The case for change and innovation: Why law firms must beware complacency and embrace disruption

As PwC’s Law Firms’ Survey 2024 reveals, emerging technology such as generative AI (GenAI) is already starting to impact traditional law firm work. Almost 90% of Top 100 law firms have now implemented or trialled GenAI tools, compared to only 55% in 2023, and a third of firms believe at least 16% of existing chargeable work could be automated, creating unprecedented disruption to pricing and team structures.

Other factors are also converging to create an imperative for change. Law firms have offset cost pressures by raising fees - by 40% over the last five years - and increasing chargeable hours and utilisation, but this isn't a sustainable path to profitable growth in the long term. Added to this are pressures on traditional pricing and client demand, a more competitive global marketplace and regulation, and increasingly fierce competition for talent.

Creating a mindset and culture of change

Embracing change when things are going well financially enables law firms to transform from a position of strength now, instead of being forced to react from a position of weakness and defensiveness in the future. But even when the ‘why’ is clear, the big challenge is how to navigate law firm partnership structure and culture to execute that transformation effectively.

Successful transformation in the legal sector starts with a clear and compelling reason for change. Mixed messages about the purpose of the transformation - whether that’s for cost or quality - make it difficult to get everyone aligned to execute at pace. A leadership team that walks the talk with this clear message outside of the boardroom is also key to getting wider buy-in and navigating any resistance.

A fundamental change in mindset is also needed, putting long-term thinking over short-term profits. While some investment to fund transformation can be found through rationalisation and efficiencies, IT system modernisation and other similar projects can be big ticket items. Where does that investment come from when law firms traditionally fund projects from in-year revenue and distribute all their profits each year? Law firms need to create a funding structure that encourages partners to think longer term as responsible owners and custodians of the future of the firm.

Building transformation execution muscle

A big gap for many law firms is in the execution capability needed to transform, which can result in failure to deliver the promised benefits, and create scepticism and resistance. The Law Firms’ Survey shows that despite the increase in IT investment over recent years, many firms are still unable to deliver the pace of technological change, get the best use of technology once implemented or drive long term adoption. For example, approximately half of Top 100 firms say they have implemented customer relationship management (CRM) systems but were unsatisfied with the business outcomes

What are some of the key elements to overcoming this and successfully delivering transformation? The first is to recognise that transformation doesn’t have to be an overwhelming big bang programme that gets mired in complexity and resistance. Firms need to bite off the right amount of change and then balance achievable short-term wins with long-term strategy.

There is also value in creating showcases and centres of excellence that firms can then build out and scale up on. Being able to demonstrate proof points and quick wins to partners through this approach can then help build momentum for change, as well as realising cost savings that can be reinvested into the longer term transformation objectives.

Getting critical buy-in and support from leadership also requires more transparency and regular reporting, informing partners and consulting them early on so they genuinely feel part of it. It’s a balance to strike between what’s the right level of information for the wider partnership and having a core group of people on a day-to-day basis.

Where to focus transformation efforts?

The longer term vision for the transformation of law firms is about a fundamental digital reshaping of the workforce and operating models, underpinned by tech-enabled innovation and reinvention of client delivery and value. Getting to that target end state requires a series of transformation exercises.

IT and finance are the most likely functions to undergo transformation in the next 1-2 years for the Top 100 firms, according to the Law Firms’ Survey. The Top 10 firms are also planning to undertake work across HR, marketing and business development, procurement, knowledge management and risk.

Looking at IT specifically, cloud modernisation and migration, and data strategy and platform development are the top priority. A drive for greater client centricity, powered by platforms such as Peppermint and Salesforce, is also leading to customer relationship management (CRM) system transformation, with 100% of the Top 10 firms planning to complete a CRM-focused project in the next 1-2 years.

While these functional transformation exercises are key it’s important to avoid them being done in their own silos. Instead, they need to be joined up and connected to the broader long term strategy, with alignment across geographies, practice leads and practice groups.

Creating the digital law firm of the future

Law firms are at a crossroads. On the one hand they can do nothing and, by increasing prices and poaching rainmakers and top talent, they will likely continue to see impressive financial performance in fee income and profitability in the short to medium term.

But if law firms aren’t thinking longer term about how they disrupt all the ways they currently work and deliver client services, that complacency and false sense of security risks the future competitiveness and profitable growth of the firm. Technology such as GenAI will increasingly put downward pressure on pricing and client demand. Competitors will develop digital solutions that scale rapidly, undercut traditional delivery models and take market share.

The ability to execute change at scale and pace will be critical to this transformation and reinvention into the future-fit digital law firm, driven by simplification, technology and automation, and backed by visionary and bold leadership.