IBM Watson is Going to be Looking at Your Invoices
Welcome to this month’s issue of inVOICE. These “5-minute reads,” brought to you by InvoicePrep, are short, informational executive briefs designed for law firm executives and managing partners. They provide practical tips and provoke new ideas to make your management of your Firm more effective. (For our prior newsletters please visit us here).
Last month we explored the similarities between running a law firm effectively and the movie “Moneyball”. We highlighted several of the best scenes from the movie and compared them to challenges faced by law firm executives and senior leaders. We talked about several tactical ways on how to compete with larger firms that have more resources, just as Billy Bean competed more effectively with larger baseball teams.
We spoke about the need to “get on base” as opposed to hitting home runs, the importance of not being a “dinosaur,” and how fundamentally flawed some of the industry’s current thinking is. We explored how “runs” are more important than “players” and how critical metrics and analytics are to the whole process.
We ended last month’s issue with a short recap of the “adapt or die” scene from the movie, and that is a nice segue to this month’s discussion — which is sure to raise your blood pressure.
An Article You Have to Read
I read an article last month that I recommend you read also. It is from the website ArtificalLawyer.com – a site that explores artificial intelligence (AI) and Legal Automation news. (Frankly, the fact that such a site exists should get most attorneys to sit up and take notice of changing times).
The article is “IBM Watson’s Inhouse AI App will Change the Legal World (if it catches on).” It explores the application of IBM Watson in the legal invoicing realm and it is guaranteed to raise the blood pressure of any attorney in charge of running a profitable law firm. In fact, if you suffer from low blood pressure, it should be clinically prescribed to you!
For those of you who have not heard of IBM Watson or seen the IBM Watson television commercials, let me tell you a bit about it. It is a question-answering computer system that can answer questions posed in natural language. It was developed specifically to win the popular quiz show Jeopardy, by storing more than 200 million pages of content and being able to access that content in the game. In 2011, after losing two matches, Watson won the show outright.
As a side note, and somewhat amusingly, there were also several untelevised Jeopardy matches between Watson and members of Congress. The outcome: Watson’s score across all the matches was more than all the congressional players combined!
According to IBM, what makes Watson’s “question-answering” system so powerful is the ability to use “more than 100 different techniques…to analyze natural language, identify sources, find and generate hypotheses, find and score evidence, and merge and rank hypothesis. In other words, it’s powerful! It takes a minimum of $1 million in server hardware to even run the program.
Watson’s first commercial application was in 2013, when it was deployed at Sloan Kettering in New York to help physicians make decisions in lung cancer treatments. It is now being used by the Cleveland Clinic and MD Anderson.
Now, as IBM Watson comes of age, it is being used or considered for use in a variety of fields, including weather forecasting, the pharmaceutical industry, publishing, and biotechnology. In 2017 H&R Block began using a Watson-based program. AI is going mainstream.
IBM Watson and the Legal Industry
So, you might be asking, what does IBM Watson have to do with running a law firm? Well, let me tell you.
The article I referenced talks about the public launch of Watson’s new legal AI application, which is called “Outside Counsel Insights” (OCI). Here is a quote directly from the article: “The team behind OCI says they’ve seen expenditure drop as much as 30% after [Watson] explores what a company’s inhouse team is spending on law firms.”
The article explains that Watson’s approach to legal spend was informed by its work in the medical field, where thousands of reports of reports of symptoms and treatments were searched for patterns that could provide a better patient result. The same pattern-searching across both the text of legal invoices and the structured billing and time data is what enables Watson to reveal just how inefficient law firms are being in certain areas. Moreover, according to IBM, because the system uses Natural Language Processing, Watson is able to “see very quickly” where a firm has deviated from “the spirit and letter of the [billing] guidelines.”
As the article explains, using Watson means that clients will no longer let the external law firm operate as “legal were a black box.” According to IBM, “one insurance company using OCI shaved a massive 30%-plus off their total legal spend.”
To be fair, IBM is positioning Watson as more than a bill-cutting technology. In fact, they suggest that Watson will give buyers of legal services the confidence to push “fixed fee” arrangements, eliminating once and for all process inefficiencies from the billing process. But, given that many firms struggle with their own data, and are insecure about what a fair fixed fee might be for many processes, this is equally threatening.
What Can Law Firms Conclude About Watson?
First, let me answer the question raised in the article title — yes, AI will catch on. In fact, AI will be everything in the industry before you know it. The number of other players in the AI space is a testament to the big bets being placed on artificial intelligence and how it will change not only the procurement of legal services, but the provision of them as well. In short, the playing field is getting more challenging, not less.
Second, the “Adapt or Die” scene from Moneyball could not be more appropriate here. Law firms can put their head in the sand and hope that their clients don’t adapt Watson or similar variations, but that’s not going to be a very successful strategy, and particularly for law firms with insurance company clients. AI really works best with lots of data and numbers and things to find patterns in. And who has more data and numbers and things to find patterns in than anyone else? Insurance companies.
Third, law firms are not helpless here. There are resources. There are steps firms can take today that position them better for the future. If a Watson customer is going to reduce their legal spend by 30%, firms can take steps today to increase the likelihood that the 30% is taken from competitor firms and not from them.
Think for a second about the three primary objectives Watson is focused on:
- First, it seeks to eliminate the “black box of law” concept — that can be addressed by being more transparent and accurate about the activities conducted by the firm;
- Second, it identifies when a firm deviates from the spirit and letter of the guidelines — that can be addressed by increasing billing accuracy and guideline compliance;
- Lastly, it searches for inefficiencies in how firms practice and conduct specific activities – that can be addressed internally with the right reports, metrics and analytical tools.
So, your blood pressure has spiked as you’ve learned about Watson’s entrance into the legal arena. We are not doctors, and we’re certainly not Watson (yet!), but we can help as follows:
- When we work with our law firm customers we ensure that each and every line item on an invoice is clear and well described. Inadequate descriptions and unclear activities are one of the leading causes for invoice reductions. In short, when our customers’ clients receive an invoice there is no question of the activities being conducted in a black box; each activity is clearly defined and the work performed is completely transparent.
- Similarly, our customers want to be paid more by making sure that their invoices are within the spirit and letter of their clients’ guidelines. That is a primary reason the law firm has engaged us in the first place (because their reductions are too high). Billing accuracy and guideline compliance are our specialty; the sophisticated software we use to validate the invoice against a client’s guidelines may not be as fast as Watson’s, but it is exceptionally accurate.
- Lastly, when it comes to reporting, firms face a fundamental challenge: when they try to use their time and billing software to evaluate the efficiency of their activities they are, more often than not, using obsolete data. That is, the detailed activity data in their time and billing system doesn’t normally reflect the individual invoice adjustments made by their clients. That’s a big problem. Rather, by using our reports and analytics, a firm can evaluate their own inefficiencies with more up-to-date data. That is, they can review not only what they did but what they did which the client wouldn’t pay for. And maybe that’s the best definition of inefficiency — “unpaid work.”
In summary, don’t panic. There are solutions that allow firms to prepare themselves for the coming of Watson.
What do you think about AI in the legal arena? Are you feeling the effects yet? I would love to know.
InvoicePrep enhances law firm profitability by improving e-billing quality and accuracy. When invoices are prepared properly, payment is more prompt and the number of denied charges decreases. InvoicePrep’s system is streamlined, efficient and uses a combination of cutting-edge technology and professionals with extensive legal invoice compliance and e-billing software knowledge. To learn more about InvoicePrep, please visit www.invoiceprep.com