Q&A: David Smith – "You want to find passionate, driven, motivated individuals who are not going to let the roadblocks get in their way"

In this Q&A, Smithink founder and director David Smith explains the importance of practice reviews and why he thinks the major accounting firms could struggle to set up strong law firm divisions.

You advise major law and accounting firms in Australia. What is your overarching message to practice leaders at a time when digital disruption is spooking many people?

“What I say to many firms is that they’re actually too comfortable and they don’t have a strong enough driver for change. So they risk the boiling-frog syndrome in that they’re aware of change happening around them, but it’s not happening dramatically enough to force them to truly change their operations. They’ll keep doing what they’re doing and then they’ll get clobbered sometime in the future because they are miles behind. But it’s not all doom and gloom by any means. There are practitioners out there doing interesting things.”

You are an advocate of practice reviews as a way to assess the performance of a firm and its people. Why are they so important?

“When I go into firms and say, ‘Why do you do things this way?’ the answer I get 99 times out of 100 is ‘That’s the way we’ve always done it’. But firms should be deconstructing their processes. My advice is to take a process, throw it away, get a blank sheet of paper and think – given what you know about new technology and the way millennials think – how could we do this process in the modern world. Then you redesign it from the ground up. You can’t do that all at once with every process because it’s too disruptive for a firm. However, it’s important to develop a program over 18 months to two years and to reengineer a couple of processes every month during that time. By doing this, you get real value in the practice. Many practitioners are trying to search for a silver bullet – the thing that’s going to take them from where they are today and transform the firm. Unfortunately, there aren’t many silver bullets out there. What makes the difference between an average practitioner and a great practitioner is that they’re doing a whole lot of little things just that little bit better. When you add them all up, you end up with significant competitive advantage.”

Can you give us an example of a process thought could be reinvented?

“A good example is around paperless working. For many Baby Boomers, paper is like Linus and his security blanket in the Peanuts comic strip – they are wedded to it. Many people struggle with the move to reviewing documents on screen, yet it’s quite possible to do this if you have all the tools in place.”

Who should be in a process review team?

“You want to find passionate, driven, motivated individuals who are not going to let the roadblocks get in their way. You want someone who is passionate about reengineering processes. Quite often the best people are the younger employees because they have a different way of thinking about how to use technology and how to work. They’re more likely to ask the dumb question: Why do we do it this way? They’re also more willing to challenge the status quo. But they must have the backing of the leadership team, and partners must be willing to change the way they work personally. If you can’t get that agreement from the top, the rest of it will be a disaster.”

What are some of the smarter firms doing?

“One of the buzz terms at the moment is robotic process automation, which involves trying to define a process, collecting the data around that process and letting machines do elements of the process. Contract generation is probably the best example. There are a lot of software tools available to help firms prepare contracts using the old standard clauses that have been around for a while, but it’s now much more sophisticated than that in terms of being able to generate sophisticated contracts. There are great tools that can analyse contracts, reveal the key terms of the contract and highlight the issues you need to manage in the contract. So firms can provide a value-added service to the client and help them manage their contracts.”

You have commented that the legal profession is at the front of the pack when it comes to adopting technologies such as artificial intelligence, machine learning and big data analytics. This will surprise some critics, who see the legal sector as something of a laggard. Can you tell us about your theory?

“Well, they are leading the pack in the professional services space, but corporations are still way ahead. The fundamental difference with law firms versus accounting firms is that a lot of the data for law is public and, in the United States in particular, companies are digitising all that data. So you have legal analytics companies such as Lex Machina and others which have a database of millions of cases. They can track a case event – who was the plaintiff lawyer, who was the defence lawyer, what were the key issues, how was it settled, what were the fees for the lawyers? Then if a company has a new case, it can put in its case details and the system will tell them its chances of success or which lawyers to choose for the best chance of a result. This is empowering clients and the use of such public data provides a real opportunity for law firms.”

Some fear for the future of legal jobs. How do you see the market for talent playing out?

“If I were a young lawyer I’d be saying this world is full of opportunities for me. The most in-demand people in the future are going to be lawyers with technology expertise. So if was about to go to university, I’d be doing a combined law and technology degree. Remember, too, that clients want people with deep specialty knowledge and there will always be demand for subject matter experts. The danger for the general practitioner is that technology might take over process-oriented work; doing a will, doing a conveyance. Those practitioners will potentially be under attack.”

So should older lawyers also be enrolling in tech courses?

“Everyone needs to have a reasonably high level of technology expertise, at least as a user of the technology. If you’ve got a Baby Boomer lawyer in the firm and they’re not willing to embrace technology, that’s a major problem. You can’t have a situation where the younger lawyers want to work one way and the older lawyers want to work another way. That sows the seeds for an incredibly inefficient firm.”

You have considerable experience in the accounting sector, which some commentators say could take on the legal market through big brands such as PwC and Deloitte. Is this a threat to law firms?

“It’s the ultimate pendulum. Most of the big accounting firms tried law 20 years ago and they walked away from it and they’re coming back to it again now. The truth, though, is that it’s not as easy as it would seem. It seems logical that an accounting firm would be able to refer a whole lot of legal work to a legal division within the accounting firm. But the culture of lawyers and accountants is really different. Accountants have a fantastic business model in the sense that their clients come back to them every year, so you get this beautiful annuity income that’s just keeps flowing. Law is very different in that a lot of the work is transactional. So the way you manage a law firm and think about marketing and developing new clients is quite different to how you do it in an accounting firm. In the end that tends to create a clash and accountants and lawyers don’t always get along very well. And when you don’t get along very well, you stop referring to each other. If I’m an accountant and I’ve had a client for 15 years, do I really want to risk referring that client to the legal division of the firm which might screw them over and I might lose my client. One of the most important elements for multidisciplinary firms is that you’ve got to have absolute trust in the service offering from the other disciplines in the practice, otherwise it will fail.”

Culture and service are often raised as points of differentiation for many firms on their websites or in their marketing pitches. What are you witnessing?

“The first point is that very few firms are thinking about where they are going to position themselves and looking over the horizon at the technologies coming down the pipe and saying: What should I be doing? Should I be making an investment in this technology? Should I be changing what I am doing? The other thing is that most firms struggle with developing the right accountability culture. Performance measures are generally the same in every firm and quite often they are not aligned with their performance review system. They’re often not reviewing the things that matter and making people accountable. So there are often not any consequences if people don’t comply. There’s a huge opportunity to improve the overall performance of firms by building a stronger accountability culture.”

David Smith is an external practice advisor to law and accounting firms. He was formerly a partner at PKF (now BDO) in Sydney, where he created a significant software business which was sold to MYOB. He was the 2003 President of the Institute of Chartered Accountants in Australia.

www.smithink.com