Who's afraid of computer generation?

Thursday 28 October 2010 by Eduardo Reyes

Significant parts of Richard Susskind's The End of Lawyers? focus on the role of technology and automation in the production of legal documents. In particular he looks at the use of software that enables the client, with the use of what is basically a decision tree, to generate employment contracts or wills.

Looking at what has happened in other areas of business life, the direction of travel seems on-way on this. True, there are obstacles on this road, but there is not much traffic coming the other way.

Automation may never become total in many areas, but its dominant role may produce something that is good enough for many clients. To say that argument challenges the business model for many, many legal practices is to state the obvious. The implications are also obvious – as technologies and processes improve, margins on the work they support will go down.

Is it time, then, for many practices to get out of this sort of work, as many have done with legal aid work as margins have become seriously challenging?

Those who say 'no' present a compelling argument – to be clear, they number many more than Susskind. They acknowledge that the competition to offer these services will only increase, and that profitability will fall for straightforward offerings. They also acknowledge that the development costs of creating or refining some more complex products have thus far proved prohibitive.

But shouldn't firms, the case goes, buy in these automated products as they become available and affordable, to add to their offering for clients? Firms would do that knowing that if the client buys this product through them then there is a chance to sell the client higher-value services.

Some of those services may relate to wills or employment – the technology passing up difficult issues for associates or partners to handle. More significantly, the argument runs, lower-margin instructions may get lawyers closer to clients – especially attractive if they are one of the UK's four million-plus owner-managed businesses.

Going down this route is not, its proponents acknowledge, trouble free. There may be firms who fail more quickly than they otherwise would for trying this and getting it wrong.

The reason to look at this model is that it has a key encouraging feature: it is a model that could work for smaller firms – a possible solution in areas where, for those sticking to the current model, business is likely to get tougher.

Comments

Eduardo is right that the

Eduardo is right that the competition to offer document drafting services such as Wills and employment has become hot. Already, a number of large non- traditional providers such as Barclays, RBS, NatWest, HBOS, RSA, Allianz, DAS and many other new entrants are using document automation to deliver convenient and affordable legal services to their customers, serving many thousands of them every month. Each one of these customers is a potentially lost client for small to medium size law firms. Eduardo is also right that capturing some of the 4 million small business clients should be absolutely key to small to medium sized law firms as these clients are the engine for growth; a fact not lost on the new entrants who are heavily targeting them through bank account and insurance based packages.

However, where I disagree with Eduardo, is in his assertion that the cost for law firms to access these automated technologies is prohibitive. It is actually very low, but lawyers have thus far been slow on the uptake in terms of integration with their practices and effective competition to new entrants. Epoq’s DirectLaw www.directlaw.co.uk, a client-facing document automation system is available for as little as £299 per month to a small to medium sized law firm. This is probably less than they spend on their staff canteen! Cost is therefore not an issue. The issue is a cultural one only. My fear for our profession is that, as is usually the case, we fail to compete when the going gets tough, because we are too slow to adapt.

I think solicitors need to

I think solicitors need to act fast and get to scratch with technology... everything is going online, people want to access information round the clock!

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Do margins go down?

Good article, but I'd question the assumption that use of technology and increased processing will drive margins down.

Prices are driven down by market forces, costs by contrast are an internal matter for the law firms. One of the ways that price can be driven down is by a low cost service provider dropping their price, which forces competitors to match it, unless they can differentiate their offering to justify the higher price.

This gives firms two basic choices in a market where prices are falling (with exiting the market being the other that Edwardo already highlighted). Firstly they can lower their cost base to preserve or indeed grow margin - thus if by using technology or process (or both) the firm can be more efficient, then fundamentally this helps the firm rather than shrinks margin. See a post here on efficiency: http://intelligentchallenge.wordpress.com/2009/11/26/the-size-0-law-firm/ Secondly the firm can avoid the "race to the bottom" and not compete on price, by communicating to the market that their service is different and provides extra value. Here perhaps if some firms were automating a particular work type, maybe the firm concentrates only on the high end, more complex work, or perhaps it's a particular type of client that wants a very bespoke personal service. Technology may or may not be used in this different service, but the key point is that margins do not have to suffer. A strong value proposition will be required however to explain why the higher price service is worth paying for (see http://intelligentchallenge.wordpress.com/2010/09/14/you-do-what/).

I like Richard's closing comments - agility and the ability to change to the movements in the market are critical, and there are great opportunities for the law firms that can adapt to the new rules of the marketplace.

Will Writing Services, an opportunity?

Although automated will writing services do under-cut traditional providers, it's vital to remember that most online will services only cater for the most basic of needs. As you mention, Eduardo, there are still ample opportunities to sell the client higher-value services. For instance, most online will providers simply aren't suited to large estates, with complicated arrangements. As such, I think that these online services are a great way of catching the low hanging fruit, while you turn your attention to up-selling and the bigger margins that offers.

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