The efficiency conversation law firms can no longer defer – Modular Services
The efficiency conversation law firms can no longer defer.
AI was supposed to make legal services cheaper. It has not, yet. Clients are losing patience, leverage ratios are tightening, and the overhead structure that partnerships have carried for decades is finally being asked to justify itself. Modular’s ROCKET framework is where that conversation starts.
By Ciprian Şaramet, Managing Director, Modular Services
In early February, Anthropic released a legal productivity plugin for Claude Cowork, automating contract review, NDA triage, compliance workflows, and templated responses. Thomson Reuters lost 16% of its value in a single session. RELX, owner of LexisNexis, fell 14%. Wolters Kluwer dropped 13%.
The plugin itself was, by most technical assessments, modest. What it represented was something the market had been waiting to price in: the possibility that in-house legal teams might start doing routine legal work themselves, at near-zero marginal cost, without buying anything from anyone.
That possibility has been latent for some time. What has changed is the context surrounding it.
Law firms have spent three years investing in AI while the billing model stayed intact.
Clients, watching their legal spend hold steady while being told their advisers are still implementing AI, reached their own conclusions. The hourly billing model has always rewarded time spent over efficiency gained, and firms have had little incentive to disturb it. But utilisation rates are now falling, and the AI investment that was supposed to introduce efficiencies in legal service delivery hasn’t managed to offset the decline. Where firms choose to look first will determine how quickly they can adapt to the increasing pressures on their P&L forecasts.
The cost structure problem law firms do not talk about
The typical law firm spends between 45 and 50% of revenue on overhead. By the profession’s own financial standards, a healthy firm should carry closer to one third.[1] That gap is only partially explained by the prime office locations or investment in tech and infrastructure. It is driven, in large part, by the growth of sanctions regimes as well as increasing regulatory and compliance obligations over the past decade which drove an organic growth of business services functions. Those functions were rarely re-evaluated for efficiency or accountability. They simply accumulated over time.
45–50% of law firm revenue consumed by overhead, against the profession’s own one-third benchmark
The situation is not improving. Overhead costs at UK and US firms rose approximately 5% in 2025.[2] Legal technology and knowledge management spending rose 11 to 12% year-on-year,[3] but that investment has not reduced the overhead ratio. It has increased it.
Firms are not just spending more on platforms. They are hiring more people to implement them. Law firm headcount grew by nearly 3% in 2025, the third consecutive year of strong growth.[4] AI-specialist legal job postings rose 182% year-on-year in Q4 2025 alone.[5] Support staff costs rose 6%. Overhead per lawyer climbed 4.3%. And a 2025 Association of Corporate Counsel survey found that 59% of corporate clients had seen no clear savings from outside counsel using AI.[6]
The investment is additive rather than transformative. The operational processes underneath have not changed.
The convergence of these pressures, client impatience, competitive AI tooling, and capital with operational expectations, is forcing efficiency conversations that many firms have been deferring. Where they choose to look first will determine how much of that pressure they absorb and how much they can redirect.
The efficiency gap most firms have not looked at
The instinct in legal, when efficiency comes up, is to reach for technology. A new platform. An AI tool for the associates. A document automation solution for the finance team. Technology is visible, it has a vendor behind it, and it generates a narrative that can be taken to the partnership. What it rarely does, deployed in isolation, is resolve the underlying problem.
The efficiency gap in most law firms is not primarily in how fee earners do legal work. It is in the operational infrastructure surrounding that work: procurement managed without category discipline and a consolidated view on addressable spend, finance functions built on manual processes, IT support consuming internal management attention far beyond its strategic value, HR functions disconnected from matter profitability. These are not glamorous problems. They do not feature in legal technology conference agendas. But they are, in aggregate, where significant cost is buried.
The difficulty is that this layer of the firm has rarely been examined with any rigour. Partnership structures create accountability gaps that corporate governance frameworks do not have. Cost centre thinking, accumulated over decades, resists investment framing. And there is a genuine risk in changing things that mostly work: a procurement process disrupted mid-tender, an IT transition that degrades service quality during a high-stakes client matter, a finance function reorganised without adequate transition planning.
But the mindset is shifting. Firms that have not examined their operational cost base are increasingly exposed not to an abstract future risk, but to present competitive pressure from firms that have.
Doing it well: the case for diagnosis before decisions
The firms that have made genuine progress on operational efficiency share a common discipline. They understood the current state before they changed anything. That sounds obvious. In practice, it is rarer than it should be.
A credible assessment of any law firm’s business services function needs to work across six dimensions.
We call this the ROCKET assessment.
Risk: where does current delivery create operational, regulatory, or reputational exposure? Organisation: how is the function structured, and does that structure reflect genuine accountability or simply how things evolved? Cost: what does the function actually cost on a fully loaded basis, including the management time it consumes and the savings it routinely misses? Most firms, asked this question with precision, find the answer is considerably larger than expected.
Then: KPIs. Is performance measured at all, and if so, against what benchmark? Efficiency: where are the process gaps, the manual workarounds, the workflows that have persisted for a decade because nobody has had the time or mandate to redesign them? And finally, technology. Not as the starting point, but as the last question. What tools exist or could be deployed, and is the operational foundation stable enough for technology to add value rather than accelerate existing dysfunction?
Working through these questions systematically, before any structural or procurement decision is made, consistently produces a different conversation than the one firms typically have when they decide to improve operations. In the firms we have worked with across the legal sector, this diagnostic phase routinely surfaces two things: opportunities that were not visible, and risks that nobody had formally acknowledged. Procurement savings left on the table. The management time quietly consumed by functions where ownership is unclear, processes don’t reflect how work actually gets done, or organisational blockers have simply been worked around rather than resolved. IT functions spending the majority of their capacity on problems that should have been resolved years ago, leaving no bandwidth for the work that actually requires IT leadership.
Some law firms bring in consultants to run versions of the same diagnostic, assessing the operational layer as a standalone proposition, asking what it actually costs and what it should cost under professional management. This is work we embed into every ROCKET assessment we undertake. We map functions across cost, governance, performance measurement, and technology readiness, as a consulting exercise and as the foundation for what follows, where we also deliver business support services. The aim for us at Modular is not to operate as a vendor managing a service line in isolation. It is to help our clients build mature business services organisations: governed, cross-functional, performance-accountable, and genuinely integrated into the firm.
The firms that will cope
There is still genuine uncertainty about how fast AI will reshape the economics of legal work. The Anthropic plugin that rattled markets in February is, on close examination, at a considerable distance from replacing the legal judgment that justifies premium fees today. Routine document review, NDA triage, templated compliance responses are automatable, and they will be. Complex advisory work, cross-border transactions, contested litigation are not yet, and arguably not for a long time.
But the pressure AI is generating does not require AGI to land. It requires only that clients believe they have options. And increasingly, they think they do.
The firms that will cope are not necessarily the ones with the most sophisticated AI strategy. They are the ones willing to take a long, honest look at how their business services actually function. What they cost on a fully loaded basis. How much management time is quietly absorbed by underperforming suppliers. Where the governance gaps are. How much of the overhead ratio is genuinely structural versus simply the accumulated result of decisions nobody has revisited in a decade.
That examination is uncomfortable, and in a partnership culture it is rarely politically straightforward. But it is also, increasingly, something firms do not have to approach alone.
