An international snapshot of the legal tech market, conducted by stp.one among 1,250 law firms of all sizes across Germany, Austria, Switzerland, the Benelux countries, Italy, France, and Spain, highlights the challenges that law firms face today and the measures they are implementing to prepare for the future. This article summarizes the main results and findings.
Law firm selection criteria
How law firms position themselves is becoming increasingly important in the highly competitive legal services sector. Every law firm must carefully consider which positioning is most likely to attract clients to them, rather than a competitor. The survey revealed the top 3 criteria law firms believe their clients prioritize when choosing legal representation: Reputation, availability, and local expertise.
Reputation: Trust and track record
A law firm’s reputation is a crucial indicator of its success and capabilities. Key factors in assessing reputation include track record, peer recommendations, and risk mitigation. Almost three-quarters of all law firms surveyed cited reputation as a top client criterion for law firm selection. Enterprise law firms tended to select reputation as a key criterion less often. This may be because they believe their size guarantees their reputation, requiring them to differentiate from the other big players in different ways.
Availability: Responsiveness and reliability
Satisfying clients in cases makes great demands of the lawyers involved, with high workloads and a constant stream of communication. So, the ability of a law firm to demonstrate sufficient capacity and responsiveness is essential. Over half of the survey respondents ranked availability as a top criterion, with small firms more likely to emphasize its importance. This may reflect the urgency often involved when private individuals need legal assistance from small legal practices.
Local expertise: Navigating complex legal landscapes
For European law firms and their clients, local knowledge is invaluable due to the complexity and differences inherent to legal systems in different countries. Around half of our survey respondents identified local expertise as a crucial selection criterion. Spanish law firms, in particular, emphasized the importance of local expertise for their clients. This is probably due to the complexity created by the multiple regional legal systems that exist within the country.
Why some law firms are struggling: Navigating economic and business model shifts
European law firms are currently facing a complex mix of challenges. These include inflation, rising costs, changing client demands, and the different working styles of a new generation of lawyers. Let’s look at what the stp.one survey revealed about some of these issues.
Billable hours: A model under siege
The traditional law firm business model, centered on billable hours, is under significant pressure. Clients are increasingly demanding more predictable legal fees, pushing in negotiations for fixed or capped rates. This shift requires law firms to devise new billing structures, potentially reducing short-term revenues.
Clients also expect more value, requiring law firms to be more proactive and transparent about their chances of winning cases. The rise of lower-cost Alternative Legal Service Providers (ALSPs) and in-house legal counsel further threaten the traditional billable hours model.
Just under half of the survey respondents cited falling billable hours as a critical challenge. Small law firms, however, are more concerned, with 60% identifying it as a significant issue. German and Italian firms are particularly worried, perhaps reflecting regional differences in client expectations and competitive pressures.
Empty offices: The new reality
The shift towards remote work has left many law firms with underutilized office space. Legal professionals increasingly prefer flexible working arrangements, a trend accelerated by the COVID-19 pandemic. Allowing remote work helps attract and retain talent while creating the opportunity to reduce operational costs by eliminating or subletting unused office space.
Client perceptions about legal firms are also changing. While some clients value opulent office spaces that reflect prestige and success, many see them as unnecessary overheads which are subsidized through inflated fees. Small firms, where office space constitutes a significant portion of costs, are particularly concerned about wasting money on empty offices. German law firms are more worried than their counterparts in other countries.
Law firm technology investments: Priorities evolve, but slowly
Law firms traditionally adopt new technologies more cautiously than other sectors. Nevertheless, the stp.one survey reveals that digital transformation is gradually reshaping the legal industry, driven by several vital needs:
- Meeting evolving client expectations
- Staying competitive against tech-savvy new firms
- Enhancing profitability by reducing costs and adding value
- Managing increasing legal and regulatory complexity
- Leveraging opportunities and mitigating threats from rapid technological innovation
Current technology investment focus
Microsoft 365 ecosystem: The default choice
Microsoft 365 remains the legal sector’s primary productivity suite. Around half of the surveyed law firms are still investing heavily in it. This high investment rate suggests that many firms are upgrading from older versions of Microsoft Office. The preference for Microsoft is driven by:
- Familiarity: Legal professionals are well-versed in Microsoft applications like Word, Excel, and Outlook.
- Efficiency: Microsoft’s integrated tools enhance productivity and streamline collaboration.
- Security: Built-in security features help law firms comply with complex regulations.
Investment in Microsoft 365 varies significantly by country and firm size. For instance, only 22% of Swiss firms are currently prioritizing it, compared to 95% of Italian firms. Similarly, 94% of small firms are investing in Microsoft 365, compared with just 24% of large firms, indicating they have already made these investments.
Workflow automation: Quick wins
Digital tools can automate and accelerate many traditionally manual legal processes, yielding productivity gains and cost savings. The key benefits include:
- Reducing manual work: Automating tasks like case research and document management frees up time for higher-value work.
- Minimizing errors: Digital workflows reduce the errors that commonly occur when entering data manually.
- Improving client responsiveness: Self-service digital tools enhance client interactions and service experiences.
About half of law firms are currently prioritizing investments in workflow and process automation. Midsized law practices are twice as likely to be investing in automation compared to enterprise size ones.
Cloud migration: Benefits outweigh risks
While traditionally hesitant, more law firms are moving their IT infrastructure to the cloud to gain flexibility and enhance their data analysis capabilities. The advantages of doing so include:
- Accessibility: Cloud infrastructure allows legal professionals to work securely from anywhere.
- Scalability: Firms can access on-demand computing resources without capital expenditure.
- Security: Cloud providers offer advanced security measures beyond what many firms can implement in-house.
Around one-third of law firms are investing in cloud migration, with small ones being more likely to do so when compared with their larger counterparts.
Future technology investment focus
Document & contract creation automation
Over the next five years, the increasing complexity and volume of legal documents that law firms must manage will drive the need for automation, promising higher service quality and reduced risk. By 2028, around one-third of firms expect to prioritize document and contract automation, with German-speaking firms and larger firms slightly more inclined to make these investments.
Client Relationship Management (CRM)
Modern CRM tools can significantly improve client service and retention, over and above traditional networking methods. Only 5% of the law firms we surveyed are currently investing in advanced technologies like AI and blockchain. However, between a quarter and a third of the respondents indicated they expect to invest in these areas by 2028. This suggests growing recognition of their importance despite current skepticism about their potential.
Legal tech know-how and budgets: The leaders are pulling away
The legal sector has historically been slower to adopt new technologies than other industries. However, European law firms are increasingly aware of their low legal tech expertise and plan to make significant investments in 2024 to enhance their digital capabilities.
Assessing current legal tech know-how
The stp.one survey asked law firms to rate their existing legal tech know-how on a scale from “very low” to “very good”. The results were revealing:
- 62% of respondents rated their know-how as average or below.
- 35% rated it as low or very low.
- Only 16% rated their know-how as very good.
Geographically, law firms in the Benelux region and Switzerland rated themselves the highest. Conversely, Italian law firms rated themselves the lowest, with two-thirds assessing their know-how as low or very low. Larger law firms rated their know-how significantly higher than smaller law firms.
Legal tech investment plans
The survey also explored firms’ intentions regarding their 2024 legal tech budgets:
- 69% of respondents expect to increase their legal tech budget.
- 48% anticipate a significant increase.
- Only 3% expect their budget to decrease.
- Nearly 20% of firms do not have a separate legal tech budget.
Implications for competitive position
The divergence in legal tech investment has significant competitive implications. Smaller law firms, which could use technology to level the playing field, appear hesitant to invest. This may be due to a need for more funds rather than a lack of willingness. However, failing to invest could be a strategic misstep in the long run.
Conclusion
The legal sector is at a pivotal point in its digital transformation journey. Larger law firms are already pulling ahead, while smaller ones risk falling behind if they do not adapt quickly. By taking a strategic approach to technology investments, law firms of all sizes can enhance their competitive position, improve client service, and streamline operations. The key is to act now and embrace the digital future.
Editor’s note:
The full report can be downloaded here.
