Legal costs: magic vs process

Graeme Johnston / 21 September 2023

Two things I came across at lunchtime today:

  1. An interesting-looking new book on fear as a prism through which to understand world history. It explores historical cases in which fear, whether well-grounded or manufactured, has led to change. Hobbes, Machiavelli, political manipulation, pandemics and more. 
  2. A US legal website article headlined Will Innovation Help Law Firms and Clients Control the ‘Cost Monster’?

The book, combined with the long history of using fear, uncertainty and doubt as a sales technique in tech, inevitably calls to mind this year’s promotional activities to governments, business and all of us about the threats and (surprise!) potential of AI. 

The article asserts that “Amid rising billing rates, there’s fresh optimism that innovation, not only on pricing plans but because of AI-related spending and projects, can lower costs on both sides.” 

  • Now, I’m not going to get into a detailed discussion of Gen AI in legal but it seems pretty clear to me that there won’t be sustainable competitive advantage for any given legal services provider* in doing more than broadly keeping pace with peers.
  • And smarter pricing is a good thing. Unfortunately, the article seems to be promoting the large variety of mechanisms which had a lot of airtime about a dozen years ago (coming out of the financial crisis) but which often amounted either to (1) variants on time-based billing or (2) over-complicated things more talked about than agreed. As opposed to a genuine effort to use pricing to drive a discussion on how to limit cost by getting better at scoping, agreeing what not to do, gathering more useful data, communicating more effectively and so forth.
  • The article also mentions the long-standing options of in-sourcing and alternative services providers.

Pausing there. How does combining the established needle-moving playbooks of the 2000s/2010s with the magic of Gen AI sound to you? 

Here’s another way of looking at it:

First: ten to fifteen years ago, there was some progress on aspects of cost, driven by the economic pressures of those days. That’s continued but in the large business law world at least, a lot of it boils down to cost arbitrage and overhead reduction, with varying levels of process improvement in the lower cost centres. There’s incremental improvement still possible by doing that, of course, but there’s a limit; and the limit is, in my opinion, clearly in sight. The more industrial approach which this often amounts to is in itself also more susceptible to tech challenge, even disruption, than the more complex end of legal work.

Second: for genuinely complex legal work, of which there is a lot (and a lot more potential, in my view), improvements in value, pricing, profitability and well-being are likely to come mainly from better process. At the moment, there’s an unavoidable focus in legal work on tech efficiency in document processing (assembling, reviewing, drafting…) That’s a kind of process. 

But by ‘process’ I also mean something a bit deeper than that, involving things like:

    1. Making it easier to quickly and reliably adopt reusable processes.
    2. Getting better at communication and coordination on matter-specific things.
    3. Looking more thoughtfully at cost/risk/benefit of certain moves.
    4. Treating individuals’ time as a real cost. Let me put it delicately: there can be a tendency of both law firms and corporates to externalise the problem on to individuals. Addressing that in a better way looks like an increasing competitive advantage.
    5. Where cost is an issue, looking at the real causes of avoidable cost – the kind that doesn’t add real value – and trying to reduce that, for example by taking more reasonable positions in negotiations, by limiting and focusing due diligence, by streamlining the approach to disputes.
    6. Identifying what kind of data really helps with process improvement, and how to gather that in better quality and use it effectively. 
    7. Tying cost projection and pricing up more closely with these improvements in process, resisting the pressure to think of pricing as something that benefits from independent financial subtlety.

None of that is easy, and joining it all up is perhaps hardest of all. It’s a very human, cultural thing, certainly not just a tools thing, though better tools are an important part.

But by virtue of this challenge, it seems to me that this where some real competitive advantage is possible for those who take it.

Of course, I am displaying my long term bias here, as reflected in Juralio’s offer, focused as it is on better process, communication and (from November) joining those up with better cost projection and pricing.

Still, I hope the thought is somehow useful to you.

Image: a bubbling cauldron in a court room which I prompted Bing Create to generate.

p.s. on the topic of ‘eye of newt and toe of frog, wool of bat and tongue of dog…’ – as a reward for reading this far, you may find it interesting to know that they’re all understood to be plants: ‘eye of newt’ = mustard seed, ‘toe of frog’ = bulbous buttercup, and so on.

* Footnote: possibly with some highly specialised exceptions.



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