Technology Evolves Rather Than Disrupts

Technology adoption is happening, but I wouldn’t say it’s disrupting the industry yet.

FC_Technology_300X250When it comes to the adoption of technology within solo and small law firms, legal technologists say it’s slow going. Many others, though, argue that it’s vastly ahead of other professional services. While we may disagree on its pace, technology adoption is happening, but I wouldn’t say it’s disrupting the industry yet.

The ethical duty for technological competence and protection of client information are sometimes cited as reasons for practice management system purchases. And yet, most legal technology solutions tout efficiency as their main selling point. To truly disrupt small law, technology must be part of a change process that aligns firm goals with individual performance measures.

In the past, human resources were the solution to improving project or company performance. Just add a few more workers, and we can speed up the production. Now, we instead apply technology as the fix, citing automation efficiencies. For example, legal practice management (LPM) systems can save your firm an average of x number of hours per week or machine learning software reduces contract review hours by y percent. Even with those efficiencies, people still fear the power of machines. Case in point: Some lawyers are reluctant to adopt time-saving technology for fear of losing billable work.

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Lawyers must alter their perspective, though. These efficiencies are a way to generate more revenue, because they enable lawyers to reach more clients and provide more, albeit potentially different, services for clients. Briefly, the demand for legal services is still largely unmet, and we have a large access-to-justice issue with some states reporting that 80 percent of consumers cannot obtain the legal help they need. Additionally, small- and medium-size businesses look for affordable legal service providers which in turn drives change in the form of alternative fee arrangements, including flat and subscription-based.

If we examine other professional services industries, it’s clear that technology should be part of an overall change management approach, but not the starting point. I have seen many firms purchase the latest new technology and then have it become “shelf-ware,” the virtual version of a report collecting dust on a shelf. More often than not, the software interface, design or utility is not the culprit, but rather the firm’s inability to evolve with the software. It fails to change its approach with the users, either attorneys or clients.

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While adopting technology must have a positive impact on the firm’s bottom line, simply saving money misses the true potential of technology adoption. Practice management solutions facilitate data-driven decisions by automating processes and providing business intelligence. Also, leveraging technology can be an important component of change in the delivery of legal services. Therefore, law firms must measure the technology implementation itself. In other words, measuring the drivers of success for the firm should include an evaluation of the impact of the technology on both the management of the practice and the delivery of the services.

Technology, like a legal practice management system, simplifies metric measurement, but the implementation of said metrics must align with both the firm’s and individual team members’ goals. Measurement is typically linked with compensation and traditional key performance indicators (KPIs). That causes an incongruence between individual timekeeper goals and compensation. Using an example of an associate in a small firm from Small Law Firm KPIs: How to Measure Your Way to Greater Profits, let’s explore the misalignment that frequently occurs between billable hours and an associate’s efforts to earn a bonus. Before we jump into this example, always remember: Regardless of billing method—hours, flat fees or a combination of both—law firms must record hours for proper planning around budget, pricing and compensation structure.

Our associate Allan was not given an annual target for billable hours; instead, the hours available to bill was set at 1,530 hours. Allan wanted to impress his supervisor, so he billed 1,860 hours to land at a 122% utilization rate (using the traditional utilization calculation of hours billed divided by available hours). When Allan sat down with his supervisor, he was surprised to learn that his time had to be written off in some cases, resulting in collections of only 86% of those billable hours. That 14% was viewed as a real loss by the firm and had a negative impact on Allan’s bonus. As a side note, Allan billed every hour that he spent on every matter, but did not bill any other type of activity. His focus was on beating the billable target.

There are several issues at play here, but the primary one is misalignment of goals and compensation. It’s not as simple as associates and attorneys understanding the economics of the firm and the importance of cash collections. Firm leaders must integrate their client experience, profitability, and performance goals with the business and compensation model. In turn, technology, particularly an LPM and accounting system, allows the firm to track metrics in real time. For example, using the LPM Firm Central® integrated with QuickBooks would allow for timekeepers to record, bill and check collections by matter. Compensation and bonuses should be tied to the success of the firm, which is not likely to be measured by the most billable hours or a high utilization rate.

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Many clients are demanding fixed rates and lower fees. Therefore, associates should be rewarded for the efficient delivery of services, which could translate into delivering more for less by using technology within legal services. Despite Allan’s low collections performance, by billing all the hours worked, he is providing good data for budgeting and pricing. If attorneys do not record all their efforts, the data for calculating alternative or flat fees would be incorrect. An important part of change is the ability to understand and adapt processes.

The responsibility to collect fees can vary by practice; it may be the partner, associate or bookkeeper. Again, clarifying responsibilities will align measurement. Regardless of who the firm decides to appoint to collect money owed or accounts receivable, using an LPM to monitor any old accounts will become an important metric that needs to be easily accessible to all timekeepers.

When choosing technology, ensure that anything your firm uses is integrated and that good data will automatically transmit. Any change management requires simplicity in data collection and analysis. Technology that drives down the number of billable hours is not necessarily bad, because there is a massive market in need of legal assistance. Firms need to change or adapt to the needs of the market, and technology can help once it’s implemented properly. However, remember that all the best technology will not replace rigorous business principles. Finally, implementing a legal practice management system is not just an ethical step but a sound business move for efficiency, proper metrics tracking and profitability.

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Photo: Mary Juetten @ LTT

Photo: Mary Juetten @ LTT

Mary Juetten is founder and CEO of Traklight and has dedicated her more-than-25-year career to helping businesses achieve and protect their success. Mary is an international writer, speaker, and mentor. In 2015 Mary co-founded Evolve Law, an organization for change and technology adoption in the law. Mary was named to the ABA’s Legal Resource Technology Center 2016 Women in Legal Tech list and serves on the Group Legal Services Association (GLSA) Board. Her new book, Small Law Firm KPIs: How to Measure Your Way to Greater Profits was published by Thomson Reuters Legal in fall 2016.