One of the most interesting, and important, sessions at ILTA>On, was when three of the Big Four firms opened up about their strategy and world view. For Artificial Lawyer there were two key statements. The first was from Peter Krakaur, EY Global Law Innovation & Technology Leader, who highlighted the need to think of legal services in terms of unit price and cost.
He said: ‘[It’s about] people, process, tech AND data. It’s about tech-enabled service delivery that captures data and presents it about the service so the client can see the unit cost for this work….you need to think clearly about how to get a unit price.’
Why is unit price and cost important? Because it turns the traditional legal model on its head.
In retail, unit price is the price for a single unit of measure of a product sold in more or less than the single unit. The ‘unit price‘ tells you the cost per pound, quart, or other unit of weight or volume of a food package. It is usually posted on the shelf below the food.
The unit cost is the price incurred by a company to produce, store and sell one unit of a particular product. Unit costs include all fixed costs and all variable costs involved in production. Cost unit is a form of measurement of volume of production or service.
There are two sides to this. For external legal services providers (AKA law firms) and other similar businesses, rather than saying ‘we will do some work for you to make what we think you want and the lawyers’ total hours will eventually add up to a bill, whatever that may be…’, you work from the opposite direction and say: ‘This specific legal output will cost X for each identifiable part of this work: its unit price.’ And now, both the price it is sold at, and what it costs to make, can be improved, because we have some transparency and the ability to clearly identify ‘the unit’ that is made and sold.
And this goes to the heart of ‘productising’ the law and creating visible pricing for what each ‘legal product’ costs. It also goes beyond the idea of just using a fixed fee, inside which much opacity can still be hidden, as it breaks that open into constituent elements, right down to unit price, e.g. a per contract reviewed price.
For the inhouse legal teams it’s also vital as it allows businesses to not just benchmark whole swathes of work, e.g. a compliance review, but to break it down into constituent parts and price each identifiable element in the production process. I.e. they can see and then understand their own legal production costs, much in the same way the rest of the enterprise understands its costs. After all, why should legal operate in a black box when the rest of the business is transparent?
The related movement to productisation is essential if things are really going to change. Transparency and standardisation drive the need for price competition, which drives the need for more efficiency, which in turn drives the need for technology and better use of human talent to deliver that to the business. In short, economics activates the value of legal technology.
It’s possible that Krakaur was not consciously focusing on the wider economic impact across the legal market that this will have, and was perhaps more interested in the use of data to really understand professional services workflows in terms of their cost, nevertheless, once you introduce unit economics rather than selling time, into a system that is historically opaque and sometimes wilfully hard to price, this is a big step ideologically and it has systemic consequences – which this site would argue are very positive.
Juan Crosby, PWC, NewLaw Services Leader, added that using data to drive economic savings will in turn help businesses to fund the wider transformation that needs to take place.
‘There is a cost to this change,’ he noted, referencing the significant changes that inhouse legal teams and enterprises as a whole will need to go through.
The other key statement was from Mark Ross, a Principal at Deloitte’s Legal Services Business. What Ross highlighted followed a discussion over whether the Big Four were specifically competing with law firms.
Ross explained that to see things through just a legal prism was missing a lot of the picture.
‘We have a multi-disciplinary approach to the enterprise,’ he said, and that is very true, as the Big Four offer a range of services, from accounting, to HR support, to tech input, to finance and more. Even in legal they are not really just advice, or just process work. They connect to businesses as if a business had multiple needs – which of course they all do.
He noted that this approach comes to life ‘when legal is no longer seen as a siloed part of the organisation‘.
And although many have said this before, it’s always a good one to hear: ‘Legal needs to be connected to the other parts of the organisation,’ he added.
The multi-disciplinary services (MDS) approach is essential here. And law firms have already moved some way, at least in some markets, to compete with the Big Four on this. A growing number of law firms have tech consulting and legal ops advisory groups now, they have specially designed process businesses, they have lawyers on demand groups, and the list is growing.
Last word. One of the first questions was whether the Big Four are out to compete with the mainstream legal market? The answers were clever, i.e. we are here to work with law firms, look at how we handle projects for clients hand-in-hand with law firms etc.
And that is true, they do work with law firms…when they have to, such as in the US, or where they don’t have sufficient advisory clout. But, of course they’re competing. They are coming to market with a business proposition that totally upsets the law firm apple cart. And clients are paying attention. Especially now that the Covid crisis is pushing CFOs to think hard about where costs can be reduced across the organisation.
So, thanks to ILTA for putting this on. Economics activates the value of legal technology.