Writing for the latest Software Solutions Guide made Andrew Charlesworth realise law firms are in some ways bang up to date in respect of information technology - in certain other areas, however, legal IT continues to lag behind


Changes are afoot in the legal sector that will push law firms into far greater levels of automation. These changes will alter radically the way lawyers use IT, and cause seismic shifts in the ecosystem of legal IT suppliers, as the similarities between legal practice and other business sectors increase and the differences lessen.



Various commentators, from Professor Richard Susskind to Iris Legal software chief Arlene Adams, have remarked in the past that the legal IT sector is four to five years behind IT in other sectors of business. I recently completed the Independent View for the Law Society’s Software Solutions Guide 2008 and am of the opinion that, in some respects, legal IT is bang up to date – but in others it lags the rest of the world of business by as much as ten years.



Until now there has been little incentive for the high-street law firms, which comprise the bulk of practice, to invest in IT. Demand for legal services has largely outstripped supply, which suppresses the need for high levels of efficiency except in the largest firms, which have tended to globalise and computerise extensively to compete with international rivals.



Nor are individual IT products used in law firms technologically backward. In fact, law firms are somewhat ahead of other business sectors in, for example, tackling ‘unstructured’ content – the emails, forms and letters that make up a matter, as opposed to that stored in structured databases.



But while the legal IT products themselves are relatively current, the ecosystem of practice management suppliers seems anachronistic to an outside observer.



Take the recent market ruckus surrounding the acquisition by Iris Legal software (then CS Group) of the legal IT suppliers AIM, Mountain, Videss and Laserform in 2006 and the subsequent sale of CS Group to Iris in 2007. Only in a quiet backwater like legal IT could the consolidation of a few small suppliers make such enormous waves.



Consolidation is a Darwinian way of life for IT vendors – and, arguably, it produces progressively better results. Ten years ago, for example, Compaq, Digital and Hewlett-Packard were three separate hardware suppliers. Now there is just HP. In IT, size matters. Suppliers with few customers cannot afford to develop new types of product; they can only incrementally improve what already exists. In the legal sector there are too many suppliers with insufficient scale.



The importance of scale is such that if there are still more than ten practice management system suppliers in five years time it will inhibit the development of IT in the legal sector.



Why does this matter? Fundamentally, the nub of a law firm’s value is based not on processes but the judgement of highly skilled and experienced people. In other words, says Andrew Powell, IT director of Nabarro, ‘the right people and maximising IT uptime are more important than any specific technology’.



But, says Alan Hodgart, director at H4 Partners and one-time managing partner, there are changes already afoot in the legal sector that will push law firms to automate work currently thought of as beyond the reach of computerisation. ‘Automation is coming – look at the personal injury market. These aren’t so much law firms as factories.’



Legal factories will bring their techniques to bear on other services. If conveyancing and personal injury can be automated, what next?



Every business sector has a few unique features, but the differences are far outweighed by similarities. While it is anathema to many lawyers, in terms of encoding business processes in software there are more similarities between a law firm and a metal-bashing plant than there are differences.



Achilleas Hatjiosif, business development director at Hammondsdirect, sees the potential for large-scale automation. ‘A large proportion of every legal transaction is a repetitive process of data collection,’ he says. ‘Whether it’s a high- or low-value legal transaction, from a process design point of view it is still a linear document-centric process in a decision-matrix of varying complexity.’



Now, suppose this thinking was applied to, for example, employment law. Mr Hodgart outlines how this is, in essence, very similar.



‘The questions are nearly always the same: Can we fire this person with these attributes? A knowledge base could come up with an answer [which is] then checked by a lawyer,’ he says. ‘This would mean two minutes of lawyer input instead of five hours. If you look at lots of so-called high-value work, for example M&As [mergers and acquisitions], much of it is low-value, like due diligence, and could be automated.’



Without any other external catalysts, this trend alone would be enough to drive greater automation because firms face what one might call the ‘Susskind Conundrum’: choose to compete with the factories through increasing automation, or retreat into a defensible niche.



But reinforcing this trend are changes to legal aid and the force of the Legal Services Act 2007. It is a truism to say that the latter will profoundly change the way law firms operate and are organised, eventually loosening the stranglehold traditional practitioners have over access to legal services. Law firms, most likely, will look and behave much more like other businesses.



The discipline imposed by reduced margins on legal aid work will spread to the rest of practice. If legal aid work can be executed more efficiently, then so can other types of case.



‘Clients are looking at the price of legal services and concluding they are too expensive, but, at the same time, lawyers’ salaries are going through the roof,’ says Mr Hodgart. ‘So an obvious way for law firms to bring down costs is through better use of technology.’



A move away from hourly paid to fixed-fee rewards for certain classes of work feeds into this trend. If a project fee is fixed, efficiency becomes imperative to maintain profit margin. After efficiency may well come more sophisticated approaches, with systems taking on more complex work, says Richard Kemp, senior partner at City firm Kemp Little LLP.



‘You can’t computerise out the need for [human] judgement, but artificial intelligence will get you part of the way and reduce the amount of time a lawyer needs to spend on a job,’ he says. ‘Maybe the fixed-fee clients will buy a “bronze service”, which gives them access to the firm’s online knowledge base... then a more expensive “gold service” enables them to ask some questions of a legal help desk.’



By opening up law firms to partners who are not lawyers and, eventually, to third-party capital investment, the Legal Services Act will further accentuate the similarities between law firms and generic businesses and lessen the differences. When surveyors, accountants, HR managers, IT directors, administration heads and the like can become partners, law firms will begin to look increasingly like other types of business.



‘This will accelerate the process of law firms “growing up” in management terms,’ says Mr Kemp. ‘They will look for ways to make the business more efficient.’



The next wave of change will come when law firms open up to third-party capital investment. Kemp likens this to the City’s ‘Big Bang’ in 1986 when stockbroker firms became open to outside investment. Shareholders are likely to want firms to be run by strategic technocrats, not experts in minutiae. After all, Sir Terry Leahy, head of Tesco, is not a shopkeeper. Rupert Murdoch is not a journalist. ‘Then,’ says Mr Kemp, ‘you will really see the incentive to invest in IT to improve efficiency and to gain competitive advantage.’



The argument lawyers often cite against firms becoming more like other types of business is that, as officers of the court, lawyers have to maintain the highest professional standards. But that is true of many other types of professional service.



‘High ethical standards are fundamental [to legal practice],’ says Mr Kemp, ‘but the use of computer technology is not incompatible with this. Don’t accountants, actuaries and investment bankers have to maintain high professional standards? And they are far from immune to computerisation.’



Computerisation is not an optional extra for law firms, and is driven by much larger changes to legal practice per se. And as law firms become more like other businesses, their use of IT and the ecosystem of legal IT suppliers will change accordingly.



Andrew Charlesworth is a freelance journalist and this year’s Independent View writer on the Law Society’s Software Solutions Guide 2008, out this week. If you did not receive a print copy, you can download it from www.it.lawsociety.org.uk