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Dear Guenther, thank you very much for taking time to answer our questions regarding the omnipresent changes in the legal market. Will technology disrupt the legal market in the same way as the technology-supported business model of Uber has changed the taxi market?
It is interesting that you mention Uber, as this is a perfect example of what I believe can also potentially play out in the legal world as it becomes enriched and further enabled by technology. The usual rhetoric is that tech-enabled Uber has killed or will kill the taxi market. Well, that is not entirely true or at least not that simple. Yes, the value of the taxi medallion has taken a nosedive – for instance, in San Francisco the revenue per medallion and hence its value has, as alleged in currently pending damage claim cases, almost halved. On the other hand, where the combined taxi market pre-Uber in San Francisco brought in around USD 140m annually, Uber’s gross revenue in San Francisco is now multiple times that. And there are still taxis as I can personally confirm, having been there recently. So what Uber & Co have done is create completely new markets and/or vastly extend existing markets by being a lot more than just being a taxi – but they are still taking people from A to B in a car. What they have also achieved is to give jobs to those who did not have one but had a car (27% of Uber drivers were unemployed before taking up this occupation), so one could also argue that based on sharing-economy dynamics, they have closed significant value gaps or unlocked value previously not tapped into – and without going into the discussions of whether the revenue sharing underlying these new models is fair, and other related aspects. According to Boston’s Economic Development Research Group, Uber’s ride business currently contributes USD 1.6bn to San Francisco’s regional economy.
But what exactly can be learnt from this for the legal market?
I expect the same to happen in the legal world – the truly valuable parts will be preserved, we will be able to do a lot more for our own and our clients’ benefit, and new areas of services which we haven’t even considered yet will emerge. On the other hand, I expect increased transparency to take out elements where present-day value added may be called into question, and areas which can be standardized will be, and what can be standardized will be automated, and accordingly jobs in this area will be lost. In sum: on the individual level, we will see some disruption; overall I expect hyper-evolution (not least because the dominant design for the industry is still partly formed (protected) by regulation. Should regulations change, disruption would have to be expected).
Can law firms survive by keeping their existing business models?
I believe that in certain areas – criminal law defence, social engineering-heavy contract negotiations or divorce law being cases in point – the classic services of classic law firms will continue for some time. Essentially in areas where – as my grandfather once said – people come to you in the sense of the Latin root of the very word advocatus – to call upon help in a difficult situation. In this area it is about personal value and trust, and the delivery modus is of lesser relevance. In all other areas things will change radically. The last good day for the billing hour was yesterday. Clients demand more flexible billing models, want to see skin in the game and greater transparency. Technology will be key. The current partnership model, where most of the equity is controlled by the most senior partners who, being relatively close to retirement, have little incentive to make the significant investments needed to build the future, clearly is a problem. As law firms are generally no longer growing as much as they used to, it also becomes increasingly difficult to promote talent to partner level and they must rethink career path models and incentives – in particular as we enter the age of liquid talent, the “gig economy” spirit gets added to the culture mix and up to four generations collaborate under one (increasingly abstract) roof and value-set. So, yes, they can probably survive, but if they want to thrive and in particular attract the talent to build tomorrow, they will need to embrace change. But they shouldn’t be negative or afraid – it’s a far bigger opportunity than a threat!
If the business model needs to change, could technology help to make successful changes?
Technology is clearly not a solution for everything. That being said, it can be a great accelerator and facilitator of change. In a world where anything can be ordered with the click of a button, clients are now expecting professional services to be easily accessible, transparent, flexible and fairly priced – all of this can only be achieved by deploying technology. Technology will also allow for much more flexibility in the delivery of work which resonates well with an increasingly diverse talent generation. Working with collaboration tools and moving to a fully paperless environment, or using AI-powered tools to generate the basis for legal reasoning and decision making, will improve efficiency and effectiveness and ultimately allow more of the truly valuable work to be done.
What changes within law firms are inevitable in order to successfully implement technology?
As indicated above, I believe that it will be necessary to reconsider the distribution vs. investment ratio. Secondly, a mind-set change is required when it comes to technology. One should neither demonise nor glorify it. It is simply part of the new normal. It is probably best summed up by a quote from the webpage of the Burning Man Festival which I use at the beginning of all my presentations: “The appropriate response to new technology is not to angrily retreat into the corner hissing and gnashing your teeth: it’s to ask ’Okay, how should we use this?’”.
Price pressure in law firms is increasing, mainly due to alternative legal service providers utilizing powerful software. This allows them to be much cheaper, faster, and often deliver an even better quality. In addition, senior partners in law firms are often not interested in investing in future technology. What is your recommendation to law firms to overcome this challenge and still play a relevant role in the future legal market?
I think technology is only one aspect. What really differentiates many of the Alternative Legal Service Providers is their ability to provide truly multidisciplinary services on a global scale out of one hand, and to swiftly switch between different models. As I don’t think that it is feasible or sensible to try to replicate this, it may become necessary to consider cooperation.
Assuming the legal market will undergo changes – regardless of whether these changes are disruptive or evolutionary – what skills should future lawyers have in order to cope with the new world?
To be honest, I think nothing has or will ever change here. What my grandfather told me many years ago when I entered law school still holds true today and probably will forever: 60% of what makes a good lawyer is in equal parts the ability to truly listen to clients, to be passionate about helping people and to be curious and into solving problems, 20% is knowing the law, and the remaining 20% is experience. What will probably change is that in the future lawyers will require a more entrepreneurial mind-set, more business skills, will have to be passionate about discovering technology (if you understand technology it may help, but this isn’t necessary – most people don’t know how the internet or electricity works but they still use it), will have to invest more time in continuous education and mustn’t fall for the illusion of satisfactory underperformance, as transparency and competition will increase significantly.
(Note: In 2019 the following book will be published: DeStefano, Michele; Dobrauz-Saldapenna, Guenther, New Suits – Appetite for Disruption in the Legal World).