Digital Transformation in Law Firms: Part II – Optimize Your Operations

SCOTT DUDA: Welcome to today's podcast. I'm Scott Duda, Leader of Cherry Bekaert's Professional Services Industry. Today we're discussing using digital transformation within law firms to create operational efficiencies.

SCOTT DUDA: This is the second in our series on optimizing performance in legal firms. With me today is Jim Holman, Director of Strategy and Process within our Digital Advisory group. Welcome, Jim.

JIM HOLMAN: Thanks, Scott.

SCOTT DUDA: We're here today to build off the discussion we had earlier and talk about optimizing operations within a law firm. How do law firms use digital transformation to optimize their operations? Can you talk a little about historical resistance or reluctance for firms to focus on operational improvements?

JIM HOLMAN: Law firms traditionally, and even now, have been focused on serving their clients and making change. That passion doesn't always translate into understanding and optimizing the current state of operations. Operations are often not well understood or defined because they haven't been a cultural priority.

JIM HOLMAN: The legal practice has long relied on institutional or tribal knowledge. It considers workflow and process always in flux and not worth pinning down because they will change. To be honest, process documentation hasn't been interesting to many of the personalities that drive law firm business.

SCOTT DUDA: How does this lack of process lead to increased risk or decreased profitability for law firms?

JIM HOLMAN: When partners have divergent processes, you get inconsistent approaches and philosophies that they believe add value or increase the quality of their work. That divergence leads to a lack of collaboration around best practices because partners may feel standardized processes diminish the art of law.

JIM HOLMAN: The lack of consistency creates named or dedicated resources — an administrator attached to a particular partner because they "just know" how that partner works. That makes it difficult to optimize processes because it's different on a case-by-case basis.

JIM HOLMAN: The result is silos: small groups that do things a specific way. Those silos create inefficiencies, higher internal processing costs, and increased errors. Overall, it takes longer and more internal time to accomplish the same results.

JIM HOLMAN: Errors are not limited to billing mistakes; they affect the client experience. Simple invoicing mistakes increase financial risk and slow payments. They also reduce client satisfaction. Low levels of process documentation compound the problem: when onboarding new talent, firms face the question of which divergent process to train people in, making improvement and optimization very difficult.

SCOTT DUDA: A couple of things stood out for me. When you talk about increased risk from inconsistent processes, it sounds similar to discussions around Sarbanes-Oxley and PCAOB requirements on the audit side. It leads to contradictions that are tough to answer. On decreased profitability, the billing process example is common. Time is money for professional services firms, and doing things 16 different ways because you have 16 partners creates inefficiency.

JIM HOLMAN: The two areas of risk are financial risk and operational risk. Financially, law firms are closer to medical practices than accounting firms in terms of billing and payment slowness, so they have higher exposure when clients don't pay on time.

JIM HOLMAN: Operationally, different partners may handle documentation differently. For example, personally identifiable information or HIPAA data might be sent over unsecured methods because a partner is comfortable with email rather than using secure portals. In areas with compliance concerns or regulatory constraints, partners can't each do things their own way.

JIM HOLMAN: By minimizing unique processes and driving toward best practices, firms can reduce both financial and operational risk.

SCOTT DUDA: We've talked about some challenges and where law firms may be hesitant to engage in digital transformation. Where are they typically investing in technology, and how are those investments improving efficiencies?

JIM HOLMAN: Technology spending has often been piecemeal and tactical. Law firms tend to maintain the status quo until a critical need forces a response, which leads to knee-jerk, minimal research and implementation.

JIM HOLMAN: The result is a patchwork of technologies with no cohesive strategy, low automation, and little integration. Firms often adopt technology to address a specific client's requirement or a partner's preference, which can lead to multiple systems that perform the same function.

JIM HOLMAN: This tactical approach leads to subject matter experts tied to specific platforms, redundancies, inefficiencies, errors, and extra internal time. It also causes duplicate data entry and creates a messy environment when a client audit is required.

SCOTT DUDA: You mentioned challenges across firm size. We work with clients from local practices to international firms. Are global firms similar in these operational improvements compared to firms operating solely in the U.S.?

JIM HOLMAN: The U.S. legal market is a bit behind. International practices, particularly in Europe, faced stronger pandemic pressures earlier and were forced to optimize processes faster. Losing skilled labor and dealing with the "great resignation" pushed international firms to adopt process improvements sooner.

JIM HOLMAN: In countries hit hard by the pandemic, like Spain and Portugal, legal practices began reinventing processes early on. The UK legal market, influenced by Brexit, used outsourcing, paralegal support, contract lawyers, process mapping, process optimization, and technology. Those approaches require unified, documented processes.

JIM HOLMAN: Outsourcing or using contract attorneys at scale only works when you understand and standardize current processes so you can design a future state. Mapping processes creates a blueprint for paralegal centers, outsourcing, contract lawyers, and the technology needed to automate.

JIM HOLMAN: Operational processes can be broken down into smaller pieces that are easier to resource, automate, and optimize.

SCOTT DUDA: The pandemic accelerated many changes, like acceptance of electronic signatures and electronic invoicing, and auditors shifted to electronic approvals. It's striking how quickly clients adapted.

JIM HOLMAN: U.S. firms need to close the gap. Firms must distinguish between value-added legal work and back-end administrative functions. It's okay to treat client-facing work and back-office operations distinctly and cohesively.

JIM HOLMAN: Internally, we look at our own processes at Cherry Bekaert to ensure we practice what we preach. Once legal teams adopt technologies like electronic signatures, advances follow quickly.

SCOTT DUDA: What emerging technologies should law firms consider on their journey to operational improvements and efficiencies?

JIM HOLMAN: Several areas have come to light in the last five years. Pandemic funding and the push to go paperless enabled remote work that law firms would previously have resisted.

JIM HOLMAN: Firms need improved operational processes from winning new business to project closeout. Key areas include secure messaging for confidential client communications, accurate billing and online payment options, and secure document sharing between partners.

JIM HOLMAN: Improving client satisfaction, reducing firm risk, and ensuring contractual permissions for information sharing are all important. The true win is optimizing processes to increase quality and speed while reducing cost.

JIM HOLMAN: Collaboration tools are essential for rapid, secure communication when teams are distributed. Firms also need the ability to onboard and outsource more effectively. Fewer process variations make it easier to train, hire, and outsource.

SCOTT DUDA: You talked about common needs. What tools should firms consider to close the gap?

JIM HOLMAN: Mid-market solutions have emerged that provide cohesive functionality rather than a dozen disjointed systems. These solutions address case management, document management, secure retention and storage of client-sensitive materials, billing and invoicing, contact and contract management, and back-end accounting.

JIM HOLMAN: Firms need systems for accounts receivable and payable, asset tracking, calendaring and scheduling, task management, collaboration tools, and messaging. Client portals are increasingly popular and represent the "Amazonization" of the law firm customer experience.

JIM HOLMAN: Clients expect to see the status of open items, sign documents electronically, pay online, and view time and expense reports in one place. Time and expense tracking help firms get paid faster, increase customer satisfaction, and reduce client attrition.

SCOTT DUDA: Thanks, Jim. This is a valuable discussion. Our contact information and where to access the podcast can always be found at cbh.com. We look forward to continuing our discussions in Part Three of the Digital Transformation series.