Midsize law firm partners, managers, and IT professionals might be forgiven for experiencing whiplash around how quickly and deeply they should be incorporating AI tools into their workflows. The reason? Their clients are sending mixed signals about how transformative they believe AI will be, whether they trust generative AI tools, and what kind of innovation they expect from their external law firms.

For midsize firms, caution on the part of clients may be contributing to ongoing hesitancy about adopting generative AI. As we’ve written previously, many firms remain skeptical of general AI tools like ChatGPT—especially in light of highly publicized errors and ethical issues involving lawyers.

The question is whether firms should be investing in proprietary systems or specialized off-the-shelf solutions that may provide them with greater control and more trustworthy results. If clients aren’t sure about artificial intelligence for themselves, however, firms may wonder whether it’s worth a significant investment in a bespoke AI system. On the other hand, if they take a wait-and-see approach, will they risk frustrating clients and giving competitors a leg up?

Law Departments and AI

In October, Law.com reported that a survey by the Association of Corporate Counsel and Everlaw, an e-discovery provider, showed only 23 percent of in-house professionals were using generative AI. The same survey found that an anemic 11 percent of in-house lawyers believe generative AI is currently producing tangible benefits for their departments. While the respondents said gains in efficiency and effectiveness are likely to occur as AI technology matures, only 11 percent of respondents were positive that AI will have a transformative impact on the way they do their work.

Last summer, Corporate Counsel wrote about eroding corporate confidence in AI that was demonstrated in data collected by Bain Research. Despite investing “vast sums into the technology,” the website said many companies are unsatisfied with the results they are seeing from AI. “And the biggest disappointment of all is in legal, where satisfaction with AI's performance declined sharply,” the site said.

The Bain data showed that “of the AI use cases that did not meet expectations, poor performance and low-quality output were the main culprits.” Some 43 percent of companies surveyed by Bain said AI could not sufficiently perform necessary tasks, and 42 percent were disappointed with the poor quality of AI outputs. Another 38 percent lacked understanding of how to utilize AI tools, and 29 percent bemoaned the lack of vendor quality.

Looking for Innovators

While the above data indicates a certain reticence about AI among law departments, in-house professionals also say they see significant potential cost savings ahead and that they are looking to their outside law firms to help drive innovation.

Consider data from Thomson Reuters published in August. As with other surveys, it shows dueling in-house perspectives about AI. Thomson reported that nine out of 10 in-house teams saw slow-to-moderate progress on adopting new technology, and just one-third were increasing their legal tech budgets. Nonetheless, three-quarters said AI has the potential to improve efficiency and that they believed simplifying workflows using new technology was a priority for their companies.

Blickstein Group and FTI Consulting, in their annual Law Department Operations Survey released in December, found that nearly two-thirds of the law department ops teams surveyed said they mostly disagree or strongly disagree that their law firms are being innovative in their approach to technology. In fact, 0 percent of respondents strongly agreed with the statement “our law firms are innovative.” At the same time, 78 percent said they were encouraging their law firms to use generative AI, a sharp increase from the previous year’s survey. And 96 percent said they “would appreciate law firms approaching us more frequently with new legal service delivery models.”

An Opportunity for Midsize Firms?

The data suggests that while corporate clients may have doubts about AI, they want their law firms acting as partners with them to help determine how the new technology could improve efficiency and cost effectiveness.

Unlike large firms, midsize and smaller firms often have the organizational flexibility to adapt their services and cost structures to the specific needs of in-house teams. This is a key advantage at a time when in-house departments face significant cost pressures. The Association of Corporate Counsel’s 2024 Chief Legal Officers Survey showed that 42 percent of CLOs faced budget cuts in the past year, and nearly 60 percent were simultaneously dealing with rising outside counsel rates. About a quarter of CLOs said these pricing increases were difficult to manage.

Midsize firms may have a unique opportunity to offer technology-infused solutions and efficient, targeted support for specific legal issues. AI technology could also allow midsize firms to develop new services—automated legal reviews like AI compliance checks—that could generate additional revenue for the firm without a larger investment in staff and other resources.

Firms can also take on the role of educator. As the recent surveys show, some corporate law departments are still struggling to understand how AI will benefit them, as well as the processes they should consider when adopting new technology and how to grapple with AI-related data security and ethical issues. Helping companies navigate these issues may strengthen client relationships and cast a midsize firm in the role of thought leader and innovator.

Do you have questions, feedback, or topics you would like The Edge to cover? Send a note to david@good2bsocial.com.