Investment in AI: A Strategic Imperative, Not a Procurement Decision
Typically, law firms have approached AI the same way they'd make other buying decisions — "Do we want it? Is there value? Do we want something else?" Basically,historical investment decisions have been based on products, not on the process. Understandably, when they first started down the AI path, they were responding to a marketing inundation. But the response has remained part of IT procurement for too long! An AI investment decision is more complex, focuses on workflow, and carries longer-term impacts and entanglements.
The effective embracing of AI has three components:
1. Technology
2. Process (how the firm's work really flows)
3. People (roles, staffing model, career ladder)
Popular tools such as Microsoft Copilot are firmly rooted in basic “office” productivity – draft an email, summarize a document or Teams meeting. More sophisticated legally-oriented tools such as Harvey and Legora have pivoted to so-called Agentic AI – addressing both legal content and process angles simultaneously. The large Document Management System vendors (iManage and NetDocuments) are responding with their own capabilities. The marketplace has become more varied and nuanced. Microsoft, an active seller and promoter of its Copilot product, chose a different application when introducing AI to its legal department (reputed to be the largest in the world), allowing it to focus on the department's workflow rather than the product.
There are two questions that firms need to ask themselves to move beyond treating AI investment as a tool and instead as a strategy.
First, what work has well-defined, repeatable steps versus judgment-heavy, one-off work that resists automation?
Secondly, what work do clients already see as volume/commodity work and is therefore already under price pressure regardless of AI? The answers to these two questions will identify where firms are under the most financial pressure and consequently where AI investments should be focussed.
Pricing strategy around these identified areas will be critical, as clients are already marking this work down, with or without the firm's buy-in. Documented support for this premise includes:
· 61% of in-house counsel plan to push for AI-linked pricing changes (ACC/Everlaw 2025); DHL GC Mark Smolik: "We are done waiting."
· 80% of corporate legal execs expect outside counsel bills to drop because of AI — but only 9% of firm leaders say they've heard that expectation directly (LexisNexis 2024).
· Georgetown/Thomson Reuters 2025: hourly billing is "not viable in the long term," even though about 90% of fee revenue still runs through it.
· Tension point: worked rates grew 7.3% in the latest cycle — more than double inflation (Thomson Reuters Institute 2026) — even as tools take over the routine work that used to justify those hours.
Simply put, anything that impacts a law firm's pricing/revenue must be addressed as a strategic issue, not a procurement issue.
But there is an inherent obstacle to dealing with it strategically. As various industry experts have pointed out, the partnership structure prevents many firms from making the transition to strategy-driven AI. In a partnership, partners split whatever's left over every year — there's no built-in tax-effective way to hold some of it back for a bet that may only pay off three or four years out. Consensus decision-making runs counter to making a single, high-risk spending decision.
Although the UK and Australia have embraced outside capital to enable firms to make exactly this kind of investment, it is not without its challenges. While outside capital solves the funding problem, it also creates its own governance headaches.
While bar societies across Canada have effectively capped law firm ownership at 100% lawyer-owned, the US is experimenting in Arizona, Utah, and D.C. with non-lawyer ownership via the Managed Service Organization (MSO) to address the longer-term strategic investments law firms need to make.
Despite perceived foot-dragging (what is and isn't the practice of law), firms there can explore an alternative to combat the partnership model. The MSO is a separate entity (often an LLC) where private equity invests. That entity owns and operates the practice's non-legal infrastructure and technology systems, office leases, marketing and advertising, billing and collections, finance and accounting, human resources, and administrative staff. It also allows for strategic investment in AI in a tax-effective manner (by not withholding dollars from partners who have already paid income tax on them). A long-term Management Service Agreement ("MSA"), often with renewal provisions, obligates the law firm to pay the MSO a management fee in exchange for that suite of services.
There are two takeaways firms must address, or they risk missing the workflow advantage AI can deliver to their firm. First, do they have an organizational and governance structure that enables them to invest in a strategy with a three- to five-year payback?
Second, are they prepared to fund AI-enabled workflows and roles that actually protect and grow profitability. That’s a governance and pricing question, not a technology one.
Andrew Terrett, Terrett Consulting
Andrew Terrett is based in Toronto. He originally qualified as a solicitor in England and Wales. He has an LLM from the University of British Columbia in Machine Learning and Legal Reasoning, certifications in Project Management, Design Thinking, and Lean Six Sigma (process improvement). He has spent much of his career working with legal technologies in various software companies and law firms. His most recent role was as Head of Digital Innovation at Borden Ladner Gervais LLP (BLG).
Andrew shared that, after leaving BLG to set up his own consultancy practice, he has focused his practice on small- to midsize law firms.
He can be contacted at andrew@terrettconsulting.com, on 416 209 0729 or via social media platforms.
Andrew is speaking at this year's East Coast Legal Ops conference on September 23rd and 24th. The session titled Why AI Will Expose Every Technology Decision Your Firm Has Avoided will provide you with a practical AI maturity self-assessment. It will also address:
• Identity and access governance
• Data hygiene and information architecture
• Security policy vs. security practice
• Technology alignment
• Change readiness
Stephen Mabey
He has been advising law firms for over 16 years on a wide range of issues, including - strategic action planning, leadership, understudy (succession) planning, compensation - both Partner and Associate, organizational structures and partnership arrangements, business development, capitalization of partnerships, partnership agreements, lawyer & staff engagement, marketing, key performance indicators, competitive intelligence, finance, mergers, and practice transitions.
Applied Strategies Inc.'s website contains testimonials from clients describing the value of the services rendered https://www.appliedstrategies.ca/client-testimonials.
Steve can be reached by email – smabey@appliedstrategies.ca or phone at 902.499.3895
Stephen is speaking at this year's East Coast Legal Ops conference on September 23rd and 24th. The session titled What's Reshaping the Atlantic Canada Legal Scene explores the forces redefining how firms operate, compete, and deliver value across the region. Attendees will leave with a clear understanding of the macro trends reshaping the Atlantic legal market and practical insights into how firms can adapt their operations, talent strategies, and client service models.
