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CTRL + AI: How will AI change legal sector traditions?
Technology spend among Law Firm leaders is growing with expected spend on technology across ‘24 – ‘25 increasing by 0.4ppts to 6.1% of total annual revenues, up from 5.7% in ’23 – ’24 as recognition for the need to become more efficient to compete effectively grows¹. In September 2024, 89% of in-house lawyers reported they were either currently using or planning to use Gen AI, up from 75% in January 2024, and 45% in July 2023². This has shifted the conversation from whether AI will impact the sector, to how.
Why has the take-up of AI been so swift?
Law firms are under increasing pressure to deliver faster, more efficient, and more innovative legal services as clients look to cut spending in this area. AI tools can automate routine tasks, such as legal research, document review, and contract drafting, significantly reducing turnaround times. This allows lawyers to focus on more complex, and more financially rewarding, legal work. Firms that leverage AI effectively are better positioned to meet client expectations and gain a competitive edge within the market.
Further, those firms that provide innovative solutions to clients meet their expectations surrounding ongoing improvements to service delivery. Delivering increasingly improved services to clients helps foster stronger relationships and draws in new business to the firm. Such innovation within the market has forced a culture of innovation as firms adopt AI solutions to stay both competitive and relevant in such a competitive domestic, and international, landscape.
Has your firm implemented AI and where do you see it making the biggest impact?
How is AI influencing pricing models in the Sector?
As AI enhances efficiency and allows for the faster delivery of legal services, some firms are moving towards a value-based billing model over the “billable hour”. This approach focuses on monetising the value, and actual outcomes, of work delivered to clients rather than the traditional model of billing based on hours spent on a project. As AI continues to drive service efficiency, firms that stick to the traditional model will fall behind as clients move to those firms with a pricing model more tailored to the value delivered.
As a consequence, one of the key AI use cases analyses client needs and preferencing. This allows firms to develop a tailored billing structure and align pricing to client expectations, moving away from a one-size-fits-all model. Further, AI can improve transparency in billing by providing a detailed breakdown of the services rendered thereby fostering trust with clients and justifying fees.
However, while the billable hour currently remains more popular than value-based pricing, leaders at more than half of firms estimate 20-60% of their work is priced with an alternative fee arrangement³. As more firms adopt AI and innovative billing practices, others may feel pressured to adjust their pricing models to remain competitive.
How do you see AI influencing your pricing model?
Has this push for AI brought cybersecurity concerns to the fore?
Cybersecurity has overtaken the “war for talent” as law firm leaders’ top pressure point for 2024, highlighting how this push for AI has raised concerns on how firms handle and store sensitive data. 49% of lawyers report their biggest concerns about using AI tools for legal research and guidance purposes is the leaking of confidential client data through the “Black-Box” of AI⁴. A breach can lead to significant legal and financial consequences with the average cost of a data breach at $5.08 million for professional services organisations⁵. Further, c65% of law firms have been victim of a cyber incident highlighting the value that “cyber villains” place on the data stored by legal firms⁶.
With these factors in mind, the increased spend on technology should be pointed towards training staff on the correct use of AI tools and improving the firm’s ability to respond to cyber incidents.
What measures have you implemented to improve cybersecurity?
Closing thoughts
As we enter this landscape where rapid technological change is gripping the legal industry, it becomes evident that the consequences of AI implementation extend beyond simply financial considerations. However, only time will tell whether this transformation will alter the fundamentals of the industry, and how the industry will navigate the opportunities and challenges that lie ahead. Ultimately, firms that successfully navigate these changes by leveraging AI while prioritising data security will be well-positioned to thrive in an increasingly competitive and dynamic legal market.
- https://www.business.hsbc.uk/-/media/media/uk/pdfs/campaigns/briefing-hsbc-2022-ready-to-respond.pdf
- https://www.lexisnexis.co.uk/research-and-reports/in-house/generative-ai-survey-h2-2024-in-house.html
- https://www.business.hsbc.uk/-/media/media/uk/pdfs/campaigns/briefing-hsbc-2022-ready-to-respond.pdf
- https://www.lexisnexis.co.uk/research-and-reports/in-house/generative-ai-survey-h2-2024-in-house.html
- https://www.clio.com/blog/data-breach-lawyers/
- https://www.lawsociety.org.uk/topics/blogs/are-you-the-65-percent-or-the-35-per-cent-65-percent-of-law-firms-cyber-attack-victim
