Legal Tech 4: Apperio; “Nudging them towards Efficiency”

Apperio promises Legal Spend with no surprises. A tempting promise for Legal Departments that are continuously confronted with opaque, unpredictable invoices; that are characterised as being perennially incapable of managing their budget; that lack the oversight tools other departments have had for aeons.

Stephen Wilcock, Apperio’s CTO, ascribes these issues to one principle flaw within the commercial legal realm; latency. For the multitude of reasons outlined in our last article, the legal industry still employs legacy tools across the board. These legacy tools create substantial latency in invoicing. On average, 90 days, from when a piece of legal work is done to getting an invoice. Legal Departments are typically largely clueless about the past three months of financial exposure. Apperio’s claim to fame lays within this 90-day window; by making it visible, legal departments are enabled to make business-driven decisions and course corrections. Akin to how other departments have utilised data for ages. The utilisation of data requires the retrieval of data, Stephen paraphrases it as doing the plumbing – establishing a data flow from Law Firms to Legal Departments.

Although a digital, invoicing related data flow appears superficially similar to E-billing, it and Apperio take a very different approach to the problem. E-billing is a business process that replaced legacy paper invoicing, it automates the receiving of, approval and rejection of invoices. It is not focussed primarily on establishing visibility or analysis, exactly as Apperio isn’t focussed primarily on invoice approval workflows. Of course, over time, E-billing can accumulate enough data to enable some analysis. Still, in contrast to Apperio, it has no immediate access to historical data or more importantly, those most recent 90 days, which often contain the most crucial data.

Beyond putting the plumbing into place, Apperio provides essential trend analysis, threshold and alerting functionalities and a bird’s eye visibility of financial exposure, in aggregate delivering the promised no surprises. Although the surface level Data Science behind this is currently rudimentary, this is only the tip of the iceberg. The vast majority of technological work is related to the aforementioned plumbing. Due to the legacy on-prem technology employed by law firms “a lot of it is nuts and bolts mechanics” as Stephen put it. Retrieving the data from the on-prem databases, cleaning it, normalising it and pruning it before any analytical data science can take place.

Ergo, to capacitate analytical data science, Apperio’s goal is to establish the vital plumbing across the entire legal industry. If Apperio gains a new customer, all Law Firms that the Legal Department employ are integrated into Apperio’s infrastructure. Data is retrieved from their on-premise systems and sent to Apperio’s cloud-based platform. The plumbing for these Law firms is now in place. Established plumbing brings with it two benefits. In the long run, once a critical mass of data is reached Apperio can do more exciting data science, but more importantly once another customer that employs the same Law firm signs with Apperio the plumbing connections can be reused. This differentiates Apperio from other analysis tools, Stephen calls it “Time for Value” – Apperio can give Legal Departments access to analysis and oversight tools within an exceptionally short Timeframe, with the end-to-end process taking only a few weeks.

Now, although it’s evident that legal departments stand to gain from using Apperio the question remains; how does Apperio interact with the other player in the commercial legal realm, the Law Firms. E-billing is adversarial in nature. Law firms pay to submit their invoices, to then have businesses – which don’t have effective exposure oversight – use it to reject them. Apperio is adamant about enabling legal departments to build a different type of relationship with their Law Firms. In doing so, they can encourage an effective symbiotic relationship between Legal Departments and Law Firms.

Here Stephen draws parallels to Supply Chain management. Businesses have a critical dependency on their suppliers; unsuccessful suppliers threaten business. The zero-sum mindset “my suppliers’ loss is my gain”; beating down prices to increase margins can become counterproductive when taken to extremes. Supply Chain management changed the mindset in manufacturing. Instead of pushing solely for lower prices and larger margins, which eventually have adverse effects on the suppliers, customers discovered the benefits of demanding reliability, accountability and transparency as part of improved contracts, which ensure a steady supply was put into the focus. The same values are essential for the relationship between Law Firms and Legal Departments, and transparency is an eminently reasonable request given the high fees law firms command.

There is a delicate balance to be struck, respective of the context of the complex relationship between Law Firm and Legal Department. Apperio is not a tool to turn over every nickel. As in manufacturing, the Law Firms loss is not the Legal Departments gain. If Legal departments drive down costs too much, this will be mirrored in the service they receive. Moreover, an aggressive stance is likely to discourage Law Firms from providing their data at all, and in itself be quite absurd. As Stephen put it; “If you are handling a multi-billion dollar merger then you’re unlikely to save any material sum by rejecting photocopying fees in the legal invoices, but you might save hundreds of thousands by spotting the need for a small course correction at a crucial stage of the matter. Additionally, many businesses do not prioritise lower costs in large transactions. It’s about maximum risk reduction for the transaction. It’s the IBM factor - they are willing to pay a premium for a prestigious Law Firm that promises peace of mind. We augment that risk reduction by also providing transparency.”

But on the other hand, taking all costs at face value is no solution either. Being an undiligent customer can encourage bad behaviour. The hourly billing model by which most Law Firms operate creates a moral hazard. Being inefficient enables Law Firms to bill more hours, quick and efficient work mean less billable hours and in turn, less profit. Not to say that this is the norm in the Legal industry, but the incentive does exist and can be perpetuated by legal departments that take all invoices at face value.

So how does Apperio strike a balance between an adversarial stance and negligence? When explaining it to customers, Stephen puts it as follows: “Put a tool in place that allows you to build a closer, transparent relationship that encourages good behaviour, doesn’t try to nickel and dime Law Firms on everything, but encourages them to focus on the bigger levers of reducing waste, staffing matters efficiently which improves outcomes for both parties ”. Transparency in and off itself nudges Law firms towards greater efficiency and deters bad behaviour. This is one of the most promising facets of Apperio: Nudging them towards efficiency with transparency alone.

How much initial “nudging” is necessary to get Law Firms to integrate with Apperio varies. Although no Law Firm has outright refused using Apperio, Stephen describes it as a spectrum. At one extreme are conservative law firms, they initially dig in their heals, under the misapprehension that Apperio is akin to an ebilling tool trying to beat down their prices. At the other extreme are progressive firms that immediately ‘get it’ and recognise Apperio as an opportunity to differentiate themselves on service in a largely commoditised market. After all, Legal departments will want to work with transparent Law Firms. The most common reaction is a mixture of the two; cautious acceptance. But as more and more Law Firms are moving towards the progressive camp, Apperio is making plans to start actively partnering with some of the more innovative firms that are keen to use the platform to collaborate proactively with clients.

A typical legal department will work with somewhere between five and ten law firms. It will approach them in the aforementioned manner, introducing Apperio who will then work with the firms to install the “plumbing”, data flow from the firm out to Apperio. Due to how the 21 billion pounds of legal spend in the UK is skewed towards the 100 largest law firms, Apperio’s reach grows rapidly with a steep initial increase before it begins to levels off as you approach saturation of law firm spend in a region and deal with smaller firms in longer tail. In consequence Apperio already almost saturated access to the UK market with an impressive 80+% of that £21bn annual legal spend. Currently Apperio is in the process of climbing the same curve in the US.

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These Law firms Apperio works with record billions of legal fees that sit on Apperio’s encrypted cloud platform. In sticking with their cooperative nature, they are meticulous about how they handle this data. Analysis is only ever done in the context of any one business-firm relationship – hence legal data isn’t leaked between customers, and Apperio offers no price comparison functionalities between businesses.

This ensures that Law firms are open to working with Apperio and sets the stage for Apperio’s coverage goal. Coverage to the extent that the essential plumbing is in place, so that new customers can stand on the shoulders of the work already done. In doing so – as Apperio integrates with more and more Law Firms, equips more and more Legal departments for legal spend with no surprises – it continues to nudge the legal industry towards greater efficiency through transparency.

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Title Image: Photo by Markus Spiske on Unsplash

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