Law firms are like factories

Law firms essentially operate like factories, but instead of manufacturing physical products, they sell projects composed of hours of human labor.

The hours that attorneys spend are like the screws, nuts, and bolts that go into a widget.The case, patent, contract, or deal is the finished product that rolls off the production line.

Historically, when firms sell purely on an hourly basis, there's little incentive to scrutinize the components that go into a project — you simply mark up an hour (charging the client $1000, paying the attorney $300, with $700 as your margin). But this world is changing rapidly…

AI is forcing firms to think more deeply about efficiency across their entire practice. Clients are demanding it, competitors are implementing it, and staying ahead of the curve requires a much better understanding of what's happening under the hood.

The trouble is that most firms don't have a great handle on what their people are actually doing all day.

Ask a firm leader how much time their team spends on specific tasks in an M&A deal, and they won't be able to quantify it.

The issue with time data

Time data today is not particularly valuable for business intelligence, because it wasn't designed to be. When lawyers write time entries, they're not thinking about how useful they'll be outside of billing their clients.

As a result, that data is messy. Many tasks are blocked into each entry. Wording is deliberately vague and may gloss over much of the work. Certain tasks (administrative ones, for example) aren't described. There's usually no tagging or categorization.

This means that traditional time data is really only useful for billing clients.

But what if AI could capture detailed representations of every task and activity? That upstream activity data can be used for better time entries - but also for lots of other things.

With better data, firms can:

• Manage innovation effectively

• Adapt their pricing strategies

• Optimize staffing and workflows

Managing innovation effectively

Better billing data will dramatically impact innovation efforts. With high-quality time data, firms can identify the highest-leverage areas to apply AI, measure the actual impact of their innovation initiatives, and track whether attorneys are using the tools they're providing.

This prevents wasting resources on optimizing minor workflows and ensures investments deliver tangible returns.

Firms have a very limited budget for innovation, both financial resources and the time it takes to train people and implement AI across the firm. With enhanced time data, firms can focus on high-leverage activities that will actually move the needle rather than spending time and money optimizing something that's only a small component of their total workflow.

Without this visibility, firms are essentially innovating blind, unable to tell if their efforts are making an impact or if their technologies are being adopted.

Adapting pricing strategies

As AI makes legal work faster and hours get compressed, fixed fees become increasingly attractive.

But after a century of muscle memory billing by the hour, most firms lack the data or tools to price projects accurately.

Today, AI is having a negligible impact on the time it takes to perform legal tasks. But this won't be true forever.

Down the line, if 10 billable hours become 5 due to AI efficiencies, it probably makes more sense to charge a flat price, somewhere between the cost of 5 and 10 hours, splitting the difference with the client. The challenge is that firms have neither the data nor the tooling to effectively price on a flat fee basis.

AI-enhanced time data solves the first half of this problem. At present, firms who want to do data-driven pricing need to engage in extensive time entry cleanup efforts, in order to produce time data that's actually usable. And even then "garbage in, garbage out" limits the success of these efforts. If we capture cleaner, higher quality data to begin with pricing becomes much easier.

The other half of this equation is a much more advanced set of pricing tools, allowing firms to price accurately and dynamically across any practice area. So far, nothing like this exists.

Optimizing staffing and workflows

Think about what billing data really is — it's essentially a real-time record of everything happening within the firm. This creates powerful opportunities for optimization.

Understanding who's busy now versus who will be busy in the future based on typical project workflows helps optimize staffing and resource allocation.

Time data reveals who has specific experience for new projects and whether associates are developing the skills they need.

Beyond timekeeping, the underlying activity data — documents worked on, emails sent, websites visited — opens possibilities for matter management, automated status updates, and workflow tracking that all leverage off the AI time data.

Bottom line

Many firms are already recognizing that the true value of time data isn’t in the time entries themselves, but the activity data that generates them. The current approach of trying to use manual time entries for purposes beyond billing is fundamentally flawed —  that data is low quality because it relies on human input.

The right way to think about it is that the activity data being captured is what's actually useful, and one of the things you can use that data for is generating time entries. This upstream activity data — the digital breadcrumbs showing exactly what attorneys are doing — transforms time tracking from a necessary administrative evil into a strategic asset that drives decision-making across the organization.

In a world where data increasingly powers competitive advantage, firms that harness their billing information will find themselves uniquely positioned to thrive.