Professional services firms—including law firms and economic consultancies—are understandably asking how generative AI will change the work people do. If AI can review documents, analyze data, and help prepare first drafts in a fraction of the time, will firms need fewer professionals?
As an economist, I would start with a slightly different question: Is AI a substitute for human effort, a complement to it, or both?
That question taps into the broader question, which is whether AI will change how we work and what we do.
Clearly, AI can substitute for some human effort. If a task that once required hours of a researcher’s time can now be performed largely by AI, the technology has reduced the labor needed to complete the task.
But the determination that firms need fewer people rests on an important assumption: that the amount of work stays the same. It also leaves out a strategic and human question: How will firms use the productivity gain and the additional capacity AI creates to generate more or new value?
Greater Productivity Does Not Necessarily Mean Less Work
Take yourself back to 1975, a time well before Microsoft Excel and even a few of its well-known predecessors like VisiCalc. Imagine the advisor who was tasked with evaluating a firm’s financials under different scenarios and assumptions—different interest rates, different levels of borrowing, and different growth assumptions. That would have taken days or longer, especially if the results needed to be checked, recalculated, or tweaked again. Suppose this very experienced person could do a full analysis for only one or two clients per week.
Now introduce the spreadsheet, a technology that allows the advisor to change an assumption and do any recalculation in a minute. What now? One possible outcome is that the advisor suddenly has a lot of free time since the work for her two clients can be done in three days, not five.
But why assume the advisor will continue to serve only two clients per week? With the spreadsheet, the advisor’s ability to do more has multiplied. Instead of testing five scenarios, she can now test 10. Instead of serving two clients per week, she can now serve three. Or she can serve three clients per week and spend more time marketing her services.
We can view the productivity gain of the computer spreadsheet in terms of speed (how long it takes to do an analysis, which may be really important for a client who needs to make an immediate decision) or quality (how many more scenarios you can analyze and test to give the client a better and more robust view of the future). By itself, however, a productivity improvement does not tell us whether the advisor will be able to increase the number of clients she can serve, the range of questions she can ask, and the types of services she can now offer to clients. For that, we also must consider the market demand for the services the advisor can provide.
Expanding the Market Versus Expanding Your Market Share
For professional services firms, it is important to think about market demand for several reasons.
In some markets, total market demand may be small, and even if an advisor can do more, there simply are not that many clients who need the service. If the advisor in our financial example works in a small town where she serves the employers nearby, it is possible that the invention of the spreadsheet might not necessarily create more opportunity. If this were the case, the advisor might instead see more competition or more pressure on price, as all of the other advisors in town see that the spreadsheet enables them to take on more clients.
While the scenarios above are possible, could the mighty spreadsheet expand the market the advisor can serve? For example, the advisor might have more time to meet with clients in other nearby towns. Or, because the advisor can now do certain analyses more quickly, she can charge less and, for many potential clients, services that were previously too expensive, too time-consuming, or impracticable suddenly become feasible. Or, because the spreadsheet helps the advisor do more, the advisor may now be able to help clients answer a potentially bigger set of questions.
For professional services firms, AI is a ground-breaking technology, but will it change the demand for professional services? For the firms that can anticipate and understand the questions and issues on their clients’ minds, I view AI as a technology that will increase market opportunities.
I have already seen this at NERA. For example, because AI gave us a means to scan a vast and complex body of documents and create a dataset that would have been prohibitively time-consuming without AI, what would otherwise have required a substantial investment of time and resources became feasible. But that is not the end of the story. The ending is that with those data, we were able to develop stronger conclusions and insights.
The important economic point is not simply that the analysis became less expensive. It is that the analysis became possible.
The Strategic Question
For professional services firms, some uses of AI will be about efficiency: delivering the same output with fewer resources. Others will be about helping the firm be more competitive: providing existing services faster, better, or more cost-effectively and winning a greater share of an existing market.
But the most consequential opportunities are going to be those that expand the market itself.
Where are clients currently saying “no” because a service costs too much or takes too long? What can firms now examine at a scale that previously was impractical? Which markets have relatively fixed demand, and which may grow as the economics change? What new services have become viable? And how can firms use the productivity gain and capacity AI creates to help their people become better at the work clients most value?
AI will substitute for some tasks and complement others. It may reduce the human effort required to perform some kinds of work while increasing demand for others. Those effects, however, tell us little about its ultimate economic effect on business growth and jobs.
For professional services firms, what will matter more is how they address the following economic and strategic question: What will you do with the AI gain? Will you focus on and invest in finding or creating new demand for your services or will you aim to capture the profit that the productivity gain throws off? Cost discipline will matter. But so will the choices firms make about where and how to reinvest the capacity AI creates—in their people, their services, and the problems they are able to solve. Thus, the more significant question is what businesses and their clients choose to do once high-quality work becomes faster, cheaper, or newly possible.
Reinvesting the AI Gain and Expanding Opportunity Puts People First
In the world of professional services, innovations that improve productivity also create capacity and therefore opportunity. If AI reduces the time a team spends on mechanical tasks, the question for leaders should not begin and end with, “How many fewer people do we need?” Instead, I would focus on, “How are we going to reinvest this newly found time to create more value?”
The capacity AI creates can allow professionals to spend more time with clients, improve the quality of their work, explore questions that previously would have taken too long to pursue, and develop new services. It may also change how teams are built, bringing data, technology, and interdisciplinary skills together with the judgment, communication, and subject-matter expertise on which professional services depend. Firms that take this approach are not simply reallocating people to tasks that AI doesn’t touch; they are enabling their people to do more.
The opportunity to do more is there because the best professional services firms do not simply produce knowledge or inputs for their clients. The best firms know how to ask and frame the right questions, exercise judgment when answering those questions, explain complicated ideas, and provide advice and counsel that they can substantiate and stand behind. As AI makes some inputs faster and less expensive to produce, these human capabilities are going to become even more important, not less, which is why professional services firms need to have a people-first strategy.
Thus, the larger opportunity is not simply to do the same work for less. It is to expand what professionals can do—to give clients better advice and broaden the body of information decisionmakers can confidently rely on to solve their hardest problems.
Seen this way, AI is likely to be both a substitute and a complement: a substitute for some of the effort required to produce the inputs to our work, and a complement to judgment, expertise, and relationships that turn inputs into trusted counsel. Which role matters more will depend not only on what AI can do but on what firms choose to do with the capacity it creates.
