Legal technology: productivity vs. profits

Legal technology has been front of mind for law firm leaders as of late, with the pandemic ushering in a new era of adoption and innovation.

Yet many law firms are still unsure how they feel about introducing technology that's designed to increase productivity.

Sure, streamlining workloads and increasing efficiency would solve a lot of problems, but by doing so, it would also reduce the number of hours billed, subsequently dampening profits.

In a new LexisNexis report investigating the billable hour, experts argue increasing lawyer productivity through legal technology can drive new business by building higher value client relationships.

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The trouble with legal tech

Technology has come a long way in the legal sphere over the last few years.

Machine learning and artificial intelligence tools are now able to replace manual and often time-consuming tasks.

As a result, there's been widespread adoption by the top 100 firms of everything from document management and drafting solutions, to research and legal guidance tools, to e-signature and e-billing software – all with the aim of increasing productivity.

Yet, most law firms still bill a large proportion of their client work by the hour, which raises a somewhat obvious question; if productivity goes up, then billable hours will go down, meaning so too will profits, right?

“One of the basic aims of law tech is to speed up tasks, which doesn’t really help your profitability if you’re still sticking to billable hours, so firms are still coming to terms with how to feed in the law tech element,” said Stephen Denyer, director of strategic relationships at The Law Society of England and Wales.

While the mere thought of reducing billable hours will be enough to raise alarm bells inside the minds of law firm leaders, switching the focus to staff productivity comes with some pretty compelling business benefits.

“Sometimes the things that matter a lot are intangibles — not necessarily bringing in the business, but running the business in such a way that the client is happy and satisfied and wants to bring in more business,” said Nicole Nehama Auerbach, vice president and founding partner of law firm ElevateNext. “Even if they’re not billing the most hours, that’s super important.”

All of this means firms must think differently about technology and find ways it can generate more client work.

“Part of adopting technology is deepening and broadening relationships with clients and getting the client more dependent on you,” said Denyer. “Technology can potentially give you real insight into the client's issues, which gives you a chance to pitch for a lot more of their work and also makes the client more wedded to you, which means it’s not going to be so easy for them to move away.”

Benefits of increasing lawyer productivity:

Longer-lasting clients relationships
Switching the focus from hours billed to outcomes will mean the client becomes the sole priority for lawyers.

Better client service
By automating routine, time-consuming tasks with legal tech, your lawyers will have more time to focus on the strategic work that better utilises their abilities.

Higher talent retention
By enabling your lawyers to deliver a better client service, job satisfaction rates will undoubtedly rise.

Firms pivot from the billable hour

For decades, law firms big and small have relied on the billable hour to charge clients.

But in the last few years, the number of law firms offering alternative fee arrangements has risen drastically. According to a 2021 survey by tech firm BigHand of law firms with 100 or more fee-earners, 43% of UK law firms said they are offering alternative fees like fixed or capped fees to clients (up 28% from 2020). This roughly aligns with findings from The Lawyer’s most recent In-house Legal Sentiment Survey. Having interviewed 259 general counsel and in-house lawyers, the survey found alternative fee arrangements were more commonly used than a specific hourly rate (46% versus 40% respectively). Alternative billing methods can include flat fees that are agreed for a project in advance, contingency fees that are dependent on the outcome of a case, and capped fees, where costs can’t go above a certain level.

“Vodafone does most of its work on fixed rates since that gives budget certainty and allows a comparison of costs from firms when responding to an RFP,” said Kerry Phillip, legal director at Vodafone. “The firms on our panel expect to provide fixed fees or alternative arrangements.”

Even some law firm leaders are advocating for change. “It would be ideal for the industry if we can start to move towards more of a focus on outputs and the value that is being delivered by lawyers,” said Georgia Dawson, senior partner at Freshfields Bruckhaus Deringer. “That supports a drive towards efficiency, a drive towards the use of technology and it can help to support a better focus on mental health, well-being and diversity in the profession as well.”

Firms that resist change may ultimately be strong-armed into offering alternative billing arrangements if they want to secure a spot on lucrative legal panels.

“All firms respond to competition,” said Denyer. “Being on a panel for a major client can be worth many millions of pounds, so if you find that a number of your major clients are opting for competitors who are largely not doing billable hours, obviously you’re going to feel you need to respond to that.”

How legal tech can increase productivity and reduce costs

A Bloomberg survey showed some more than four-fifths (85%) of law firms have switched to alternative billing methods to meet client demand – only 18% said they're using it to reduce their own internal costs.

Yet working with fixed or flat fees presents an opportunity to speed up the amount of time spent on client work without it impacting the bottom line – especially when throwing legal tech into the mix.

For instance, new research by the University of Manchester and commissioned by LexisNexis found legal research and guidance tool Lexis+ saves lawyers an average of 8 minutes and 41 seconds per task, which equates to 1 hour and 41 minutes over the course of a 10 hour and 15 minute day (the national average for lawyers), or 8 hours and 28 minutes over the course of a week.

These time savings means your lawyers can spend less time scanning the internet or flicking through the law books in search of legal information, and more time working on the strategic work that adds the most value to your clients.

How Irwin Mitchell increased efficiency with LexisNexis

Leading full service law firm, Irwin Mitchell, turned to LexisNexis to help power its strategy to become a more efficient, digitally-driven group, said Victoria Brackett, CEO of business legal services at Irwin Mitchell.

“Technology is so important in ensuring we can deliver what our clients truly value and we’ve been impressed with the partnership approach from LexisNexis. We feel that this will make us even more efficient in helping our clients to resolve their legal issues in the most cost-effective way.”

Read the case study here