The Legal Cost Disease

Lawyers are not anti-technology. Lawyers are pro getting sh*t done. The caricature I drew of the nose-to-the-grindstone inside counsel in my last post was an attempt to illustrate how the need, predisposition, and incentives to focus on immediate, mission-critical work often dominate the competing demand to systematically integrate new process and technology to improve the delivery of legal services.

I don't blame lawyers (I don't blame anyone). As I've written about before (and will expand on again in another post), technology is not magic and lawyers are not magicians. Properly integrating process and technology takes time and investment of organizational capital. Busy inside lawyers have neither. Yet, at a certain point, they have no choice.

While inside lawyers can often wield the illusion of unpredictability as a shield from scrutiny by other departments (e.g., finance), it only goes so far. Not only are law departments finding it harder to secure exemptions from across-the-board budget cuts, but the opacity that serves them well in maintaining their autonomy also derails attempts to make a compelling business case for more budget, headcount, etc. Law departments really are being asked to do more with less. And they can no longer meet the challenge of more by throwing additional (internal or external) bodies at the problem.

People cost money. And they tend to cost more money over time. Technology trends in the opposite direction (well, most technology). Labor-intensive industries (the stagnant sector) therefore have to raise prices as time passes, while technology-intensive industries (the productive sector) are able to lower prices. Absent confounding factors, there is a gradual increase in the share of spend directed towards the stagnant sector (education, health care, performing arts, and other labor-intensive industries) with a corresponding decrease in the share of spend directed towards the productive sector (food, manufactured goods, and other areas where technology has substantially augmented human labor).

This is Baumol's cost disease, an economic phenomenon that undercuts the classical theory that wages rise with productivity. The classical theory was that the more productive you are, the more you get paid. The reality is that (across industries, as opposed to within them) the less productive you are, the more we need to pay you (unless there is a glut of qualified workers competing for your job). Unsurprisingly, Baumol himself identified "legal services" as subject to the cost disease. And recent scholarship has concluded, "Legal services are decidedly in the stagnant sector."

Throwing ever more bodies at a problem is unsustainable. If the problems to be addressed exceed the bodies available, either the problems go unresolved or you find ways to improve the productivity of the bodies you have. Lawyers cannot stand letting problems go unresolved (again, the biggest reason they don't take time for process and tech is because they are fixated on mission-critical work). So, despite many countervailing influences, inside lawyers are turning more and more to process and technology. Law is resistant, not immune, to productivity improvements.

In Altman Weil's 2015 Chief Legal Officer Survey, the CLO's (rightly) identified technology advances as the  force that will most change the legal market in the next 3 to 5 years (the combination of internal cost pressure and unsustainability of law firm pricing ranked second).

Putting their money where their mouth is, law departments also focused their management efforts on the greater use of technology tools to increase efficiency in the delivery of legal services:

The focus on technology also caught the attention of Ron Friedmann and inspired him to ask Is Software Eating Law Departments? while reading Inside Counsel's annual innovation awards issue:
The 2015 IC10: The law department of the future describes the 10 most innovative law departments of the year. It’s an annual feature. This year, 9 of 10 awards revolve around software. In years past, I recall that only 3 or 4 awards involved software....Reading IC, none of these strikes me as particularly advanced or game changing. Law departments seem to have won for automating processes that, in many other functions, likely would have been automated long ago....The good news here is that 9 of 10 awards are for tech and that law departments can still do so much more with software to improve their performance.
Along similar lines, I was recently contacted for a predictions-for-2016 piece in which the question posed was something along the lines of: what technologies will have the most impact on law firms in 2016? I cheated in responding that law firms should be most concerned with the technologies that law departments are deploying to keep work in-house or manage external work in a more sophisticated manner from multi-sourcing (e.g., involving LPO's) to matter management to pricing. While the headlines cut in both directions, and there is no immediate existential threat, I do see a continuation of the trend that the biggest law firms' biggest headaches will come from their biggest customers
Law Firms Face New Competition - Their Own Clients
Spending in Law Departments is Rising, But the Money Isn’t Going to Law Firms
As Part of ‘Pervasive Trend,’ Companies Still Moving Legal Work In-House 
Do I contradict myself? Very well, then I contradict myself. There are competing forces within law departments. In my last post, I dug into some of the reasons why inside lawyers are obstacles, rather than proponents, of innovation. In this post, I made the case that economic imperatives would drive investment in process and technology. Given the opposing pressures and constraints, it is unsurprising that progress is slow and scattershot but continues nonetheless.

Still, there remains a fundamental tension between last post and this post that is worth exploring further. While inside lawyers may feel compelled to invest in process and technology, it is still outside their wheelhouse. For most, process and technology are areas of neither personal interest nor professional training. And, regardless, inside lawyers are already overburdened with genuinely important work. This tension would seem to introduce a high likelihood of failure that would only create a deeper suspicion of process and technology. Yes, yes it does. It is almost as if larger law departments would be well served to have an interested, trained resource dedicated to the process and technology aspects of legal service delivery. Enter legal operations, a subject for another post.

Casey Flaherty is the founder of Procertas. He is a lawyer, consultant, writer, and speaker focused on achieving the right business outcomes with the right people doing the right work the right way at the right price. Casey created the Service Delivery Review (f.k.a., the Legal Tech Audit), a strategic-sourcing tool that drives deeper supplier relationships by facilitating structured dialogue between law firms and clients. The SDR is premised on rigorous collaboration and the fact that law departments and law firms are not playing a zero sum game--i.e., there is more than enough slack in the legal market for clients to get higher quality work at lower cost while law firms increase profits via improved realizations.
The premise of the Service Delivery Review is that with people and pricing in place, process offers the real levers to drive continuous improvement. Proper collaboration means involving nontraditional stakeholders. A prime example is addressing the need for more training on existing technology. One obstacle is that traditional technology training methods are terribleCompetence-based assessments paired with synchronous, active learning offer a better path forward. Following these principles, Casey created the Legal Technology Assessment platform to reduce total training time, enhance training effectiveness, and deliver benchmarked results.
Connect with Casey on LinkedIn or follow him on Twitter (@DCaseyF).

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Ron said...

I am not sure I agree with your assessment here.

On the micro level, look at individual lawyer behavior. How many, when confronted with a work challenge, seek a solution involving tech? I think not many. Generalizing from one's own experience is, I know dangerous, but here goes anyway... when I need to solve a problem that involves producing work, I consider if tech can solve it. Recent examples for my own work include (1) learning the rather arcane method MS Word offers for creating a table of contents in the middle of a Word doc and (2) figuring out all the Excel features required to allow creating a workshop agenda (for example, it took me a while to find and use the Offset function so I could delete rows and still have the agenda update times correctly).

Granted, I'm a geek (thought not a 3Geek!). Yet anecdotally, I hear fewer of my lawyer friends self-teaching new tech tricks than I do friends in other professions. To me, lawyers suffer the classic syndrome of "I'm too busy chopping wood to sharpen my ax".

On the macro level, look at law department behaviors. Many have yet to deploy efficiency enhancing technology, whether it is to make individual lawyers more productive or group-oriented software such as e-billing analytics. (And I mean actual analytics, not just running bills through software.) Only in the last few years do we see a rise in the number of law department operations professionals. LDO are slowly, where they exist, upping the in-house game. But what took so long and why are there still so few?

In my opinion, it comes down to a wide-spread but unsaid attitude "I didn't go to law school to think about how to use tech to be a better lawyer"

regexp said...

I could agree with Rons assessment more. I'm not a lawyer but deal with them every day and have for years. I can't but help laugh at the statement "lawyers are pro getting sh*t down.".

Simply put Lawyers aren't special snowflakes who see something that the rest of the professional world does not. There are serious issues culturally and that should be addressed instead of denying it doesn't exist.

regexp said...

couldn't* (speaking of technology - update to a better blogging platform that allows for editing)

D. Casey Flaherty said...


Ron comments, "In my opinion, it comes down to a wide-spread but unsaid attitude 'I didn't go to law school to think about how to use tech to be a better lawyer'"

I don't disagree. In this post, I discuss the economic pressures that are slowly eroding the status-quo-preserving prowess of that attitude. I discussed that attitude at length in my last post:

Inside lawyers are still lawyers. They went to law school to do law stuff. They were hired to do law stuff. Contracts, closings, litigation, statutory analysis....is all law stuff. Invoice review, rate negotiation, AFA's, project management, technology.....not so much. I will refer to the not-law stuff as "MacGuffins." Given the choice between law stuff and MacGuffins, lawyers will direct their finite focus towards the law stuff.

If you try to convince lawyers that the MacGuffins are also important, you are likely to trigger the distinct personality of professional issue spotters....

Bill Henderson said...

This is a funny exchange.

I think Casey and Ron/Regexp are both right. In my experience, lawyers (and law students) are very anxious to get to work. If they feel busy, they feel productive -- even if that sense of productivity is objectively wrong from a systems engineering perspective. Learning something new is non-billable time (or for students something not on the final exam). It feels wasteful to lawyers/law students because the payoff is uncertain/speculative. It is ambiguous. It requires faith and imagination, which they lack.

That said, when lawyer A gets a better result than lawyer B because of technology/process/data, lawyer B will copy lawyer A. Seeing the better result, or losing business or accolades or social standing, removes the ambiguity. This is how change happens in law. Ego and self-interest get the job done. Just a few lawyers have imagination to see how change could benefit their clients (and thus them in the longer term). But you only need a few to undermine the status quo. Ron and Casey are cursed with this type of imagination.

Ron and Regexp are right: there is a culture issue here. But Casey is right: it does not seal off the legal profession from change. It just slows it to a crawl.

Ron said...

Casey, regexp, and Bill - thanks for your comments.

Bill - in your teaching capacity, you see lawyers in the making. Is there any evidence that law students today have a different mindset than lawyers near the ends of their careers? I'm not talking about the fringe; rather, the typical student.

I fear from your comments and our past conversations that at most law schools, most students have mindsets that are the same now as they were decades ago.

As Casey notes, the clients - who are mainly in-house lawyers - are of the same mindsets. So undermining the status quo is indeed slow.

Jordan said...

Some really interesting points raised here. I think it's important for more lawyers to embrace new tech that can really help their practices, but I can also understand why so many are hesitant to do so.

D. Casey Flaherty said...


Bill is certainly in a better position to answer. I do, however, provide testing and training free to law schools. I am sometimes brought into guest lecture after the law students have had their delusions of adequacy punctured by the LTA. I've therefore had the opportunity to interact with several hundred students on this precise topic. I covered their disappointing reaction in my post on The Myths of the Digital Native.

Overall, their scores are actually worse than practicing attorneys, but their reactions are nearly identical (they didn't go to law school for this). That said, they do seem more acclimated to the idea that their practice will be technology intensive. It is just that they expect the technology to be easy, intuitive, automatic, etc. If they need to learn something, they assume the proper training will be provided. In short, they do not seem to me to have any higher incidence of your penchant for self-teaching or the attendant trial and error.


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