The End of the Steam-Powered Law Firm

by | Feb 23, 2018

Legalweek18 made it clear that the legal industry will look much different five years from now than it does today. The law firms that have dominated it for decades are seeing lower growth and market share, in part, thanks to new types of legal service providers. At the same time, the expectations of consumers of legal services are changing. Whether they go to a law firm, an alternative legal service provider, the Big Four or somewhere else for legal services, they expect better results and lower costs. Which means we, as lawyers, as an industry, are under increasing pressure to deliver more with less. The related conversations at Legalweek largely focused on how existing organizations can use technology to adapt to these changes, but history suggests that we should instead be asking how we can redesign existing organizations—be they traditional law firms or alternatives—to leverage the transformational potential of technology.

The Dynamo and the Computer

In 1899, dynamos – electric generators – generated less than 5% of the total power supplied to U.S. factories, even though the electric light had been invented in the 1870s and the electric motor in the 1830s. In fact, even in the early 1920s, most factories were still not well electrified. But then—suddenly—electric-power adoption exploded, and, over the course of just a few years, electricity quickly grew to account for a majority of factory power before the turn of the decade. So, what happened?

In his seminal paper, “The Dynamo and the Computer” (1990), economic historian Paul A. David analyzed the factors behind this long-delayed revolution to demonstrate that the greatest impact of important new technologies can lag their invention by decades. In this case of industrial electric power, David’s analysis focused on two factors. First, factory owners had invested tremendous capital in creating long-lasting, steam-powered systems that—for decades—were good enough that few factory owners felt the need to make any major (and expensive) changes. Second, where electric motors were simply substituted for parts of existing steam-powered plants without systemic changes in the production model, the gains in efficiency were relatively modest. But then something changed.

By the mid-1920s, even the long-lasting steam-based systems were reaching the end of their useful life, and factory owners found it necessary to replace obsolete factories wholesale. Which meant that, instead of simply finding uses for electricity within existing steam power systems, for the first time, factory designers could “radically redesign” their factories’ architecture. And those completely redesigned systems not only lowered the energy costs of production, they also had numerous unanticipated benefits, from reduced downtime, to increased efficiency, to better working conditions–benefits that would not have been possible but for the wholesale factory redesign. As the BBC’s fantastic podcast “50 Things that Made the Modern Economy” put it, industrialists needed to “change everything,” from business architecture, to logistics, to personnel, to truly take advantage of a fifty-year-old technology

To solve big problems, legal service providers need to rethink how their organizations leverage technology from the ground up, not look for new technology projects to bolt on.

“Radically Redesigning” the Legal Industry

Having spent a week immersed in all things legal at Legalweek18, I can’t help but feel like we’re facing exactly the same issue in the legal industry. All too often we’re having the wrong conversations around technology. There’s a frustratingly common misconception that new technology can be a drop-in solution to fix serious problems in legal departments, firms, etc. In practice, it rarely is. To solve big problems, legal service providers need to rethink how their organizations leverage technology from the ground up, not look for new technology projects to bolt on. Like the factories of the 1920s, today’s law firms are under increasing pressure to modernize; the status-quo is no longer good enough. But if they are to meet that challenge, they’ll need the courage to “radically” redesign the architecture of their organizations. As illustrated by the dynamo a century ago, the benefits of one for one replacements of existing processes with technology are limited. And done without the proper big-picture perspective, they can make things even worse.

There’s a company that was having trouble with its flow of contracts. Management was frustrated by how long it took to complete contracting processes and was exploring expensive contract-automation solutions to improve throughput. Thankfully, before making changes, they undertook a quick study of the life of a contract in the organization and identified a bottleneck. It wasn’t that it was taking their business teams too long to create or negotiate contract drafts. It was that all the contracts were then being sent for processing by a single paralegal–more than 10,000 per year! Even working around the clock, 7 days a week, she was unable to keep up with the flood. Can you image what might have happened if—in a misguided attempt to speed up its contract-processing pipeline—the company had simply deployed an automation tool that accelerated the pace at which contracts were flowing into that bottleneck? That poor paralegal! But the sad truth is, in many organizations, that could have easily happened. The wrong solution—even with great tech—can make problems worse, not better.

The End is Near?

The real killer app then is an organization that can scale and adapt as fast as new legal technologies develop. Individually, legal technologies – AI-assisted review, expert systems, eDiscovery platforms, contract automation, etc. – are the dynamos of the legal industry. As was the case for dynamos in steam-powered factories, so long as they’re being deployed into in legal organizations designed decades before – in an age of steam, if you will – the benefits offered by these new tools will be limited. Like the industrialists of the early 20th century, we’re too focused on how we can fit our fancy new dynamos into our steam-powered organizations and adapt new technologies to fit the way we’ve always done business. To unlock their true potential, we need to rethink how we do that business.

We need to think architecturally, and for guidance we should pay close attention to the organizations that are already making strides to reinvent the legal service model or rewrite the architecture of law firms. It’s no surprise to me that this year’s Legalweek highlighted the emerging categories of ALSPs and software platforms meant to rewire how legal service providers work. I’m keeping my eye on companies like Doxly, Case.one and Clio, among others. They’re working to bring us a world where organizations’ workflows and information are centralized, standardized, and computerized—ready to play nice with the web-enabled services and solutions present in almost every other industry. Also present were organizations like Axiom, UnitedLex, and the Big Four that chose to take the inverse approach:  building new legal business models strategically enabled by software. Even some industry veterans like Thompson Reuters and select law firms are showing that they’re thinking about how to redesign internal processes to take advantage of software and technology along every step of legal service delivery.

The end of the steam-powered law firm may be here sooner than you think.