When Generative AI burst on the scene with the release of ChatGPT in November 2022, the barriers to adoption for law firms seemed to outweigh the benefits.
There were questions around data leakage, some high-profile examples of ‘hallucination’ (the fictitious creation of legal precedents), and concerns that adopting AI could introduce errors into legal documents.
But in almost two years since then, AI has become a part of law firm work practice — for some.
Many bigger firms have taken advantage of larger technology budgets and in-house technical capabilities to reap the benefits of the technology, while some competitors have been caught napping.
LexisNexis’ investigation of the use of Gen AI among top US law firms, published earlier this year, found 43% of the top 200 firms (Am Law 200) had dedicated AI budgets compared to just 19% of other large law firms.
More than half (54%) of the top 200 were using AI to consider new business models or billable opportunities, compared to 38% of their large peers. And they were more than twice as likely to be considering investment in AI specialists and technologists to spur AI adoption and use.
At a local level, we also see a gulf opening between those firms adopting AI — and working through the internal upskilling and restructuring that this requires — and those still deciding on whether it is worth the effort.
Making the IT case for internal savings
The key AI use cases for law firms have become clear in the past year. The top goal for many is to expedite legal research, followed by the development of accurate summaries of large or complex bodies of material. Drafting documents and contract analysis are both priorities, as is the use of AI to conduct reviews and due diligence.
Each of these use cases represents a significant potential time saving for firms — and lawtech providers argue judicious use of AI could free firms from the resource constraints they have been experiencing for years.
Thomson Reuters has calculated that if AI can free up lawyers for four hours a week, that could translate into another $100,000 of extra billable time per lawyer available each year, not to mention additional opportunity for professional development, strategic work and innovation.
To achieve that goal means enabling access to AI and firms that already invest in lawtech products should find this straightforward.
Many tools now incorporate AI options like rewriting or search into regular functions, and major lawtech providers either offer or plan to weave machine learning and generative technologies into their flagship products. But for those firms that have been slower to adopt lawtech, this represents an ideal moment to dive in.
The rapid pace of technological improvement means tools available now are far more advanced than those a year or even a few months ago. This means firms can leapfrog earlier tech solutions and go straight to those that will deliver the greatest value.
Putting external value on the table
While internal time savings and greater efficiency can unlock resources inside firms, the real value will be judged by clients. This is where all firms need think about how their AI strategy will affect other operations.
Billing in many firms might finally be uncoupled from time spent, given tasks that might have taken three or more hours and that were billed accordingly can now be delivered in minutes.
The outcome for the client remains the same or potentially better, given the work can be delivered expeditiously, but the input has shrunk — so how should this be billed?
Firms incorporating AI need revisit their approach, looking at how they amortise the greater cost of technology purchased by their practice as well as exploring models like flat fees and value-based pricing.
Clients are also likely to demand a greater level of transparency from firms who incorporate AI into their services. Are they receiving the same level of human expertise and oversight? Are they unwittingly taking on additional risks? Is there a greater chance of confidential information being shared or their organisational data incorporated into AI training models?
Details around how AI is being used by the firm, the safeguards in place, and the value of this approach to a client all need to be articulated.
Looking ahead at the competition
As a sector disruptor, AI poses both opportunities and threats for firms as they grapple with how to use the technology, for what purposes and how much to invest. And it means new competitors and entrants need to be on the firm’s radar.
As an example, AI can make it easier to access skills and services that have traditionally been hard to replicate, so a small boutique firm might be able to use technology to scale its services in a specific field. Size and access to resources are no longer the same barriers to entry; a small player who is nimble with novel technology can pose a real threat.
Clients might also provide a surprising source of competition. A year ago, one in three professionals was predicting that AI would allow more work to be done in-house. Now, says Thomson Reuters, 56% of professionals expect this to be a growing trend. The expectation seems to be that professionals believe AI will make their organisations more self-sufficient and less reliant on external legal consultants.
And for work that is done out-of-house, two-thirds of professionals expect AI to lead to lower costs for law/tax and accounting firms and for this to translate to cost savings for clients.
Firms must also watch this change in perception, which might erode future pipelines of work or put downward pressure on fees.
Our experience
At Pitcher Partners Melbourne, whilst excited about Gen AI and the benefits our use will bring to our clients and people, our journey has been grounded in research and learning and the subsequent development of an AI policy which will evolve with the AI landscape.
Early experimentation has provided a foundational understanding of Gen AI with the importance of data governance, security, and privacy imperative.
Current rollout is being delivered as a strategic project with a key focus on training, centred around awareness and understanding Gen AI, and then training in predominantly Prompt Engineering, or simply how to write the best prompt for the best outcome.
Before we go too far, we are working on defining an AI and Automation Business strategy to guide where, why and how we might deliver AI and automation solutions for the firm. We are conscious our early proof of concept solutions may very soon be available as a commercial of the shelf products, so continually challenge where we invest our time and money.
The biggest challenges are a true understanding of how and where to use these tools, where to invest and how to do this safely.
Next steps for businesses checklist
The risks of using AI remain, but are being better managed as new tools mitigate privacy, data and accuracy challenges that might have held firms back from adopting this tech. The new threat, though, is that of being left behind while competitors bank efficiency gains and become more nimble in their delivery and pricing.
If you are yet to engage with AI technology, here’s how to bridge the gap.
- Build policy and limitations around Gen AI use – communicate clearly with your people, create approval processes for platforms you want to use, and consider blocking the rest.
- Include Gen AI in your risk management framework and controls.
- Train your people on the strengths, limitations and risks of Gen AI tools, particularly around client data privacy and security.
- Implement a review and vetting process for any Gen AI outputs to ensure accuracy.
- Prepare your firm for the inevitable impact Gen AI will have on your organisation and culture.
- Familiarise yourself with the Gen AI tools available to find your best firm fit.
- Identify use cases that could help your firm achieve its goals.
- Explore the Gen AI solutions that are available in your existing lawtech stack or talk to major providers to understand how they can offer a secure and effective solution.
