Law Firm as Legal Tech Company
By Wayne Nitti
Law firms face competition from every direction: alternative legal service providers, the Big Four accounting firms, and BigLaw firm mergers and acquisitions that continue to narrow the field. No matter the size, law firms must somehow set themselves apart. It is the inherent nature of BigLaw to be risk averse and slow to implement change. “Nearly 70 percent of law firm leaders say that partners resisting change efforts is the reason firms don’t do more to alter the way they deliver legal services.”
Enter legal tech development as a potential curative for the law firm competition blues. “[T]he development of products that are client-facing appear to be on the rise as law firms are looking for new ways to generate revenue, increase client loyalty, and develop new pipelines of work.” BigLaw, it seems, is waking up to the multifaceted potential of legal technology development. In fact, a host of BigLaw and boutique firms have begun developing their own products and services. While not quite an industry trend at this point, it is interesting to note that these firms are taking technology matters into their own hands, either creating stand-alone tech subsidiaries, joint ventures with existing tech companies, or using in-house resources, instead of farming out the business to third-party vendors.
Why are these firms becoming their own software companies? There are at least two reasons. First, “firms have grown back office functions that keep pace with the size of their firms, requiring a large number of personnel in a variety of disciplines to simply keep the business running.” One way to save costs is by streamlining their operations with “enterprise-grade software.” They can address gaps in their internal software needs by filling in the holes themselves.
Second, it can be the most efficient way to meet their clients' needs. “Clients, legal technology experts say, want cheaper, more streamlined ways to get their legal advice and ensure their compliance with the law. Whenever possible, they want technology-based solutions.” By creating their own legal tech subsidiaries or joint ventures with existing tech companies, the firms have an already-established client base to which they can market their tech. For example,
Actuate Law, a Chicago-based boutique technology firm formed by a team of ex-BigLaw partners, announced the launch of Quointec, a subsidiary dedicated to developing technology and services for corporate clients. The law firm maintains a substantial ownership stake in Quointec, which is focused on resolving legal and compliance issues facing corporations. . . .
Reed Smith announced the launch of GravityStack, its legal technology spinoff. GravityStack creates and licenses technology products and manages services for law firm and legal department clients.
In another example, London-based Clifford Chance has also designed applied solutions for their clients, including “an automated document assembly system allowing clients to quickly and independently generate tailor-made and house styled documents” within a secure environment.
However, not everyone believes that the “law firm as tech development company/vendor” is a sound business model. Partners may make the mistake of thinking that managing a tech development company is just like running a law firm. Writing code for a living is a completely different beast from practicing law.
Smart business leaders outsource when (a) the all-in cost of buying is lower than the all-in cost of building; or (b) when in-sourcing will divert needed resources from strategic imperatives to non-core, non-strategic functions. Just as corporations hire law firms - because investing in a huge law department to handle all legal needs would be more costly and disruptive than hiring on-call experts – law firms should outsource their non-core activities. So a law firm CIO is better off purchasing software that can be configured to the users' needs or, at worst, hiring a software vendor to write code specific to the users' needs.
Given how labor-intensive and expensive software development can be, will transitioning to a legal/legal tech hybrid become a more popular way to address law firm needs? It’s hard to say. As one expert stated, “Probably only a handful of firms in the world have the ability to pull this off successfully with the right team, the right culture and the right structure.”