The legal industry is becoming digitized. What does that mean? Digitization is a common term lacking a uniform definition. It is often used to describe a suite of IT assets-- networks servers, software, the cloud, and other tools. IT is an essential element, certainly, but digitization is much more than the transition from paper to electronic communication. It is the process—enhanced by technology—of reimagining the delivery of goods and services and creating new business models and structures from which to manage them. Digitization is the interplay of tools, tasks, resources—human and technological—process, and models designed to better serve customers and
to provide 24/7/365 connectivity between provider and client.
Then: Labor Intensive Delivery; Now: Tech Leveraged Labor
Law firms, long the incumbent provider in the self-regulated legal industry, flourished when legal delivery involved selling only legal expertise. Law firms had pretty much cornered the market on elite legal talent, and they also had almost exclusive access to legal sources now readily accessible to anyone with a computer. Fast forward to the present: law firms are operating in a marketplace where legal expertise, technology, and process are integral delivery components. Law firms have generally lagged in the effective deployment of IT tools – both internally and externally. They have not deployed technology to reduce cost, streamline efficiency, and more closely align/collaborate with clients. They have been resolute in their ‘brute force,’ labor/cost intensive approach to tasks. That approach served their economic model well—in the short term. The client dissatisfaction it fueled has resulted in work migrating in-house or to service providers. And it has opened the door for new providers as well as entrants from other knowledge-based service lines and verticals that have been digitized for years.
In-house legal departments and service providers have begun to re-engineer the law firm delivery method. They have identified ‘legal’ tasks—contract and document review, research, etc.— that can be addressed differently than the labor-intensive ‘brute force’ method of law firms. This involves a mix of legal expertise, technology, and process. The result: compressed delivery time and cost, budget predictability, efficiency, and mitigated risk. The early stage of digitization was, paradoxically, achieved via labor arbitrage (LPO’s), and later by a combination of labor arbitrage and technology (legal operations teams and service providers). This early stage of legal digitization convinced clients that not all legal functions must be delivered by law firms. That, in turn, spawned a heightened interest in technology, process and project management, new models, new providers, new billing paradigms, knowledge management, inter-disciplinary approaches to business challenges that involve legal issues (not ‘legal problems), new skills required of legal providers, and an openness to change. The pace of that change is accelerating and legal delivery is undergoing a radical makeover.
Law Firms Have Failed to Digitize—This Has Cost Them Business and Eroded Their Market Share
Law firms have ceded billions of dollars of ‘legal’ work to providers—and that includes corporate legal departments—that are digitizing. A legion of legal surveys including Georgetown and CitiBank reveal that demand for law firm services has flattened (and recently declined) while overall legal demand has increased steadily. The delta is widening. Why? Most law firms have failed to embrace—much less implement—digitization. They are ‘running the table’ with their old model rather than reimagining how to deliver differentiated services more effectively. They are seemingly tone deaf to client gripes about cost, inefficiency, poor customer experience, and a failure to understand their business. Not only is the volume of migrated work from firms increasing, but it is also becoming increasingly complex. Consider, for example, the five- year managed contract services deal that pharmaceutical giant Johnson and Johnson recently inked with service provider Axiom to support its global procurement contracting function. Axiom will help J&J to standardize its vast trove of procurement agreements across a dozen contract types and 10 languages. Axiom is not a law firm--it is a legal service provider. This huge, global project underscores the oft-time false distinction between the two.
The features of digitized legal providers are becoming well- defined-- they are customer centric, tech and process enabled, agile, diverse, accessible to clients in real-time, intelligent, globally branded, scalable, multi-disciplinary, and enterprise focused. Few—if any—law firms fit this description. The Big Four accounting firms, Accenture, IBM, and others certainly do. Consider that General Electric recently moved its global in-house tax department to PriceWaterhouse Coopers. Law firms should take notice. This is the next phase of legal digitization: managed legal services.
Law Lags Other Industries in Its Digitization, But the Pace is Accelerating
The pace of digitization in the legal vertical has been deliberate compared to other knowledge-based verticals like financial services and technology. That’s due in no small part to law’s focus on precedent- not innovation, self-regulation and lawyer hubris. But clients are under pressure to do more with less, and they are imposing many of the business standards they operate under on their legal providers—both in-house and outsourced. Client demand for more efficient, cost-effective, accessible, routinized, and metric-based legal services is no doubt enticing the Big Four accounting firms, global consultancies, and as-yet unidentified entrants well down the digitization road to jump into the legal marketplace with both feet. To paraphrase T.S. Eliot, law firms should no longer be at ease in the old dispensation.
Legal digitization is evident throughout the legal ecosystem. Organizations like the Corporate Legal Operations Consortium (CLOC) and the Association of Corporate Counsel’s (ACC) Legal Operations are shining a spotlight on legal operations. By doing so, this underscores the transition from legal practice (what lawyers do) to legal delivery (how, by whom, utilizing what resources, and at what cost) they are delivered. CLOC’s definition of ‘legal operations’ speaks to a holistic approach that is in a very different zip code than the traditional law firm paradigm. It is a blueprint for the way digitized providers will deliver business solutions that involve legal issues.“Legal operations is a multi-disciplinary function that optimizes legal services delivery to a business or government entity by focusing on twelve core competencies: Strategic Planning, Financial Management, Vendor Management, Data Analytics, Technology Support, Legal Support Models, Knowledge Management, Professional Development and Team Building, Communications, Global Data Governance/ Records Management, Litigation Support, and Cross-Functional Alignment.” How many of those twelve competency boxes can traditional law firms check?
A growing number of corporate legal departments and outside service providers are skating towards the CLOC puck with many more wanting to learn more about the paradigm shift. CLOC recently held its second annual conference in Las Vegas that drew a thousand attendees from around the world. ‘Chief Legal Operations’ officers are becoming common fixtures in large corporate legal departments and play critical roles within and outside their departments. Legal service providers have their own version of legal ops leaders and teams, ensuring that their delivery aligns with client needs and expectations. The business of law is evolving rapidly, and the DNA of new providers—and some re-engineered incumbent survivors—will have legal operations as an integral part of their genetic makeup.
Even some stalwarts of the legal Academy are embracing digitization. Harvard Law has collaborated with Ravel Law, a commercial research and legal analytics company to digitize more than 40 million pages from its venerated library, making those materials free to the public for ten years. This is part of Harvard's "Free the law" commitment to tackle the global access to justice crisis. Stanford Law’s CodeX brings technologists, entrepreneurs, and thought leaders from other disciplines together to expand the boundaries of legal technology and promote higher levels of efficiency, transparency, and access to justice.
Digitization is also occurring in the ‘retail’ end of the legal industry. LegalZoom, Rocket Lawyer, and other providers offer tech-enabled easily accessible, user-friendly low cost access to legal documents (simple wills, NDA’s, contracts, etc.). When needed and for a modest subscription fee, customers have online access to a panel of legal counsel to answer questions. LegalZoom also arranges discounted rates with a vetted team of lawyers for customers requiring an additional level of lawyer participation. The ‘different levels of legal touch’ offered by LegalZoom is a paradigm applicable to more complex corporate legal matters. That’s why several legal services—especially in the regulatory and compliance areas, among others—are morphing into products. Bloomberg Law, for example, recently launched a compliance product with the assistance of US Steel’s in-house legal team. It provides a self-help compliance guide that is especially useful to companies not large enough to support in-house teams. This is an example--one of many--of technology and a 'good corporate citizen' participant leveraging knowledge for a broader good.
No review of legal digitization would be complete without mention of artificial intelligence and the growing crowd of ‘robot lawyers’ popping up in the marketplace. They can research, review documents, and perform other ‘rote’ functions with remarkable speed, accuracy, and cost-effectiveness. No doubt they will be trained—by lawyers, technologists, and behaviorists among others—to perform more sophisticated tasks. But robots are not what digitization is about—at best they will have a recurring role in an ensemble cast that will recast the legal delivery play. The real driver of digitalization is those that reimagine, then implement, better way of delivery legal services and products.
Law is a huge industry. Law firms are doing little to re-engineer their delivery methods. There are many reasons for this but it generally comes down to their economic model and structure--and short-sightedness propelled by greed. This is frustrating clients, and they are embracing other options. Law firm stasis--with a handful of exceptions-- is a boon to service providers as well as an invitation to the Big Four, elite consultancies, and other digitized, global branded giants to enter the legal marketplace with both feet. How this will all shake out is anyone's guess. One thing is certain: law is becoming digitized and that means a new customer/buyer dynamic will replace the legal guild.