Legal sector is ahead of the game on extracting value, but there are competitive risks over pricing

Law firms are increasingly turning to big data to extract more value from the thousands of briefs, memos, pleadings and legal records they produce every day, allowing them to develop a more joined-up approach between research, case workflow, pitch preparation and sales.

But by changing the way they do business, law firms are also exposing themselves to a new set of threats and opportunities.

Increasing efficiency could also mean fewer billable hours and lower law firm revenues. This, coupled with a traditional bias towards human intervention, might go some way to explaining why the sector as a whole has been reluctant to recognise it is ahead of the game compared to other industries in terms of how it uses data.

With this in mind, below are four ways in which big data is changing the legal sector as well as a warning on what this could mean for the future of the market. This includes the prospect of ever-intensifying competition as big data commoditises legal work and raises questions about the business models of even the biggest firms.

Algorithmic analysis

As part of the research phase on a case, the job of searching through precedents and evaluating findings to advise a client used to fall to junior associates and paralegals. Today, products from companies such as LexisNexis and Westlaw can automatically match relevant cases, helping firms predict case outcomes and develop tactics more efficiently based on large swathes of historic data.

Working processes are evolving rapidly, giving rise to products such as LexisNexis' MedMal Navigator, Verdict & Settlement Analyzer, or Lex Machina in the patent litigation arena. This automation of the more mundane but time-intensive tasks is changing the speed of operations and the expectations on costs to deliver work. Reducing the manpower element from this process could lead to fee pressure – a potential risk for firms.

Case preparation

Today, legal cases often require the sifting through and analysing of thousands of terabytes of data to extract pertinent information. E-Discovery software can automate the process so that expensive and highly-trained lawyers can focus on analysing and interpreting a pre-sifted version of the data rather than raw information. This is challenging the traditional leverage model and the role of the associate and paralegal.

According to recent OC&C research, the e-Discovery market is already worth an estimated $1bn (£623m). Typically, the discovery phase of a case is estimated at about 15% to 20% of litigation costs, so the size of the prize for companies to reduce costs is significant. In a world where more and more cases involve vast swathes of information, this practice is becoming ever more important in developing case strategy and tactics.

Comms revolution

Products are being launched that provide live updates from courtrooms, while also converting the information into a searchable database which can be analysed and used to drive decision-making. Businesses such as M-Lex or Mergermarket's PAR are examples of services answering this demand for 'information at speed' – particularly on topics such as competition law.

These developments create another challenge for law firms: human capital. New expertise is required, including staff who can innovate and take advantage of the new tools. Re-skilling and reviewing working practices is critical. 

New business

Big data is creating new business streams for law firms. As clients look to leverage big data within their organisations, there is an increasing need for advice on its acceptable use and security given the significant reputational and financial risks associated with the misuse of datasets.

This is good for the industry, creating new demand for both data-literate lawyers and new legal practice areas that focus on how to apply and leverage data.

This has led to some interesting diversified service provision within the legal sector already. For example, US firm Bradford & Barthel has launched a specialist consultancy called Spherical Models to support clients' big data plans.

However, even though many law firms are starting to develop their data-related experience for clients, the knowledge and expertise to do so remains fairly limited across the legal profession as a whole. 

Big challenge

Big data is opening up huge opportunities for the legal sector – but it is also raising a number of new challenges. While many firms are beginning to experiment with some of the new tools that are coming to market, there remains a substantial amount of manual work and analysis across the industry. There remains a degree of scepticism that algorithms and data can arrive at the same conclusions as a bright young lawyer.

But in the long term, these tools will increase competition in the legal market. Individual expertise will become less relevant in a world where big data can commoditise legal work and level the playing field. 

Large teams are a key differentiator for magic circle firms today, but the increased adoption of smart tools will reduce their competitive advantage as the scale of teams required to carry out the work will be reduced.

Many forms of legal work could become commoditised as the tools used will broadly be available to all. This raises some critical questions for law firms in terms of how they should think about differentiation and developing their offerings to protect their market positions.

While neither will happen overnight, firms are likely to go one of two ways: they will either use more junior staff to sift through the high volumes of data and decrease their number of highly-paid lawyers; or they will automate some of the more manual tasks, reducing headcount and focusing their recruitment on senior staff.

Inevitably, these developments will lead to continued competitive pricing between law firms, and those who do not adapt and embrace big data will quickly find themselves at a disadvantage. With most to lose, the leaders of today won't necessarily be the leaders tomorrow.

Fergus Jarvis is a partner at OC&C Strategy Consultants.