People are a great investment!
If the legal press, software companies, consultants and academics were to believed, all law firms should now heavily invest in new technology. Clever software and artificial intelligence are said to radically change the legal profession. The law firms that do not invest will miss the boat and will spiral down into oblivion. This is what we are lead to believe, but it is not true.
Yes, sure, technology can make lawyers work more efficient. And yes, lawyers should keep up with modern office technology. We replaced typewriters with computers decades ago. We stopped dictating memos and most law firms do not use fax machines anymore. Keeping up with technology is nothing new, it is just a matter of common sense.
In the business of law it is the people who make a critical difference, not the machines. Interestingly this also applies to technology companies. Microsoft employs a whopping 131.000 staff. Apple employs 123.000, Google has 85.000 and Facebook 25.000. So the very companies that are supposed to be leading the technological revolution still heavily rely on real-world people.
Last weekend I was reading an article on how the US, Europe and China are competing for ‘world dominance’ as it comes to developing artificial intelligence. All three are aware of the strategic importance and are investing heavily. So money is not really the issue. The issue is people. US, Europe and China are competing heavily to attract talent. The battle for AI dominance is effectively a battle for human talent.
We need talent scouts, not recruiters Despite what everyone is telling you, the business of law will remain a business of people. If we have a detailed look at what lawyers are doing today, we can distinguish between creation and production. Creation is where legal knowledge, strategic insight an creativity are applied. Production is all things needed to further process the creative output. For almost half a century law firms have been charging equal for creation and production. This made them dependent on production for income.
For the client creation is ‘priceless’ as this is critical to the outcome. Production is just something that has to be done in an efficient and economic way. Technology is already capable of handling substantial parts of production today and this will only increase in the future. This is why we need to focus on creation to create value for the client.
This means that for law firms ‘creation’ will increasingly become the core business. Where ‘in the old days’ a lawyer could get away with just being diligent, making the hours by doing production, we now need lawyers with excellent creation capabilities. Law firms will need to look for a different profile when recruiting. Where in the past we could simply focus on the students with the best grades, we now need to look for things such as creativity, common sense, social skills, business skills and emotional intelligence. Finding these people is more like talent scouting than mass recruiting. We will need ‘recruiters’ who can spot potential and an ability to look beyond the grades.
On-boarding is an investment From day one an associate comes with costs attached. We have to pay salaries and have workplace related costs. It is understandable that there is a strong reflex to put the associate to work as soon as possible to make up for the costs. This is what law firms have been doing. We try to create billable hours for the new associate by letting him/her do really simple work. This type of work is just production and has little or no added value to the client.
In close cooperation with some of our (TGO Consulting) clients we have developed a radically different approach. Instead of being put straight to work, new associates first go trough an intense training program in which they learn not only basic legal skills like document drafting, but also workload planning, project management, negotiation skills and business skills. They learn how to operate in teams and are pushed to collaboratively find creative legal solutions for real life legal matters. On top of that the partners have committed to take a new associate to every important client meeting. Thus exposing them to client/boardroom dynamics from early on. Returning from the meeting the partner and the associate will discuss what happened during the meeting.
These programs have now been running for up to three years. The results show that from year two the associates who were part of the new training program outperform their peers on all significant aspects. In other words: by first investing in training and development, the revenues (and profit) are higher later on. Associates who were part of the training program can bill significantly more than those who were on-boarded the traditional way.
Huge measurable ROI Surprisingly when it comes to technology most law firms do not make a business plan that projects potential revenue and profit against the cost of investment. Not only that, most law firms don’t even have a basic idea on how to monetize technology. Yet law firms are investing substantial amounts of money in new technology.
How different are things when it comes to people. Associates are invariably seen as costs rather than as investments. This is the more surprising since it is easy to calculate. Making 1,500 billable and collectible hours, an associate will have a mark-up factor between 3.5 and 4.7. The beauty of this is that for people the costs are fixed. Regardless the number of billable hours we have to pay the same salaries and office costs. So additional hours do not come at additional costs. This means that if an associate thanks to better training is able to make 1,550 instead of 1,400 billable and collectible hours a year, the 150 additional hours (150 x applicable rate) are just 100% extra profit. After you have let this sink in for a moment, you will start to see why people are still a great investment.