Ed. note: Please welcome Ken Crutchfield to the pages of Above the Law. He’ll be writing about technology’s increasing role in the innovation of the legal profession.
The coronavirus crisis has impacted different industries in different ways, ranging from massive job losses to an increased reliance on technology for working remotely. With so many people working from home as part of a nationwide mass movement of social distancing, we’re starting to see how the impact of tech will permanently change how professionals approach certain types of work. At a time when we’re facing new challenges and inevitable transitions, it can be useful to look to other times — and other industries — for lessons on tech innovation.
In 2002, I made the transition from legal industry software to the tax and accounting industry. The transition was actually quite natural. If you really think about it, tax is just a very specialized part of the law that has long tentacles of compliance. At a consumer level, taxpayers have to “comply” with complicated tax laws on an annual basis.
It was the technology that was different. When I began working in the tax and accounting industry, my perception was that accountants lagged behind lawyers technologically — but I found that tax and accounting was actually way ahead of law. Adapting to new technology has been a necessary component in the evolution of tax and accounting, by streamlining the massive amounts of paperwork. Less than 12% of all tax returns are now filed in paper and only a minuscule number of those are done without the aid of software.
Products like TurboTax behave like giant client intake applications that guide clients through the logic and questions required to complete a tax return. More than 79 million tax returns are also filed with the help of tax preparers. Most of those are credentialed Certified Public Accountants who perform a function analogous to that of a paralegal.
Ironically, a CPA credential has nothing to do with tax. The CPA certification allows an accountant to attest to the accuracy of accounting. But the compliance burden is large for taxpayers, and the revenues generated by tax practices at small and large CPA firms alike are significant.
Today, technology solutions for tax and accounting professionals have grown and expanded significantly, and the sophistication of software has made enormous strides. Yet the tool of choice for most tax and accounting professionals is spreadsheet software like MS Excel or Google Sheets. Spreadsheets are to tax and accounting professionals as Word Processing software is to a lawyer who spends significant time drafting and editing documents.
One of the more significant trends in tax and accounting is the use of robotic process automation (RPA) to reduce or eliminate mind-numbing and extremely manual processes.
RPA technologies like Alteryx, UI Path, and BluePrism emulate human beings accessing various systems to perform a task. For example, an RPA product can pull information out of a billing system, merge it with other information from an HR system, sort the information in a spreadsheet, and then e-mail a report to a distribution list.
A couple of years ago, I had a senior partner at one of the Big 4 tell me the impact of these technologies was so significant on their firm that it completely changed their staffing model. Manual work that was sent to “low cost” locations are now often completed by RPA tools. The “robots” can work 24/7, and they are not subject to human judgment or fatigue, so they actually perform the tasks better and more efficiently than humans. Think about what that can do for profitability per partner if a firm is not billing by the hour!
E-discovery is the best analogy that I can think of in the practice of law. At one time, armies of young associates and paralegals would sift through boxes of paper for months, searching for relevant facts in a sea of documents. Today, the same tasks are handled by e-discovery solutions and are measured in minutes.
HBR Consulting’s LegalLab 2019 survey suggests that Alternative Legal Service Providers (ALSPs) have tripled their market share since 2015 (from 2% of legal spend to 6% of legal spend). And some of that money is going to accounting firms.
With the rise of legal operations and a move toward more structured data and legal data analytics, ALSPs (and possibly accounting firms) may play an even larger role in legal work.
The Big 4 have the C-level relationships and a lot of know-how in structured data that lends itself to rows, columns, reports, and spreadsheets. But even firms with deep wells of experience in specific disciplines can benefit from adapting to new realities in the workplace, and can learn from watching the innovations that occur in completely different industries. I recall a story from Don Tapscott’s Paradigm Shift (1993) about a competition for how far a car could go on a gallon of gas. The hydraulics department at Michigan State figured out a way to store energy used in braking that could be released to accelerate a car after stopping at a traffic light. My conclusion is that the breakthrough concept of approaching the problem from a different perspective and a different discipline led to the energy-capturing technology used in today’s hybrid engines.
Law firms will need to continue to embrace innovation and automation, including innovation that may come from other industries, similar to the way the auto industry was influenced by the Michigan State hydraulics department. Corporations are re-evaluating the way they buy legal services and technology is enabling alternatives for legal activities and legal spend (contract review is currently being automated). The larger accounting firms may be well positioned to step into legal workflow given their leverage and embrace of technology.
As an example, accounting firms play a major role in advising corporations on their financial reporting as their auditor. Is it far-fetched to suggest that an accounting firm might make more inroads into the workflow that has been the traditional domain of the securities partner at a large law firm?
An innovative law firm will look to serve their clients more effectively by leveraging more technology in advising clients. They will leverage more analytics in supporting litigation and controversy. And they will look to successes in other industries that can be applied to law firms.
The COVID-19 pandemic has demonstrated how quickly the world can change, and how reliant on technology our professions are becoming. We can’t ignore this. We must embrace tech and use it to adapt quickly to the new normal.
Ken Crutchfield is Vice President and General Manager of Legal Markets at Wolters Kluwer Legal & Regulatory U.S., a leading provider of information, business intelligence, regulatory and legal workflow solutions. Ken has more than three decades of experience as a leader in information and software solutions across industries. He can be reached at firstname.lastname@example.org.
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