As we advance into 2018, legal firms continue to face unprecedented changes within the industry, largely driven by the potential for new or emerging technologies to reshape service delivery models.
As technology and process automation continues to punctuate the growth strategies of many firms, and the mindset of innovation becomes more firmly embedded within the cultures of most top legal services providers, it’s clear that the ability to adapt to change has become more important to sustained growth than ever before.
It’s no secret that in 2017 the proven applications for technologies like artificial intelligence (AI) to perform process-based tasks such as smart contracts, galvanised the break with tradition in terms of client service offerings.
We saw this with the announcement late last year that an AI only law firm called The Law Firm Without Lawyers, was launching in Darwin. This initiative is based on Ailira (Artificially Intelligent Legal Information Resource Assistant) that assists with legal advice for wills and asset planning, and is available online.
The potential for further change at the hands of technology and in turn, client demands and budgets, remains an ever-present threat for many firms. However, we are seeing progressive firms embrace these changes to drive greater productivity and maintain earnings, and for these firms building innovation focused teams and cultures is foundational.
Encouragingly, we have seen a sharp rise in innovation across the entire Professional Services sector in Australia in the past 12 months and the contributing factors aren’t all just a response to technology disruption.
According to early results from the upcoming CommBank Professional Services Insights Report, part of a nationwide research initiative into the innovation performance of Australian businesses, this is being driven by a number of internal and external factors.
The report shows that just over one in two firms (53%) cited the potential to leverage new or emerging technologies as the key driver of innovation, considerably more than any other professional services segment (management consultants, IT services, accountants or scientific researchers). This was followed by 42% of respondents seeking to improve efficiencies and productivity through their innovation activity.
In addition, 14% of firms suggested that the changing nature of the workforce is a driving force behind innovation.While this may appear to be low, it was again more than any other segment within the professional services industry and an issue that continues to feature heavily in the headlines.
When considering the impact on legal jobs, technology and automation are central to the ongoing discussion around the future of the industry’s labour force. But this issue is a great example of a divergence in attitudes within the industry.
Some firms are looking not just at the impact on employment, but rather how to develop and implement innovative strategies to pair human resources with technology, to free up resources to focus on more complex matters, client relationships and solutions.
While the research suggests that technology, external market factors and greater competition is spurring innovation amongst firms, there are a myriad of internal behaviours that have the potential to increase the likelihood of successful execution.
To determine the innovation performance of firms, the CommBank report considers the presence of 15 management capabilities and entrepreneurial behaviours within a firm – together known as the CommBank Innovation Index.
The Innovation Index score for the legal industry stands at 26.9, and while this ranked below the national average across all Australian businesses of 32, it shows the legal industry is well positioned to move further up the innovation curve.
Importantly, the legal industry ranks beyond a crucial threshold separating day-to-day improvement and genuine innovation, denoted by an Index score of 25. This is also reflected by the rising number of firms that have established teams dedicated to innovation and the broader adoption of leading technologies into daily operations– and not just among the top tier firms.
Of the 15 factors that comprise the Index, the most prevalent innovation behaviours amongst Australian law firms focused on cultivating an open and collaborative working environment and retaining flexibility within the service offering.
The top exhibited behaviours within innovative firms included encouraging employees to ask questions that challenge (80% of firms), expecting employees to offer creative ideas for how the company can improve (76%), and adapting products and services to make the most of opportunities (79%).
When considering the benefits that can be derived from innovation, the greatest proportion of firms agree that improved efficiencies is the most positive by-product, cited by 64% of law firms, followed by better outcomes for clients. In many ways these two factors aren’t mutually exclusive given heightened efficiencies are often necessary to deliver to client budgets and maintain margins.
While innovation can positively impact a firm’s bottom line, achieving this isn’t without its challenges and there are many firms that are still grappling with operational improvements, let alone implementing successful innovations.
Among innovative firms, the CommBank report shows that the most prominent challenge for law firms – almost one in three– was complicated internal organisational processes and procedures.
This presents an opportunity for firms to look more closely at their processes, not just to enhance client delivery, but to also remove barriers to innovation within their organisations.
Overall, there are very positive signs that those entrepreneurial behaviours and management capabilities needed to establish and grow a culture of innovation are alive and well in the legal sector. This bodes well for the year ahead where we expect to see even greater disruption through technology, automation and analytics and ongoing demand for new and differentiated solutions for clients.