Study: Improving Law Firm Operational Efficiency a Pivotal Opportunity Amid Pricing Pressure

business of law

Study: Improving Law Firm Operational Efficiency a Pivotal Opportunity Amid Pricing Pressure

By Craig Dekshenieks, Director, Content & Marketing Operations, Aderant

According to a new study – the 2017 Aderant Business of Law and Legal Technology Survey which is being released today, the top two challenges facing law firms today are pricing pressure and operational efficiency among 16 choices.  Improving operational efficiency as a driver of profit, therefore presents a key opportunity given the law firm economics of time and billing.

The survey notes law firms continue to face intense competition from new, alternative and traditional sources, including clients, which have increasingly taken more work in-house for the last several years. All this has placed continuous pressure on pricing which in turn motivates law firms to seek out ways to perform high-quality legal work more efficiently.

Efficiency as an Area of Opportunity

So where is the prime area of opportunity to improve law firm efficiency?

Automating manual tasks such as workflow or task flow according to 74% of respondents.  The survey found this technology concept has the most potential to drive the greatest process improvement.

The idea makes a lot of sense: automate and streamline the routine or repetitive tasks so that attorneys and other timekeepers spend more of their time practicing their profession and less time attending to the administration of cases which slows down the process and drives up costs to clients.

“Too much time is spent on rote tasks” according to one respondent who provided commentary in open-ended remarks. “Workflow takes out the human component of trying to remember what to do when a certain something happens,” according to another. “Technology assists both clients and the firm, saving time, creating efficiencies to benefit both client and firm,” wrote a third.

Recommendations from the Business of Law Side

What’s unique about these findings and the survey, is that most of the answers stem from a specialized group of professionals on which law firms have grown increasingly reliant:  non-lawyers with business skills.

The majority said they hold business of law roles that included titles from finance, accounting, IT, executive director, and the C-Suite. In other words, the data largely reflects the viewpoints of the professional staff responsible for many of the transparent business processes that keep the law firm engine running. By virtue of their operational and financial roles, many respondents are likely to be in a unique position to offer a valuable perspective on operational process improvement.

While much has been written on external dynamics and how these factors are changing the legal services industry – and imploring law firms to change – this survey provides a glimpse of the effects inside law firms.  For example, nearly half of all respondents (47%) said the people with whom they collaborate internally is different than it was five years ago.

We’ve seen the trend of tighter integration between the front office and back office unfold anecdotally, but it’s very interesting to see it reflected quantitatively in this survey data.

A Candid Discussion of Law Firm Billing

Respondents were also unabashed in sharing their views on important business processes such as pre-bill reviews and invoicing.

Most professional law firm staff – 90% – say their firms spend too much time on the pre-bill and invoicing process at least sometimes.  More concerning for firms is that figure also includes 27% that said this happens “often” and another 17% that said, “almost always.”

The process of bill review – from inception to publication of invoices – varied. Thirty-seven percent said it takes 1-2 weeks, while another 21% said it takes 2-3 weeks.  Impressively, one-quarter said their firm gets invoices out the door in a week or less and 11% do so in 72 hours or less.

However, internal law firm processes and procedures are not the only variables in the efficiency pre-bill and invoicing.  The business of law professionals candidly expressed their view that client demands in this area are becoming over-reaching and burdensome.

Fifty-four percent of respondents named outside counsel guidelines (OCGs) and e-billing as the most difficult aspect of law firm billing and invoicing. Open-ended commentary indicated long and complex OCGs have become ubiquitous.  A firm with 100 clients might have 100 different guidelines all with unique specifications for invoicing. In addition, law firms have been increasingly forced to comply with a variety of e-billing platforms each with their own standards and parameters.

Five Key Statistics from the Survey

The survey was aimed at examining current trends in the business of law and legal technology and garnered input from 112 respondents in late June of 2016.  Other notable findings include the following:

  • Business as usual? About half (48%) said business is about the same as it was last year, while a little more than one-third (36%) suggest business is picking up. Just 16% said business has gotten worse.
  • Highly competitive. The vast majority of respondents (98%) said the market remains competitive or very competitive.
  • Clients as a source of competition. About one-third (29%) said clients were the #1 source, while 44% said clients ranked second to other law firms.
  • Accounts structured under AFAs. The percentage of law firm client accounts structured under alternative fee arrangements (AFAs) is 14% (median).  An open-ended comment reflective of the overall sentiment for AFAs: “80% of our client base requires hourly billing.”
  • The top 5 technology systems offering the greatest benefit to law firms:
    • 66% say document management;
    • 52% say financial applications or ERP;
    • 49% say business intelligence (BI);
    • 47% matter and pricing and planning; and
    • 47% say case management.

The full survey is freely available for review without registration.

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