Should Law Firms be Worrying About Judgement Day?

By Steve Blundell, November 22, 2017

Fans of the Terminator movies may recall Miles Dyson. Like his real life namesake, Dyson is a passionate genius. But instead of vacuum cleaners, the fictional Dyson’s passion is developing technologies that will enable computers to learn, develop and communicate with one another at an exponential rate – his brainchild becomes SkyNet – a monster which, instead of serving humans, decides to eliminate them altogether.

Cinematically brilliant and in many ways far-sighted, this story came to mind for me recently as I spoke to the “Miles Dyson” of the current legal profession. Unlike his celluloid metaphor, our Dyson is not a computer genius. Indeed, the unwitting destruction he may be about to unleash on the established legal profession has very little to do with technology – and everything to do with his adventure into an unknown world.

My current day Dyson is the GC of a FTSE 100 company. Like almost everyone with this role, he has struggled with the pressures of the “more for less” agenda. He has been through the whole process of corralling his legal advisers to a shrinking panel; increasing the capacity and capability of his in-house team; directing more budget internally; involving procurement; and, of course, utilising technologies and project management disciplines to increase efficiency. Our research shows he is ahead of his peers – amazingly only 47% of GCs in global companies reckon they have implemented these kinds of practices over recent years. So for his efforts, Dyson has been recognised frequently in legal awards as a courageous and effective innovator.

But for Dyson and the company, none of this went far enough: it all felt like nudging the existing system. So, two years ago Dyson decided it was time for his own personal SkyNet quest.  Together with an Alternative Legal Services business, who we shall call “SkyLaw”, he started to explore a radically different idea. How about instead of building up the in-house legal team to vie with external counsel, he outsourced the whole lot? Working with Dyson, SkyLaw built him a technology platform which allows anyone in the business, from their computer, to post the details of their particular legal problem or issue. Instead of going to the in-house legal team, that query now goes straight to SkyLaw. SkyLaw then operates a triage approach – with three choices:

  1. it handles the legal matter itself;
  2. it determines that the matter needs a level of knowledge of, or proximity to the business that it does not have – so it sends the instruction to the company’s remaining in-house legal function;
  3. it decides the matter is too complex or specialised for its legal capabilities – and it sends the work out to one of a short-list of approved law firms to handle it.

Figure 1 below illustrates the new approach

Dyson sets up control mechanisms to monitor SkyLaw’s performance. Crucially his KPIs centre on things like:

  • Overall legal spend
  • Quality of the advice
  • Speed of response
  • Satisfaction of the internal client

Notably the KPIs are all outcomes-focused from the company’s perspective. They do not feature the proportion of work sent out to external firms, their share of wallet or the value for money they provide. These are all evaluated by SkyLaw which then refines its selection process accordingly.

Dyson meets weekly with his SkyLaw contact to review progress – and he quickly feels they are far more on his page, understanding the business and its needs than any of his external law firms used to be. Moreover, he is now spared the whole process of meeting with those client relationship partners and the awkwardness of giving them feedback on their often lack-lustre performance, cost control etc.

Dyson has been surprised to discover that his in-house legal team has shrunk by 75% in the space of 18 months. Initially, quite a lot of work was triaged back to his in-house legal team – relying on the knowledge of the business he and his team had accumulated over many years. But SkyLaw’s technology learns much more quickly than its human counterparts – and already Dyson notices that the queries that need his team’s input are shrinking fast. He and his team are able to be both more proactive and more strategic, so able to demonstrate their value to the business – a substantial win in his estimation.

Also, Dyson used to think that it was important that he and his colleagues directed SkyLaw as to which external law firms were on the “approved list” of external law firms. But recently SkyLaw has persuaded him that they are able to negotiate far better deals with external firms by promising them, not just Dyson’s work, but work from other clients where they have similar arrangements. SkyLaw’s buyer power is simply far greater than their clients.

Dyson has also noticed that not only is the amount of work being sent back in-house diminishing, but so too is the amount of work SkyLaw sends out to external law firms. SkyLaw frequently tell him of new hires to their business – impressive individuals – and most recently a substantial law firm that has boosted their banking and finance credentials. Occasionally Dyson wonders if it would matter to him at all if all his work were undertaken by SkyLaw. He doesn’t lose much sleep worrying over the impact that all of this is having on the law firms where he used to have personal relationships with the partners.

Fact or fiction?  Actually, almost all fact, though my story has projected forward in time a little.

 

And the moral of the story?

When I speak to partners in most major law firms, they dismiss alternative providers as “bottom feeders” – only capable of undertaking the volume, low-margin work they would not want to handle. This dismissiveness is especially directed to the Big 4 accountancy firms, who tellingly are working hard to shake off the “accountancy” epithet and replace that with “professional services firm”. Law firms confidently maintain that no GC would buy high-end legal services from one of these players. Pre- Dyson and pre-SkyLaw that may have been true. The legal profession is famously cautious and risk averse. GCs themselves are relatively slow to change working practices – our research suggests that so far scarcely a quarter of them use external providers who employ “innovative practices”. But replace “SkyLaw” in my narrative with Deloitte or PwC and anyone can immediately see that the whole paradigm shifts. A Big 4 firm is then in a position to decide for itself what legal service capability it builds and delivers. It can direct its massive balance sheet firepower to invest in ways that few law firms can contemplate.

Our experience is that far too few managing partners of law firms have taken this existential threat seriously. Like the unwitting humans in Terminator, they are going about their daily lives oblivious that Judgement Day is all too soon. 

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