There are now multiple examples of technological excellence in many law firms. Some have embraced cloud solutions for document management and storage. Most billing is now automated, whilst the profession has moved away from wet signatures and in-person meetings to an acceptance of electronic communications and online meetings.
These changes have streamlined the practice of law. Our findings from the 2024 Annual Law Firm Survey, now in its landmark 30th anniversary edition, displays a sector divisive about embracing technology and AI, as well as the need to foster a culture of innovation and technological integration.
Historically however, there are structural reasons why law firms may have been slower to embrace technology than in other sectors. Tradition and precedent are embedded in the fabric of many firms. 49% of the respondents in our survey this year noted a firm's culture can hold back the adoption of new technology, whilst 47% of the respondents also called out resistance to change as a barrier.
67% of respondents in our survey this year thought that historically the legal market had lagged behind other industries in terms of technological advancement with several reasons given to explain this mindset including:-
This is not to ignore the sustained level of activity which we have seen from law firms in the last 18-24 months, focused on harnessing the opportunities offered by AI. Only this summer Ashurst announced the roll-out of the Harvey AI platform on a worldwide basis whilst Linklaters announced plans to deploy Copilot for Microsoft 365 with a deal value of $1.8m (£1.42m) with the latest version of the product made available to over 6,900 employees.
This reflects the huge opportunity in investment in technology that was identified in our survey with 69% of respondents saying that this was the number one opportunity for growth.
Looking to the future our survey respondents thought there were several strategies and initiatives essential for fostering a culture of innovation and technological integration within the legal sector, which included:
Our survey results also show a real desire for change in attitudes within law firms, with respondents keen to see clear product roadmaps and continuous learning pathways set out so they can fully exploit the use of technology within their firm in the future.
Cyber security and cyber crime are ever-relevant topics when talking about technology in the legal sector, due to the sensitivity of information archived within legal practices. 77% of respondents said they were ‘very confident’ or ‘confident’ in their current cyber security defences, whilst a further 82% of respondents said they were ‘very confident’ or ‘confident’ in the capability to recover in the event of a law firm cyber attack. Given the critical importance of these defences, these results suggest that there is work to be done by some firms.
The top three challenges for respondents when safeguarding against cyber crime were the increasing sophistication of cyber criminals (78%), the complexity of legal data and information systems (38%) and a feeling that there was a growing reliance on digital technology within law firms without proper safeguards (37%).
Other challenges put forward by respondents included insufficient awareness and training on cyber security amongst legal professionals and the increasing frequency of remote work, which people felt created more opportunities for cyber attacks. Whilst some responses suggested additional investment may be needed, others focussed on education and development of internal policy, which could be more quickly developed and deployed into firms.
Firms are anticipating a strong will to invest in technology. With the annual investment allowance currently at £1 million, there is a 100% capital allowance for qualifying expenditure on plant and machinery, providing tax relief in the year of expenditure.
Where firms are anticipating a large capital spend, there could be planning opportunities in the timing and structure of the expenditure in order to maximise capital allowances available, which will have a knock-on effect for partners’ taxable income. As ever, intergenerational fairness between the partner population will need careful consideration.
Most digital transformation activities will be based on the development and/or implementation of software systems, tools and products as firms seek to make their businesses more cost effective and competitive. As such, a proportion of this investment may qualify for research and development (R&D) tax incentives, available to firms with a limited company within their group structure.
Forward thinking firms are seeing positive results from digital transformation. Some firms are even addressing their own housekeeping, such as automating LLP tax compliance, which is known for being time-consuming and costly, and automating processes, including creating documents and filing client communications. A select few firms have seen success in consolidating data to generate a single view of their customers used to drive demand for new services.
There are also interesting results in generative AI. Setting up a dedicated innovation lab is costly, but carving out time for enthusiastic and motivated staff to work with third-party organisations can be relatively inexpensive. Without a clear strategy however, there’s a risk of fatigue due to multiple unfinished small-scale initiatives. But if coordinated well, technology can generate clear benefits.
All of this comes with a health warning, however. Automating processes may bring some benefit, but using technology as the catalyst to improve ways of working can be transformative. Strong and effective change management is as just as pivotal in changing a culture as the technology that underpins it.
To read the findings in full from our 2024 Annual Law Firm Survey, including around competitive pressure, opportunities and law firm culture, download it here.
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