The term „Legal Tech“ was widely unknown in Europe two years ago. This has changed significantly due to wave of Legal Tech related articles, conferences, blog and communities. By now, most lawyers and law firms will probably have heard of Legal Tech, and have started to realize that the legal industry is most likely not immune to digitalization and significant other changes in the next five to ten years. Indeed, there is little doubt that digital tools and technologies will profoundly affect and change the way business is being conducted in the legal industry.
This realization normally leads to next questions: How can we deploy Legal Tech? Which tools should we implement? What are the best tools on the market?
I would, however, suggest that these questions are too short-sighted. Digitalization is not primarily about the question which tools to use, but a strategic framework on how to generate new business models and products through the use of data and technology.
In this article, I will point out what it means to become „Legal Tech ready“ and which steps lawyers and law firms should follow to rethink their businesses in the era of digitalization.
This article will take a look at what digital business transformation or digitalization means and outline the journey that organizations must undertake to avoid digital disruption, to realize the benefits of digitalization, and to maximize value by using digital technologies and new business models. In short, this article aims to hash out a conceptual framework on how to become „Legal Tech ready“.
Obviously, this article cannot cover all aspects of this change or transformation process; not even 10% of it. There is no easy manual, no one fits it all solution. To move a (legal) business from manual to digital is certainly not an easy task. It is not an endeavour achieved overnight. To the contrary, a digital transformation is a long, challenging process that requires, first of all, the willingness to change and then, secondly, to experiment and take action.
First step: It’s not about tools, it’s about (change) process
According to Gartner’s IT Glossar digitalization can be defined as „the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.“ Digitalization is fundamentally about change, namely organizational change. Digitalization is not primarily about the use of software, but rather the organizational change related to people, processes, strategies, structures, and competitive dynamics.
The study on „Digital Business Transformation“ gives a striking example: „The importance of organizational change is well illustrated by Kodak’s fall from its position of market dominance, and its ultimate demise. It cannot be claimed that Kodak was not innovative. The world’s first digital camera was develop by the company in 1975 and it made major investments in digital capabilities throughout the 1980s and 1990s. Kodak failed primarily because it was not able to make the necessary adjustments to adapt to new markets and changing customer requirements. The company was encumbered by legacy infrastructure, people, and knowledge that became increasingly obsolete, and was not willing to make tough choices early enough to adapt to changing market demands. In other words, it failed to enact sufficient organizational change.”
This example clearly shows that a clear change process is necessary to win the digitalization game. Therefore we need to understand what must be transformed and how to make the required changes.
We need to have a strategic view on things, a roadmap, before jumping to conclusion, i.e. implementing a random assortment of software and digital tools. This strategic change process needs to start with the end in mind: How could and should a current business model be changed or adapted that is build on a foundation of digital technology?
Second step: Create a vision - why is there a need to transform the current business (model)
There needs to be a clear understanding of why change is necessary. As Simon Sinek puts it: "Start with why". Digitalization can be motivated by a number of factors. The impetus for change can stem from consumers who require better, faster and cheaper products and services. The impetus can also come from new competitors in- and outside the legal industry. The motivation for change may also originate from certain technologies or tools that are deployed by (existing and new) customers. However, this source of motivation normally only depicts a lack of strategic vision. The digital transformation process should be guided by intrinsic motivational factors and not by mere external ones.
To engage in a digital transformation process there needs to be a clear vision of why a stakeholder in the legal industry wants to be digitally transformed. Curiosity about new things is certainly helpful, but not sufficient to guide the transformation process. These questions will help you sharpen your vision:
What is our vision of our services in 5, 10, 20 years?
What added value to we create for our clients?
How do we want to win pitches in the future?
How can we differentiate ourselves from competitors?
What impact does the digitalization in our industries have on the legal industry?
Third step: Understand what could and should be digitalized
Once the motivation for transformation has been clarified and underpinned with a solid vision, the next step is to understand „what“ exactly should be digitalized. This entails breaking down the vision into manageable projects and tasks. A vision itself is not executable. A „digitalization project“ is therefore the concretized subset of the overall vision.
Digitalization projects may take many forms. According to Global Center for Digital Business Transformation at least seven categories can be distinguished which could be transformed digitally. The following list comprises of the most important elements of an organizational value chain as it relates to digital transformation and establishes a clear framework for digitalization project within a law firm:
the business model (how a company makes money)
the structure (how a company is organized)
the people (who works for a company)
the processes (how a company does things)
the IT capability (how information is managed)
the offerings (what products and services a company offers)
the engagement model (how a company engages with its customers and other stakeholders)
Lasting change can be accomplished by transforming multiple categories and multiple technologies simultaneously.
In my view, law firms and lawyers should particularly look into the categories business model, processes and offerings, with an emphasis on processes. Legal services mostly consist of certain processes which are bundled into a certain product. For instance, due diligence includes, simply put, several processes from gathering data to structuring and then analyzing it.
Each process can be assessed in order to improve it - with or without technology (legal project management will become an increasingly important part in every law firm). If a law firm wants to truly transform into a digital law firm this should start with a proper assessment of the processes and its potential for digitalization. This process will be most likely burdensome as it requires to think and work in new ways and to leave well-trodden paths. This all requires a clear vision and leadership to stick to the game plan.
Through the assessment of the various (legal) processes that could be optimized through digital means it becomes clear that digital business transformation cannot be achieved by making a „big bang“ change or by employing single technology that will address all efficiencies and deficiencies. Digitalization requires a holistic approach considering the digital transformation categories above without loosing focus on the concrete project (the low hanging fruit) to transform a vision into practice.
Forth step: Create an innovative culture
The forth step to reshape a law firm is to establish an „innovation culture“. It need to be actively lived, supported by management and encouraged to permeate every level if the soil for digital transformation is to be prepared.
As Louis V. Gerstner Jr. puts it in Who Says Elephants Can’t Dance?: “I came to see, in my time at IBM, that culture isn’t just one aspect of the game—it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.”
Innovation culture is not about putting in a foosball table or sprinkling some „startup flavor“ over a law firm. Innovation culture is about setting the right beliefs, expectations, and sense of purpose. Make no mistake. It is not easy to create an innovation culture in the day-to-day business. And there’s no singular method to creating a culture of innovation. When you are cultivating innovation, you are cultivating a unique system, which means you have to be thoughtful about your approach. Whatever you do, it should align with the values of the law firm and with the firm’s goals.
Establishing a culture of innovation and making it stick also depends on understanding the „climate“ within a law firm: How will the firm react during periods of experimentation? Which structures, behaviours, goals, and people must be in place to unlock innovation and which structures, behaviours, goals, and people, if positioned improperly, would create discord?
Some tools, tactics and „building blocks“ are identified to develop an innovation culture:
Stay open: Ideas do not always come from „experts“ or the higher management. Sometimes the greatest innovations come from novices and backroom thinkers. Stay open to listen to them.
Celebrate Ideas: Innovation requires that risk-taking and creativity are not punished but rewarded. You need to establish an environment that rewards innovation. Rewards may come in many forms, and often the monetary ones are the least important. Innovative thinking should (besides handing out bonus checks) be celebrated with praise (both public and private), career opportunities, and other perks.
Embrace failure: In most companies, people are afraid of making mistakes. As a result, employees simply follow the rules and keep their heads down. This is the nail in the coffin for innovation. In fact, nearly every breakthrough innovation in history came after countless setbacks, mistakes, and so-called „failures.“ For instance, James Dyson, the inventor of the Dyson Vacuum cleaner, „failed“ at more than 5,100 prototypes before getting it just right. Embracing failure means taking risks and increasing the rate of experimentation. Some bets will pay off, some will fail.
Carve out time: Innovation needs time to develop. People tend to be so consumed with putting out fires and chasing short-term targets that most cannot even think about innovative products or business model. This can especially be true in a law firm. 3M and Google give their employees about 10% „free time“ to experiment with new ideas. The software company Atlassian encourages employees to take „FedEx Days“—paid days off to work on any problem they want. But there’s a catch: Just like FedEx, they must deliver something of value 24 hours later.
Empower innovation champions: Employees often get an early “no” from their direct supervisors and end up putting innovation out of their minds again. Therefore, it can be a very fruitful tool to install „innovation champions“ in a law firm which provide friendly spaces to test new ideas, while also providing a level of protection against managers/partners who are charged with focusing on the common business.
Give the tools to make their case: Even the best ideas are not going to get any traction if the value they bring to the organization is not made clear. This requires to give employees the tools, time and frameworks to show why those ideas are worthwhile. This could, for instance, mean to provide to employees training and resources, which they need to create business pitches that highlight the value of their ideas and which allows them to test them.
Fifth step: Take action
All this won’t help if you do not act. Actually, you want to move quickly when innovating. Moving too slowly can be the death knell of new ideas. However, it is not pure speed that matters. It is the speed that comes from being decisive and having vision, a framework and innovation culture in place. Everything is linked. But it all starts with action.
Micha-Manuel Bues is Managing Director at Leverton, a LegalTech-Company based in Berlin. From 2013 to 2016 he worked as a lawyer at Gleiss Lutz, specializing in Anti-trust and Compliance law. He studied law at the universities of Passau, Bonn and Oxford and wrote his doctoral thesis, on European Legal Issues, with Professor Stephan Hobe from the University of Cologne. He is Associate Member of St. Anne’s College, Oxford.
For many years Micha-Manuel Bues has been engaged in the theoretical and practical interfaces between law and technology. He has studied the changes which Legal Tech present to the legal market, including the opportunities, challenges and risks that arise for law firms, law departments and lawyers. He runs a blog on the subjects of Legal Tech, Legal Innovation and Legal Start-ups (www.legal-tech-blog.de) in German-speaking countries, and maintains therefore, close contact with the Start-up scenes in Europe and the USA.