AI in Law Firms: The AI Revolution in the Business of Law

Gene Commander | Strategies for leveraging AI for growth, talent development, and improved client service.
The post AI in Law Firms: The AI Revolution in the Business of Law appeared first on Articles, Tips and Tech for Law Firms and Lawyers.

For law firms that embrace it, AI has strong potential to bolster smart growth business strategies that will sustain lasting professional and financial success. Here are three ways to capitalize on these new opportunities.

Key Takeaways

1. AI has the potential to transform the business of law by filling talent gaps, attracting tech-savvy talent and offering client services that provide greater value.
2. As law firms make greater use of AI, attorneys should shift from providing transactional, informational services to more personalized, higher-value legal services to existing and potential clients.
3. To attract and retain lawyers who can provide these services, law firms should ditch obsolete lawyer development strategies and rebuild professional develpment programs from the ground up.
4. Law firms need to reduce reliance on the traditional billable-hour and adopt new pricing models to ensure fair compensation for legal services.

---

A jaw-dropping 74% of the law firm services traditionally charged to clients using a billable-hour pricing model are potentially subject to automation by artificial intelligence in law, according to Clio’s 2024 Legal Trends Report. This and other news about the rapid rise of AI in the legal industry has caused many to ask, “Will lawyers be replaced by AI?”

Rather than a cause for hand-wringing, the advent of AI and other forms of legal tech innovation should be welcomed by law firms interested in pursuing smart growth business strategies. AI has the potential to transform the business of law, particularly among midsize and smaller firms, by filling talent gaps, attracting tech-savvy human capital and offering client services that provide greater value.

After a snapshot of where AI currently stands in the legal industry, this article will suggest key strategies that law firms should consider adopting as they embrace the AI revolution.

Where AI Stands in the Legal Industry

It’s been just over two years since ChatGPT launched on November 30, 2022, and AI is transfiguring the practice of law. While law firms have relied for some time on various forms of AI to perform legal research, e-discovery and document management activities, the unprecedented pace of technological advancement over the last two years — particularly with generative AI (“GenAI”) capable of producing content — speaks volumes about AI’s potential.

Law firms’ current levels of AI use are hard to pin down, but rapid growth is undeniable.

For example, just 14% of law firm and corporate legal department respondents said they use GenAI in a 2024 survey by Thomson Reuters Institute (“TRI”). However, according to Clio, a dizzying 79% of surveyed legal professionals reported using AI in their practice in 2024 — up from just 19% in 2023. Along similar lines, Wolters Kluwer, a global information services company, found in 2024 that 68% of legal professionals in law firms used GenAI at least once per week.

Clio reports that the three most frequently used AI tools among lawyers are generic nonlegal tools like ChatGPT, AI-powered legal research platforms and document drafting tools. Meanwhile, TRI has found that law firms’ top five existing and planned uses for GenAI are (i) legal research, (ii) document review, (iii) brief or memo drafting, (iv) document summarization and (v) correspondence drafting. Of course, law firms also use AI for administrative purposes, leading to reduced administrative staffing demands.

Looking ahead, AI tools in the legal industry are expected to become more efficient, customized and predictive, offering firms the opportunity to substantially enhance attorneys’ productivity.

Three Ways Law Firms Can Capitalize on New Opportunities

Three strategies will be crucial for firms as they formulate plans for capitalizing on these new opportunities:

1. Finding New Ways to Provide Value

TRI’s William Josten notes, “Lawyers are incredibly adept at finding ways to fill their time.” As firms make greater use of AI, attorneys should expeditiously shift their focus to providing higher-value services to existing clients and securing additional high-value business from new clients. Certain attorney roles are not within AI’s wheelhouse, at least for the foreseeable future. Professional and ethical judgment, emotional intelligence and creativity are human strengths — and firms should double down on their investments in talent to leverage these skills through the use of AI. As legal industry commentator Jordan Furlong foresees, lawyers will transition from “mostly transactional, procedural, informational, and documentary activities to more strategic, advisory, and consultative services.”

To thrive in this new environment, both law firms and individual lawyers will need to adapt to these changing roles and provide more personalized client services. Lawyers should embrace AI and other emerging technologies with a sense of urgency, a willingness to learn and a curiosity to experiment. Fortunately, this new professional framework can be a welcome and energizing development for lawyers who already value continuous learning and growth.

2. Rebooting Talent Development

Professional development programs in law firms should be rebuilt from the ground up to attract and retain talent that can meet client and firm expectations in the age of AI.

Law firms traditionally have depended on an obsolete professional development approach that first immerses inexperienced associates in entry-level tasks such as time-consuming document review, and then provides more challenging assignments over the next several years to further develop their legal skills. AI’s growing abilities to perform entry-level work will call into question how firms should train raw talent to deliver high-value legal services as clients increasingly refuse to pay for humans to complete routine tasks.

Fortunately, the advent of AI provides the sorely needed impetus for law firms to reinvigorate underperforming talent development programs as a vital component of a smart growth strategy. These programs have failed because they typically employ a sink-or-swim, one-size-fits-all approach that overlooks the talent’s varied professional development needs and neglects to make them feel like valued team members with the opportunity to collaborate on important client assignments. The predictable results have included high attrition rates and an inability to develop a leadership pipeline.

Law firms should adopt individualized talent development initiatives that meaningfully involve tomorrow’s talent in a range of real-world legal experiences to help them acquire the sophisticated legal knowledge, professional judgment, business acumen and emotional intelligence that will be demanded of attorneys in the age of AI.

Talent development must be a lifelong pursuit as law firms work to stay abreast of technological advances in the business of law.

In collaboration with a new and vital cadre of AI specialists within firms, lawyers will need ongoing training in matters such as:

• Using prompts to query AI tools effectively
• Recognizing errors made by AI
• Avoiding ethical quandaries posed by AI

Unfortunately, the Harvard Business Review found in 2024 that only 5% of surveyed professionals worked in a business that was providing significant GenAI training, while a 2024 TRI survey found that fewer than 20% of law firm respondents had received GenAI training. Law firms must fill this gap soon, or they will quickly fall behind their competition.

3. Designing Next-Generation Pricing and Revenue Models

To ensure fair compensation for legal services going forward, law firms will need to reduce their dependence on traditional billable-hour pricing models. As AI is further incorporated into legal workflows, law firms will be able to offer more valuable client services by producing work products of equivalent or higher quality using fewer attorney hours. Yet lawyers will continue to play an essential role in using AI outputs to thoughtfully counsel clients, which should become the highest and best use of lawyers’ time.

Alternative fee arrangements — which have so far seen only modest use in the legal industry — can capture the value provided by lawyers who integrate AI into their legal practice, enabling law firms to maintain healthy profitability levels. These agreements may include negotiated value-based billing, fixed fees, success fees and subscription plans. The advantages of these pricing models can accrue to both parties — for example, firms tend to receive more rapid payment with fixed fee billing than with hourly billing, while clients may gain greater transparency and budget predictability.

Law firms and clients will need to adapt as they confront the challenges attendant to these new pricing models, such as the complexity of defining predictable fixed-fee arrangements. This will require law firms to make smart investments of time and other resources to refine their pricing and revenue models. But most attorneys and business owners are experienced negotiators, and the juice likely will be worth the squeeze.

Looking Ahead

As AI is further integrated into the practice of law, firms must ensure they are also attending to the ethical implications involving confidentiality, competence, reasonable fees and more, as addressed in ABA Formal Opinion 512, released in 2024. However, concern about potential ethical quandaries should not be an excuse for shrinking from the active pursuit of AI tools that can transform the business of law.

With talent gaps likely to persist into the next decade, midsize and smaller firms that are struggling to maintain adequate bench strength can leverage AI to consistently meet client expectations. And AI promises a reinvigorated approach to the practice of law that will help firms attract and develop new talent who can deliver high-quality services to clients in a more efficient and cost-effective manner. For future-focused firms that embrace the AI revolution, AI has strong potential to bolster smart growth business strategies that will sustain lasting professional and financial success.

More Law Firm Business Strategy from Gene Commander

Smart Growth Strategies for Law Firms: Essential Investments in an Evolving Industry

Strategic Slowness: A New Mantra for Law Firm Leaders

Image © iStockPhoto.com.