November 01, 2018

Leading in an Era of Digital Transformation

As new technologies alter the delivery of legal services, the firms that plan effectively for this change will survive.

Robert Millard

It is a truism that the roles leaders need to play, and the leadership styles they need to adopt, vary greatly across different circumstances. Kenneth H. Blanchard and Paul Hersey described this in the 1970s, in their theory of situational leadership. For many centuries before that, it formed part of common knowledge.

Similarly, how leaders craft strategy needs to be different when futures are foreseeable than when they are hidden. Foreseeable futures use strategies that involve setting static goals and then action plans to achieve them.

Futures with changing dynamics, such as market force events, are too rapid and significant to suggest any degree of certainty. Strategies for these types of fluctuations need to be adaptive. Leaders need to be conscious of the ongoing stream of changes with clients and in the market, and have the flexibility of mindset to change direction when the assumptions upon which they based previous decisions become wrong. The key is having systems in place to detect such changes and to react nimbly and decisively.

Key Disrupting Factors

Are the ways that modern law firms are led in step with the realities of the second and third decades of the 21st century, or are they relics of an earlier, more predictable era?

These issues and questions relate to seminal challenges for today’s law firm leaders. Emerging digital technologies are disrupting client businesses, in many cases fundamentally. In turn, client legal needs are being disrupted. Clients, dissatisfied with their law firms’ responses to these and other pressures, are looking elsewhere for advice.

These same trends are also directly disrupting law firm business models. Law firms are trying resolutely to tweak their people-leveraged “tournament of lawyers” model that has served well for a century. Tweaking is proving inadequate. A broad swathe of services that were previously the bread and butter for law firms continue to migrate to in-house legal departments and other types of legal service providers. To those paying attention, it’s obvious that law firms need to rethink their business models. This rethinking needs to be actively led, yet most law firm leaders remain fixated on technology as a driver of efficiency within their current business model, not as an opportunity to transform to a new one.

Over the past five years, the primary role of law firm leaders was to lead their firms out of the painful period of austerity following the global economic crisis of 2008–09, to consolidate and to adapt to a world where the supply/demand balance has moved in favor of clients.

By 2023 the trends disrupting clients and the law firms that advise them will be considerably further advanced. In particular:

  • Millennials who have already begun to populate partner ranks will be in the majority—the oldest only in their forties—and Millennial managing partners will start to take the reins.
  • Artificial intelligence (AI) systems and other digital tools will have progressed through several more generations and will be commonplace, probably in ways that cannot be anticipated today.
  • Most work currently done by junior lawyers will no longer be profitable in business models that are premised on billable hours.

Looking to the Future

It seems likely, therefore, that the primary role of law firm leaders over the next five years will be to lead their firms through the early stages of the same processes of digital disruption and transformation that their clients will demand. Opportunity will likely abound for the firms whose partners align their practices most quickly with emerging client needs. Firms that learn how best to monetize the digital delivery of legal services will pull ahead of their less digitally literate competitors. The best talent will then likely migrate to the leaders.

Current leaders who cling to the roles and styles that delivered the best results in the past in the belief that they will continue to do so will be proven wrong. The firms that follow such leaders will decline until they realign their services with clients’ needs.

Equally proven wrong will be leaders who view the prospect of technologies that fundamentally replace tasks performed by lawyers solely as a threat. While work clearly needs to be done on the ethical questions involved in how these tools are developed, used and by whom, this is beyond the ambit of any single law firm. These questions need to be addressed by organizations such as the International Bar Association, legal service regulators and bar associations.

Opt for Optimism

In times of great change, having a sense of optimism in their firms is one of the most important tasks of leaders. Optimism causes engagement and productivity in people. They participate enthusiastically in adaptive strategy processes and collaborate more effectively in driving the firm forward. Its lack causes people to withdraw. Performance falls and defections rise. Again, this is a truism, but one worth repeating given the pessimistic mantras that we are routinely fed about a profession in decline and machines displacing lawyers.

A 2018 Accenture study titled Reworking the Revolution, on the future of work, presents a far more optimistic view. This study involved 1,200 CEOs and top executives working with AI and more than 14,000 others across 12 industries and 11 economies. It forecasts that in 2022 digital transformation will drive a 34 percent increase in revenues and an 11 percent increase in workforce headcount in the professional services sector.

It’s true that every technological step change that society has experienced decimated jobs in incumbent industries. At the same time though, each created a larger number of new, more diverse jobs in economies as a whole. Henry Ford’s assembly lines did not just lead to automobiles that ordinary middle-class people could afford, they also led to entirely new industry sectors and markets, new cities and new value chains across commerce and industry. Not only were new jobs invented but entirely new occupations developed.

We can expect a similar step change over the coming decade. The firms making the transition most successfully will have at the core of their strategy a process of positive, proactive, client-informed digital transformation.

Tips for Transformative Leadership

To be effective in an era of digital transformation, law firm leaders need to do five things.

1. Educate themselves about what digital transformation implies.

Like many of their colleagues, many law firm leaders are deeply uncomfortable at the prospect of a significant part of the practice of law becoming automated. Their discomfort is based partly on economics, partly on ethics, but also frequently on a complete lack of understanding of how vital emerging digital tools will be used to competently advise clients on the new kinds of legal needs that are emerging.

The first step for leaders toward helping colleagues change their mindsets is to address their own discomfort by developing a thorough understanding of what digital transformation means. It’s difficult to conceive of how any law firm leader can be effective in leading digital transformation without being conversant with the topics of AI, blockchains, big data, the “internet of things,” cloud computing and how, at least in general terms, these will likely impact the law, client legal needs and law firm business models.

2. Focus first on what must remain constant, then on what can change.

Where the future is both unpredictable and the firm’s ability to influence it is constrained, the whole firm needs to participate in the process of adaptive strategy. Core to this is ensuring that everybody is clear about the boundaries within which discretion can be applied and flexibility encouraged. Obviously, not breaking the law, betraying client trust or otherwise committing malpractice remain sacrosanct. Below that would be a level where the firm’s strategy requires a change. Here structures and systems are needed, as well as an enabling culture, to encourage people to communicate such circumstances as soon as they become aware of them and for the firm to be able to make and execute the right decisions, quickly and decisively. Below that are further layers where progressively more flexibility can (and should) be allowed. Firms that thrive in uncertain markets are those with knowledge of these layers and how to address them embedded in their cultures.

3. Systematically engage with clients about their future legal needs.

Law firm strategies and their business models must react to client legal needs. Where those legal needs are changing, law firms must pay more attention to what services they will be selling to clients and how, in the medium-term future. This information is far too complex to be gleaned from casual discussion, for instance, during the usual “client listening” programs most good law firms have in place. A concerted initiative is required, combining research of industry trends that the client is experiencing and structured, future-focused conversations about their legal needs. Internal discussions need to follow about how the firm might meet those new needs while delivering the economic performance that partners require. At the highest level of abstraction, it involves a collaborative exploration of those emerging needs, between the clients and their external legal counsel. This kind of conversation remains very rare though, which is surprising given that it also represents such an extraordinarily rich opportunity for business development.

4. Consolidate and properly organize the firm’s digital initiatives.

Especially in large law firms, one frequently finds multiple digital projects underway within the firm. Sometimes those driving different initiatives might not even be aware of each other. In the early stages of a trend, when the focus is on experimenting and developing a general understanding, such random exploration is commonplace. As the trend’s value is proven and it gathers momentum, it needs to be scaled up and deployed across the firm.

Many would argue that for AI and other emerging digital trends, if that point has not yet arrived, it may certainly be expected within the next three to five years. At that point it will become crucial for firms to have comprehensive digital transformation strategies in place, mapped against specific needs identified by the overall strategy. This, in turn, needs to be closely informed by client needs. Given that technology does frequently create a first-mover or at least early-mover advantage, there seems little benefit in postponing the inevitable until pressures become inexorable.

5. Develop a culture of digital enablement.

Culture is a crucial enabler of change. In a 2018 study reported in Legal Business, nearly 60 percent of Millennial partners identified “firm culture” as the main reason why they would (or did) accept a firm’s offer, well ahead of “work/life balance,” which was rated second.

Conclusion

It’s difficult to conceive of any law firm successfully executing a digital transformation initiative without its people perceiving the firm’s culture to be technologically/digitally progressive. Coupled with that needs to be the perception—and reality—that the firm also has an effective adaptive strategy and a client-focused approach to new service development. Obviously, the examples the firm’s leaders set in their use of technology and attitude toward digitally induced change is crucial to establishing such a culture.

Robert Millard

Robert Millard is director of Cambridge Strategy Group, which is a management consultancy in Cambridge, England. He is immediate past co-chair of the International Bar Association’s Law Firm Management Committee and currently serves on the steering committee of its President’s Task Force on the Future of Legal Services. He has co-authored six books on law firm strategy and management, the two most recent being on the topics of artificial intelligence and blockchain in legal services. Email him.

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