The traditional billable hour model, a cornerstone of law firm pricing strategy, could be challenged by the rise of AI-driven efficiencies. Wolters Kluwer’s 2024 Future Ready Lawyer Survey Report shows the legal industry is seeing potential shifts in traditional business models – from the impact of GenAI to using external providers to support their work.
According to the 2024 Future Ready Lawyer Survey Report, one of the more widely debated topics is the effect of GenAI on the billable hour. No less than 67% of corporate legal departments and 55% of law firms expect AI-driven efficiencies to have an impact on the prevalence of the billable hour, while 20% even foresee a significant impact.
The impact of GenAI on legal business models
“It is inevitable that GenAI will reshape firms’ business models in fundamental ways,” says Robert Ambrogi, Publisher, LawSites blog/LawNext podcast. “With AI handling more of their professionals’ routine tasks and streamlining more of the complex ones, more law firms will shift from hourly billing to alternative models such as flat fees, subscription services, or value-based billing. GenAI can also lead to reductions in firm overhead and headcount, further enabling firms to offer more competitive pricing – and clients to expect it.”
Outsourcing to alternative legal service providers (ALSPs)
With or without GenAI, one continued business trend is the practice of outsourcing work to alternative legal service providers (ALSPs). Rather than seeing ALSPs as a threat, most law firms and corporate legal departments turn to consider them valuable partners.
Among the top tasks, more than half (57%) of legal professionals surveyed plan to outsource document automation, about half (49%) plan to reallocate legal research and analysis tasks, and 48% look to use ALSPs for contract drafting and review. With this approach, firms and legal departments expect to optimize their operational efficiency and, ultimately, save costs.
Lower demand for junior lawyers and paralegals?
“It is highly probable that GenAI will significantly reduce the need for certain categories of legal staff, particularly those engaged in routine, repetitive, and labor-intensive tasks,” says Stefano Mele, Partner at Gianni & Origoni. “The automation of these tasks not only leads to increased efficiency, but also to a reduction in the demand for junior lawyers, paralegals, and support staff who traditionally perform these functions.
”The good news is that legal professionals are optimistic about adapting to the ever-changing legal landscape. More than half of survey participants (56%) feel well-prepared to adjust their business practices, service offerings, workflows, and pricing models in response to the implementation of AI technology. This adaptability is pivotal as GenAI continues to evolve and integrate further into the legal industry.
To read the full legal industry analysis, download the 2024 Wolters Kluwer Future Ready Lawyer Survey Report >>