Modern software businesses are strange beasts – and they can teach law firms a thing or two. They invest into creating intellectual property that they are then able to distribute as services to be consumed at a global scale almost instantaneously. For many of them they’re not even expected to make a profit – at least not immediately – as their investors look to recoup their capital through acquisition or IPO.

That’s a business model that is utterly unlike that of the average law firm. Constrained by the rigours of partnership, often unable to invest for the longer term, and with an absolute need to turn a good old fashioned profit, year after year, the law firm most certainly isn’t a modern software company. But delivery of services that are the encapsulation of intellectual property; well, maybe that is a bit more like a law firm. And the crossover between the two is starting to happen, as technologies begin to encroach into the automation of white collar knowledge work.

Too often law firms respond to the potential technological competition by deploying new and often unproven tools to try to reduce operating costs. Artificial Intelligence, for example, being used to reduce the need to employ paralegal staff. There is a major challenge in this approach. In the way in which firms ape one another, investing in technology to reduce costs will end up just being passed onto clients as firms compete with one another on commodity price. With proven technologies that approach is at best a necessary evil. But when dealing with emergent technologies it’s not even that.

Whilst using technology to reduce costs is important, it shouldn’t be your entire strategy.

Tech vision

 

So what should firms be doing to counter the coming storm?

The aim for any organisation when understanding its options in the face of digitisation is to balance investments into known technologies that will offer productivity and efficiency benefits (the bread and butter for much IT investment over many years) with the creation of entirely new business models that couldn’t be done without technology.

To achieve this, organisations should look to have a portfolio of technology projects that span four areas (see Figure 1).

 

Figure 1: Which path to take?

 

Known solutions to known problems are the mainstay of technology investment. Whether it's extending out core infrastructure or ensuring that systems can deliver case management, billing or other supporting functions, these types of technology projects won't differentiate you from the competition and so efficiency and cost saving should be the primary goal. These projects will usually follow the tradition of “waterfall” planning (where projects are completed in distinct stages, agreed in advance and followed through to completion).

Unknown solutions to known problems demand iterative, agile project approaches, which allow for decisions and changes throughout the project, and usually demand a keen focus on the client's needs. These types of initiative look to develop novel new answers and could well result in delivering new sources of revenue to an organisation.

Between these two “known problems” spaces you should expect to be placing around 80% of your total investment.

The Known Solution to an Unknown Problem is something of a challenging quadrant, but is often necessary so that an organisation can be perceived in the market to be keeping up with its competitors. The past few years has seen Artificial Intelligence fall into this space for the legal sector, and the returns are likely to be disappointing. Limiting investment and expectations are crucial.

Shared learning

 

The final quadrant, Unknown Solutions to Unknown Problems is the most challenging for almost all established organisations, let alone law firms. This Tinkering zone is where an organisation can assimilate the opportunities that emerging technologies might offer.

An example, from a very different field: congestion charging in London. The congestion charge could not have happened without the combination of automatic number plate reading technologies and integrations into driver registration data. It would not have worked with toll booths. The insight to make those connections came from the concurrent examination of the technology and its application.

“Ah, but that’s not law”, I hear you say. And that response points to one of the key opportunities for organisations facing the challenges of the coming software storm. Look outside of your sector. There are plenty of places where the opportunities of new technologies to create new business models can be seen. There’s no shame from learning from other sectors. But the uniformity of the way in which law firms follow each other would lead one to conclude otherwise. This observation and sensemaking from other sectors can make for very efficient tinkering.

Alongside other established sectors, there is also much to be learned from the new businesses that might pose most threat to the established. Don’t believe the hype that you should “act like a startup”. Most startups fail, horribly, and the stories that are told solely about the successful ones are a case study in confirmation bias. However, learning how to “interact with a startup” is a much more valuable thing.

From opportunities for “reverse mentoring” from the young leaders of new software businesses, to engagement in the startup ecosystem through accelerator programmes, open innovation models or even direct investment, there are many ways in which you could be doing that learning.

Yes, you need to invest in technology for business efficiency. But a portfolio of technology investment at this point in time is crucial for the long-term future of established businesses, including law firms. Exploring new business models, learning from other sectors, and engaging with the world of tech startups should be in that mix.

It’s not a combination I’m seeing in many law firms – but that only presents more opportunity to those that are willing to stand out and think ahead.

Matt Ballantine provides consulting and advisory services to a wide range of clients on how the worlds of technology, content and people can be brought together effectively for business improvement. He can be contacted at [email protected] or via LinkedIn.

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