Re-thinking Business Models for Law Firms in the Internet Economy

Designing Effective E-strategies for Law Firms

The emergence of the so-called 'internet economy'¹ and the e-business² revolution necessitates a different way of thinking about the way in which law firms design their business strategy. With the internet as the main agent of change, the rules of business have changed and so have clients' expectations. This article looks at the ways in which law firms may design new e-strategies to better serve their clients.

The internet revolution has posed and will continue to pose new challenges to lawyers and law firms as they attempt to meet clients' expectations in a more internet-intensive business environment. As the national and international information technology and e-business infrastructure matures, more and more businesses will go online. The needs of clients today will be more and more internet-driven and new business models will emerge, posing unique challenges to law firms offering legal services.

In my view, some aspects of the practice and management of law as we know it today have to be fundamentally realigned to face new challenges and new models of businesses in the e-business environment. I hold the view that as e-businesses become increasingly entrenched in the fabric of our economic life, law firms need to re-think their business models and begin to search for ways to transform their practice to serve their clients better.

A strategic response is required in confronting this sea of change. This requires a major re-think of the traditional business models of law firms. But such changes in the business models of law firms, however, are likely to be evolutionary rather than

revolutionary. And the pace of change is likely to be determined largely by how law firms see the future, how they determine their strategic directions and the practical steps they take in implementing their own competitive strategies in the near future.

The Changes
What are the trends and changes that are already having an impact on the business of legal practice as we know it today?

Firstly, online legal services will increasingly become common. It has been reported³ that Clifford Chance⁴ is implementing new strategies and aggressively forecasting that online services could account for 20% of the firm's business within the next five years. The internet has enabled a new form of legal service delivery. Clients can be securely connected to a law firm's IT system and be provided with personalised legal service. An example of one such system can be seen in the mergers and acquisitions legal guidance system implemented by London law firm, Davis & Co, at mergerhelm.docforte.com. The availability of online legal services is beginning to change the traditional nature of lawyer-client relationships as we have known it. The internet is now a key tool in managing relationships and perhaps represents the single most important development in shifting the nature of traditional client relationships.

Secondly, more and more legal work is becoming 'commoditised'. This simply means that legal services and document production are becoming a product or a commodity that can be sold and purchased online. Automation of legal document generation even before the advent of the ubiquitous internet has made document creation easier and faster. Existing processes have been simplified. But the internet has now extended this form of production; for example, there are now numerous automated online solutions for standard documents, such as wills and contracts. In this new form of service delivery, a guidance system guides the users of such services through a simple process that results in complete personalised documents. At present, however, such commoditisation is still restricted to high volume, repetitive work, although the development of an intelligent guidance system will surely lead to commoditisation of legal services in more complex legal transactions.

Thirdly, the competitive pressures will increase with the internet platform being one of the new competitive pressure points; for example, there are now new online auction services that pit law firms against one another for major legal jobs. FirstLAW⁵ of the United Kingdom, for example, provides a free legal tendering and audit service for in-house counsel, directors, company secretaries and executives. According to one report,⁶ one other such legal auction site, eLawForum, has conducted over 25 auctions as at January 2001 and expects to conduct more than 400 by the end of 2001 and they estimate that this has driven down legal fees by an average of 30%.

Fourthly, proactive legal guidance and legal risk management systems will be increasingly sought. Things move at a much faster pace in the e-business world than it does in the brick and mortar world. Technology develops at such a rapid pace and the turnaround time for e-businesses is extremely fast. Furthermore, e-businesses have instant global reach. With present day internet and communication technologies, the time taken by a client to set up his e-business can be a matter of weeks and can be carried out on a global basis in an instant. Imagine a client with legal risk exposures in multiple jurisdictions. Law firms need to react proactively to these changes and respond to their clients' needs quickly or be sidelined.

Imagine if lawyers simply provide the traditional type of 'reactive' legal services to their clients, that is, getting involved only when the damage has been done. By the time a new e-business model is set up and transactions are carried out across multiple jurisdictions, lawyers who simply react to changing demands of their clients instead of proactively trying to help their clients manage their e-business effectively would find themselves increasingly marginalised.

In my view, the confluence of these four major trends outlined above, requires law firms to re-think their traditional business models.

Designing an E-strategy
In re-examining their traditional business models, law firms need to start by looking at their overall business strategy. Against the backdrop of trends and developments in the internet economy that have a major impact on the mode of legal service delivery, law firms need to re-think their traditional business strategies and begin seriously to focus on e-strategies and evolve new models of 'lawyering' in the internet economy.

Such new approaches are not likely to replace the 'traditional' modes of service delivery, which law firms provide to their clients, but will reinforce existing forms of such service delivery. Given the uniqueness of each law firm, there is no 'one-size-fits-all approach' in the design of e-strategies. But there are common elements in designing such e-strategies.

Let us start with the definition of e-strategy. I would define an e-strategy for law firms as a series of actions and decisions taken by the firm that result in the formulation and implementation of their business plans which are ultimately designed to achieve the firms' business objectives.

The planning phase typically includes defining the law firm's mission, performing internal analysis and evaluating the external environment. During the implementation phase, law firms would select an appropriate strategy based on the information gathered in the planning phase and translate the strategy into organisational actions. Strategy designs must by nature be proactive, forward looking and focused on the long term.

Before a firm starts to design an e-strategy, it must have an existing business strategy. An e-strategy is a sub-set of the law firm's overall business strategy and must include a technology component aimed at bringing greater business value to the practice through greater service value to the law firm's clients.

An effective e-strategy is about providing greater service value to the clients through the provision of electronically-driven client-facing information technology systems. It is not about grandiose websites but about providing a range of useful, secure and innovative internet-based services that the clients would benefit from.

These internet-based services can include basic functions such as useful legal information that can be accessed through a Web browser and/or can be as complex as providing a secure digital space for multi-party legal transactions across different jurisdictions involving internet-based drafting, document management and 'live' case management facilities.

Considerations in designing an e-strategy
At the strategic level, the initial review of an e-strategy should provide answers to the following basic questions:

• What is the strategic vision and mission for the practice as a whole?
• Where is the firm right now?
• How does the firm get to its desired destination?
• What technology strategy is best suited for the practice?

At the 'operational' level, the questions would in turn revolve around the following issues:

• What sort of technology-driven services should the firm offer to its clients?
• How can it be ensured that returns on investment are achieved?
• Does the law firm have the capacity to design and implement an e-strategy?
• How can the learning curve be shortened for the law firm?
• How can immediate value to clients be offered?
• What is the least cost/highest return path that the firm ought to take?
• Would in-house development of IT systems be a better option than outsourcing?

Elements of an e-strategy
An effective e-strategy for law firms should comprise the following elements:

• clear identification of business and technology goals that would further the strategic objectives of the practice;
• identification and creation of service differentiation features in a law firm's website or its client area (or what is called 'client portals') aimed to help secure and maintain the firm's competitive edge;
• the achievement of service and financial goals that can be measured and where the returns on investment can be understood in clear terms to both the management and personnel involved in the service delivery;
• effective implementation of the internet strategy by personnel assigned to see through the project from concept to fruition of revenue streams; and
• maximisation of the use of the internet and internet technologies, yet still strengthening lawyer-client bonds.

New Business Models
Now that we have looked at the requirements in evolving e-strategies for law firms, what then are the possible new business models for law firms in the future?

Firstly, the provision of online services will increasingly become an integral component of legal service delivery for law firms in the future. Even today, there are already 'internet-only' law firms that are regulated by the law society, such as FirstLaw in the UK. In the not too distant future, law firms might offer more 'subscription-based' services over the internet for commonly required legal services.

Secondly, the advent of internet technologies that allow for personalisation and self-service are likely to lead to more law firms offering 'personalised' and 'self-service' services at lower prices. This is likely to be the direct result of the drive towards 'commoditisation' of legal services. Internet-based client portals, as will be explained later, will be increasingly commonplace.

Thirdly, more and more legal services will be provided in the form of electronic guidance systems embedded in the client's IT system. One main driver for this trend is the fact that in an e-business environment, rapid developments in technology and business modelling requires that law firms as advisors provide proactive legal services instead of simply reacting when a new requirement emerges or worse, only when a problem surfaces.

Fourthly, more and more law firms will begin to offer IT services not just to service their own clients, but to also possibly service other law firms which might need IT services designed by lawyers for lawyers. This is likely to be a new revenue stream for law firms strong in IT.

With these models in mind, let us take a closer look to see how these might work out in practice.

Client Portals
Client portals, the internet-based 'gateway' where the full range of client services are rendered by the law firms, are increasingly becoming the focus of
e-services when the subject of new business models for law firms are broached. With the convergence of sophisticated technologies and greater user-friendliness, firms can now offer client portal services and the creation of such client portals has become an integral part of the e-strategy of law firms.

Internet portals are comprehensive interactive websites that contain a range of Web-based services in addition to providing information on any particular topic. In our legal context, a client portal is a kind of client relationship system set up by a law firm that uses the internet as the main mode of communication between the law firm and their clients. In such portals, clients may get legal information, legal guidance and documents drafted.

Electronic Legal Guidance System
In the design of such client portals, online legal guidance will have a central place. Such legal guidance will increasingly be provided using intelligent IT systems which are often personalised but operating in collaborative environments. With the convergence of IT systems, broadband and the drive in commerce towards greater efficiency, it is inevitable that the delivery of legal services will also migrate to an electronic format.

Guidance and representation type of work, for example, business negotiations and litigation in the courts are likely in the near future to be driven more and more by internet-driven systems as shown in the chart below:

Many of the larger law firms around the world are now developing these online products, along with pioneering smaller firms, such as Davis & Co⁷ in the United Kingdom. This is the sort of model that Davis & Co, which is positioning itself as the new era law firm, is developing to distinguish its services from other law firms.

Integration of legal management into client's systems
Commercial and government organisations are moving to central IT systems as their operating system, with their personnel working on centralised workflow processes. Early adopters are the lending sector, where loan applications can be made online, processed automatically and legal relations with the borrower can be created with virtually no human intervention by the lender.

Such systems require the various functions in the organisation's value chain to be incorporated, be they marketing, sales, finance, human resources or legal affairs. Accordingly, the core legal activity of an organisation will be managed in the future through its IT system, including legal relations and legal compliance. This has the benefit of standardising the way the organisation manages its legal activity, thus providing consistency and reducing the capacity for human error.

This integration activity will require the involvement of lawyers who understand the client's business and the relevant law, as well as IT systems. The number of lawyers with training and experience in the disciplines of law and information technology are likely to increase.

However, not all legal guidance will be provided in this way. It does not make sense for legal guidance to be customised for integration into an organisation's IT system where generic solutions are available. Further, complex legal problems and advocacy will continue to remain the domain of lawyers. The types of systems outlined below already play a role in these areas.

Collaborative portals
Collaborative portals are virtual workspaces through which parties in legal transactions typically carry out the full range of transaction management activities, such as group communication, posting and exchanging of documents including online reviews of documentation. Such collaborative portals or so-called 'dealrooms' sprang up in 2000 in the United Kingdom, initially for mergers and acquisitions, but are increasingly used for a wider range of activity. These environments enable lawyers, their clients and other advisors to work under the same virtual roof, where they can collaborate regardless of time and space. The next generation of dealroom includes workflow process and guidance to users, within the context of their activities and with relevance to their knowledge of the area. Butterworths, a legal publisher, has moved into providing content for this sort of workflow process in the United Kingdom.

Case management portals
For matters involving fewer parties and hence less collaboration, a basic case management portal may be more appropriate. An increasing number of law firms are offering a 'window' on the work they undertake for a client. This transparency may enable the client to view status reports, correspondence, documentation and even their costs (a much debated issue within law firms).⁸

Plug and play portals
Where an organisation has repetitive legal activity that is fairly generic and is not core to its competence, it makes sense to outsource this to external lawyers; examples include debt collection, maintenance of certain contracts, such as employment documentation and certain types of compliance.

The inevitable interaction between the client and the law firm in such activity benefits from electronic systemisation wherever possible. For instance:

• By deploying a document automation tool, the data for debt collection can be input at the client side and then used by the law firm without manual intervention.
• Law firms can offer to host an employment contract precedent on an automation tool on their server (or one hosted for them) for use by the client's human resource personnel. In this way, the client knows that the precedent is always up to date with the law and can construct each employment contract online.
• An organisation can monitor its compliance with regulations, such as data protection, by connecting to a self-diagnosis system provided by their lawyers.

Guidance portals
Many law firm sites are now providing online legal information to prospects and clients, typically by mining their internal knowledge. Online content aggregators, such as Butterworths, are now offering this content to law firms for distribution to their clients.⁹

As lawyers know, the key to effective legal guidance is providing clients with legal knowledge pertinent to their problem. It is this personalisation of legal information to the client's area of interest that is the key. Accordingly, it is inevitable that the intelligence of systems to diagnose the client's problem will continue to develop in tandem.

Conclusion
The internet economy has created new rules for businesses to operate. Law firms need to re-evaluate their traditional business-model role as service providers to cater to the needs of their clients in this internet-intensive business environment. Client portals and other enhanced electronic forms of legal service delivery are key developments that are here to stay.

But lest one thinks that these developments will render the role of lawyers obsolete in future, I should point out that these fundamental developments would in fact enhance the role of lawyers in the provision of 'high end' quality legal advice. While the low end routine matters can be automated or even provided to clients on a 'self-service' basis, the need for lawyers to provide quality high end advice will increase.

The challenge for law firms is to evolve their own unique business models in response to these developments in a way that sharpens the differentiation and ultimately their competitive advantage. The less IT-savvy lawyers and the so-called traditionalists therefore need not fear the e-future. In my view, the role of lawyers is likely to be even more enhanced as experience, legal knowledge and judgment will always command a higher premium than any IT-driven systems might.

Zaid Hamzah
i-Knowledge Technologies Pte Ltd
zaid@docforte.com

The writer wishes to thank Mr Christopher Davis of Davis & Co, United Kingdom, for his valuable input in the preparation of this article.

Endnotes