Can elite law firms survive the rise of artificial intelligence?

Written by: Kira Systems

November 18, 2016

3 minute read

In “Can elite law firms survive the rise of artificial intelligence? The jury is still out.” Eric Rosenbaum, financial writer and editor for CNBC, spoke with Ron Dolin, senior research fellow at the Harvard School of Law’s Center on the Legal Profession, Noah Waisberg, CEO and co-founder of Kira Systems, and several of Kira Systems’ clients — Freshfields Bruckhaus Deringer, Fenwick & West LLP, and Deloitte — to answer this question.

According to Dolin, the cash-cow model of elite law firms, where first year associates create billable hours through endless hours of routine work (such as M&A contract review), is being challenged by artificial intelligence software that can review contracts faster and more accurately than humans.

In the legal space, where most firms bill by the hour, the rise-of-the-machines problem is a bit different from manufacturing. Efficiency gains can cause a reduction in revenue as much as in cost, therefore an increase in efficiency in law doesn’t necessarily improve margins. As Waisberg explains in the article:

GE is selling a product for a set dollar amount, so the more efficient they can be and the more they can lower cost, the more margin they get. That is not the case with law firms… With professional services firms, it’s tricky to sell A.I. to them because unless they work on a fixed-fee model alread y… if they are selling hourly, they really need lots of hours of output.”

Many law firms understand that there will be changes moving forward, but would prefer to make small changes to the partnership model, rather than face an upheaval. The article quotes Isabel Parker, director of legal services innovation at Freshfields, “It’s not just law firms but firms like Deloitte and EY. There is need for more price predictability.”

Matt Kesner, chief information officer at Fenwick & West, was also quoted in the article and acknowledged,

“It does have an impact on revenue. It doesn’t necessarily help us make more money. We may make less, but that’s OK. It lets us focus on things more important to clients and it’s lucrative enough. I know it will sound pollyannish, but we really are trying to please clients. For us working for with tech companies, it’s the expectation. We’re amazed and delighted with what they come up with, and for us, to not use it is silly.”

Meanwhile, Deloitte, for its part, was quoted saying Kira absolutely helped it make more money. In a video on CNBC, the “Big Four” consulting firm credited Kira with helping the firm win more than $30 million in new business since it started using the software over a year ago.

A.I. technology assisted reviews are shown to be more accurate and anywhere from 20 percent to 90 percent faster than manual review. Freshfields' Parker was quoted in the article that since it began using Kira in the fall, it has seen efficiency gains of between 40 percent and 70 percent.

The article concludes that the “jury is still out” as to whether the law firm business model will fall with the rise of artificial intelligence. Waisberg believes that A.I. like Kira will help law firms generate additional revenue opportunities in the form of increased scope of contract review (brought to fruition by the gains in efficiency).

Read the full article here.

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