an automated electric generator attached to your office, and another one for your home, are not. Therefore CanLII is not a true support service. The materials it provides go into law firms, all of which use an obsolete method of manufacturing legal services-the “handcraftsman’s method” used by cottage industries. True support services are needed.
    No doctor’s office provides all treatments and all remedies for all patients the way a law firm does for all clients. Similarly, the huge auto parts industry was developed to provide very sophisticated support services to the automobile manufacturers. And every part of the medical professions’ infrastructure is a highly specialized support service for all other parts– scaled-up volume, interdependent parts, i.e., specialized doctors, technicians, technical tests, drugs, hospital services, equipment, materials, methods, etc.
    In contrast, even with its intense use of electronic devices, the legal profession has no such support services–except for LAOLAW at Legal Aid Ontario (LAO). In its 9th year of development, 1988, LAOLAW was producing 5,000 legal opinions per year for legal aid lawyers in private practice. But LAO has since suffered substantial cuts in funding.
    CanLII could be a true support service available to all lawyers and judges in Canada if it used LAOLAW’s technology of centralized legal research to provide legal opinion services for all client and case fact-patterns.
    Support services maximize the specialization of all factors of production, and depend upon a scaled-up volume of production. As a result, they have the highest degree of competence, and maximize the benefits of economies-of-scale.
    But even our biggest law firms are made up of little law firms called “practice groups.” Therefore all legal services are produced in a highly siloed (silo’d), isolated way, without sufficient specialization and insufficient volumes of production. No law firm produces 5,000 legal services per year, let alone 5,000 of any one of them.
    A well established principle of engineering states: “nothing is as effective at cutting costs as scaling-up production.” Or, “bigger is better.” Bigger means a higher degree of specialization, and therefore a higher degree of competence for every factor of production.
    Automation in itself can’t do that, unless applied as an integral part of a true support service method of production.
    The A2J, “unaffordable legal services problem,” will never be solved until law societies provide the necessary leadership that develops the support services that will provide the practice of law with the necessary cost-efficiency that will make legal advice services affordable.
    Routine legal services are not the cause of the problem. They can be automated. But legal advice services cannot be automated. They need lawyers to provide the advice, who in turn need support services to provide the cost-efficiency needed now.
    For those who say there is no such access to justice problem, then why does the percentage of self-represented litigants continue to rise, along with the number of law firms in financial distress, and increase along with the disappearance of articling positions for law students?
    The abundant in-depth analytical literature defines the problem as, “the majority of the population cannot obtain legal services at a reasonable cost.”
    The cause of all causes of the problem is the obsolescence of law society management structure. See:
    “A2J: Preventing the Abolition of Law Societies by Curing Their Management Structure Defects–
    A Solution to the Unaffordable Legal Services Problem,” posted on Slaw, September 25, 2015, at:
    http://www.slaw.ca/2015/09/25/a2j-preventing-the-abolition-of-law-societies-by-curing-their-management-structure-defects/

  2. Unfortunately the “support services” model for medical care has increased the cost of providing medical care rather than reduce it. Our medicare system hides this result but those of us who have served on health care boards have seen this first hand and there is no bargaining with specialists to reduce their “salary”.

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