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 it. 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 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 entrants from other industries that have been digitized for years to play in the legal space.
In-house legal departments and service provider, 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, cost predictability, efficiency, and mitigated risk. The early stage of digitization was, paradoxically, achieved via labor arbitrage (LPO’s), and later with 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 need be performed 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.
Law Firms Failed to Digitize—This Has Cost Them Business and Has Eroded 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 remained flat (with decline for most large firms) while overall legal demand has increased steadily. The delta is widening. Why? Most law firms have failed to embrace—much less drive—digitization. They are ‘running the table’ with their old model rather than reimagining how they might better 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 work migrating away from firms increasing, but it is also becoming increasingly complex. Consider, for example, the $73 million long-term deal that pharmaceutical giant Johnson and Johnson recently inked with service provider Axiom. This deal is not just enormous in dollar amount but in scale and logistical complexity. It underscores the importance of technology, process, logistics, analytics, and a business model aligned with client needs. That’s how and why Axiom—not a law firm—won the business.
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. 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. 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 fueling the growth of in-house departments and legal service providers at the expense of law firms. It is also enticing the Big Four accounting firms, global consultancies, and as-yet unidentified entrants that are already 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 and the transition from legal practice (what lawyers do) to legal delivery (how, by whom, utilizing what resources—technological and human, and at what cost) they are delivered. CLOC’s definition of ‘legal operations’ speaks to a holistic approach to legal delivery 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.”
A growing number of corporate legal departments and outside service providers are skating towards the CLOC puck. 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 in their makeup.
Even some in the legal Academy are embracing digitization. Harvard Law School has collaborated with tech provider Ravel 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 its broader commitment to tackle the global access to justice crisis. Stanford Law’s CodeX brings technologists, entrepreneurs, and other disciplines together to expand the boundaries of legal technology to 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 service. The ‘different legal touch points’ offered by LegalZoom is equally applicable to more complex corporate legal matters. That’s why several legal ‘services’—especially in the regulatory and compliance areas—are now morphing into products. Bloomberg, for example recently launched such a product with the assistance of US Steel’s in-house legal team. It provides a self-help compliance guide that is especially helpful to companies not large enough to sustain robust teams. Digitization is also about leveraging knowledge across the legal ecosystem.
No review of legal digitization is complete without mention of 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.
Law is a huge industry. Law firms, the incumbent providers, are doing little to re-engineer their delivery methods and are hampered by their economic model and structure. This is frustrating clients who are increasingly looking elsewhere. This is a boon to service providers as well as an invitation to the Big Four, elite, global branded consultancies, and other digitized, global branded giants to enter the legal marketplace with both feet. How this will all shake out is a good debate topic. One thing is certain: law is becoming digitized and that means that a new customer/buyer dynamic will replace the legal guild.
This post was originally published on Forbes.com.