Ropes & Gray's $38m AI Elephant

Ropes & Gray LLP have captured headlines in recent weeks for permitting AI experimentation to contribute towards 20% of first year billable hours targets

We've seen tentative, small steps in this direction over the past 5 or so years, but they've tended to be low single digits of total hours targets, and possibly diluted with other non-billable activities such as BD

R&G's 20% equates to 380 hours, out of a 1,900 annual target and is a significant step change. The targeting of first year associates is consistent with Latham & Watkins AI Academy - a two day, in person affair for 400 first year associates

Are we (finally) seeing firms take innovation seriously?

I certainly hope so - as with salary trends in London over the years, I'd anticipate firms following the US here - expect a raft of innovation hours announcements in the coming months

Innovation chiefs have been pushing for years to properly incentivise fee earners to engage in innovation, and I think most would recognise the limitations of having "innovation" performed from a siloed team in the ivory tower away from where the work actually gets done

However, there are a couple of lessons to be learned from those more modest schemes:

Firstly, inputs are not outputs, and by incentivising innovation hours in this way I would anticipate a lot of wasted effort (but still better than not doing it at all)

Secondly (and possible relatedly), at somepoint partners are going to challenge where is the ROI?

Publicly available, conservative and round numbers suggests a direct revenue hit of ~$38m*

Looks like a big number, but it's ~1% of R&G's global turnover

Rather than look at ROI as return on the innovation hours, I'd anticipate the pushback from partners being - why can't I find a first year associate to staff my matter? And what is the revenue impact of that?

The bigger elephant in the room is - what if it's successful?

Efficiency gains from AI / innovation will reduce hours charged to matters and - as a US firm, I expect R&G's revenue to be particularly sensitive to clients currently paying by the hour rather than AFAs

So the 38-million-dollar question for me is - who is managing the price and volume impact on fee income, as well as the short term utilisation and longer term team structure implications?

Because it's unlikely to be the first year associates spending 20% of their time actively cannibalising the current revenue model

*200 first year associates across the UK and US at $500 p/hour and 80% realisation

Ropes & Gray's $38m innovation elephant