Following Legal Week's Strategic Technology Forum, 3Kites' Melanie Farquharson and Paul Longhurst give feedback on the changes needed for the sector to move forward, and which parties need to make them

This year's Legal Week Strategic Technology Forum addressed the themes of the current business environment, business efficiency and profitability and business strategy. In many ways the issues discussed were not new – conferences have been discussing whether the legal market is changing for many years and the end of the billable hour was predicted a decade ago, yet there is still much debate about how firms need to adapt to deal with alternative fee arrangements.

Do law firms need to change?

One delegate at this year's conference commented that nothing has changed in a decade – including lawyers' unwillingness to change. However, the current economic climate has seen a real concentration of forces, with less legal work around as well as downward pressure on fee rates combined with new entrants into the market such as legal process outsourcing (LPO) organisations, all of which could push law firms to review the way they operate in order to stay competitive. In-house teams are not immune to these forces and could in turn add to the pressure on law firms to revise their business model.

Being able to deliver the same quality of service for a lower cost is challenging. Over the last two years firms have cut costs significantly. But many people recognise that in large parts of the legal market there are still great inefficiencies, with wheels being reinvented – perhaps no longer at the clients' expense, but at the cost of larger write-offs within the firm. One speaker quoted a partner as having said that at least 50% of their firm's write-offs could be attributed to poor project management and, even if that partner was only half right, this situation ought to be remedied.

Returning to 'normal'

There are still those who take the view that the recession is merely a cyclical event and that life for the legal sector will return to 'normal' for those able to hang on. If it were really the case that outsourcing would transform the sector, law firms would be looking at the impact on the shape of their internal pyramid and, specifically, cutting back on trainee recruitment – especially bearing in mind that it has such a long lead time. There is no obvious sign of this happening, nor do firms appear to be looking at the implications of these changes for the way in which junior lawyers learn the trade.

Although there were a smattering of lawyers at the event, a conference largely attended by technologists is likely to be less conservative than the legal sector as a whole. Law firms have been strikingly successful businesses over many decades and, as conference chairman Daniel Pollick pointed out, it is not credible to take the view that law firms are 'getting it all wrong'. The conservative approach has done very well up to now.

However, it may be that the current environment creates the opportunity for law firms to find that elusive point of differentiation to gives them a real competitive advantage. Given the herd mentality of the legal sector, there is a reluctance to branch out and be different. But is it a viable strategy to wait and see what everyone else does before considering a new approach?

The agents for change

There are few sectors where responsibility for key client management, marketing, research and development (or 'innovation' – a term rather over-used at the conference), and actually being 'the product' fall on the same people. It is hardly surprising, then, that in most law firms there is no-one whose job it is to stand back and consider whether there is a better way to deliver services to clients. So if change is going to happen, who will be the change agents?

• The clients? Although in-house counsel and their teams have in the past often criticised a lack of innovation among law firms, it was refreshing to hear the general counsel who leads one of the world's largest in-house legal teams say that it is the responsibility of the client to use their market power (which is even greater in the current economic environment) to bring about change.

Unless clients are able to say what they want suppliers to do differently, law firms will carry on delivering what they have always delivered. There were some interesting views expressed at the conference on this. Broadly, the in-house representatives wanted their firms to demonstrate that they were cutting costs. However, they also said that they are looking to firms to provide value-added (ie free) services, such as tailored e-learning solutions on compliance issues that could be rolled out to their businesses worldwide.

These contradictions do not help the situation and one delegate described these scenarios as toxic, adding that law firms are not publishers. Several of the client organisations represented at the conference were keen to encourage a more constructive approach, with conversations between law firms and clients taking place not just at the lawyer-to-lawyer level, but also involving the support functions.

• Individuals within the law firms? A handful of law firms have appointed individuals with responsibility for business transformation, sometimes with teams behind them. Their role is not easy. The law firm business model has been highly successful for decades and it can be difficult to maintain credibility when advocating dramatic changes.

Generational changes in the profession, particularly with the different expectations of the 'millennials' (ie those born after 1979) coming up through the ranks can help to provide impetus for change. In particular, the way in which the millennial generation is used to communicating and collaborating online together, paired with their natural tendency away from rigid hierarchy, is pushing legal services towards a different delivery approach.

• The IT department? There was much discussion at the conference about whether technologists should be the agents of change. A point often made is that it is hard to be a credible strategist when you are seen as being responsible for the basic plumbing of the firm, especially when that plumbing periodically fails.

Some saw IT's role as providing law firms with a platform for making opportunistic moves by ensuring that the essential infrastructure and connectivity were in place. Cloud computing may play a role here, but this was not seen as a particularly new thing. In terms of applications, enterprise search was seen as a quick win, with social networking and online collaboration also gaining in importance.

Conclusions

Cynics will say that change in law firms is an oxymoron. However, we see real interest nowadays in doing things differently and there are signs that this will lead to greater competitiveness in the market.

Real change is coming to the sector, but we suspect that many firms will resist this, leaving only the most opportunistic firms to drive the agenda for now. One factor that was not debated at any length but which could have an influence is mergers between firms, which may increase as a defence against uncertain economic conditions. Such a major operating shift may present new firms with an option to implement changes that would otherwise not be considered. However this pans out, next year's conference is likely to have some new and interesting ground to cover.

Melanie Farquharson and Paul Longhurst are consultants at 3Kites.