Industry 4.0 (I4.0), the so called Fourth Industrial Revolution, is transforming the legal sector enabling faster, more flexible, and more efficient processes to deliver higher-quality services at a reduced cost. Developing and implementing I4.0 strategies is now essential in the industry to ensure law firms are well prepared for the technological future that lies ahead.
Main domains of I4.0 transformation are digital, physical and biological(1). The legal industry is exposed mostly to digital transformation, which also dominates the megatrends in the sector(2).
Sophisticated algorithms are increasingly doing the work traditionally done by paralegals, legal assistants, contract and patent lawyers. Paralegals and legal assistants are most at risk as most of their work covers areas such as legal research, legal writing, analyzing legal briefs and precedents to assist with pre-trial research, which are easily substituted by new technologies(3).
In recent years, many of the larger law firms have significantly increased their investment in third party LegalTech. Below are some examples:
Some of the bigger firms are also taking the lead on developing and investing in their own digital transformation so they are not reliant on third party suppliers.
These initiatives are typically led by an innovation hub which is part of the law firm, or a jurisdiction based or cross-industry legal collaboration platform.
Some examples of innovation hubs:
Creating a future fit organization requires a paradigm shift
In Silicon Valley, investors don’t expect their high-tech portfolio companies to be profitable(4). They prefer companies to have a strong vision for growth, a scalable business model, and that operate in ‘winner-takes-all’ markets. Ambitious portfolio companies invest their operating cash flow into their business so that they are focused on the future rather than just the fiscal year.
On the other hand, PWC’s 2018 Law Firms Survey Report demonstrates that mid and large size law firms are enjoying ~35% bottom line profit in 2018(5). However, the legal industry has a fragmented structure (across jurisdictions and as a whole) and is in a long term state of consolidation(6).
In these circumstances, there are opportunities for law firms to customize below I4.0 strategies to be future ready.
For small and mid-size law firms:
- Define and implement a corporate IT strategy and an IT operating model
- Implement foundational* technologies
- Identify collaboration strategies with global/regional/private innovation hubs and LegalTech
(*) Foundational technologies are basic technologies that organizations rely on to conduct business.
For larger law firms:
- Implement enabling and transformational* technologies
- Invest in innovation hub initiatives
- Act like a venture capitalist and invest in promising third party LegalTech
(*) Enabling technologies improve productivity, efficiency and work product and often requires change in business processes. Transformational technologies deliver demonstratable new business results.
References:
( 1)The Fourth Industrial Revolution, Claus Schwab
(2) https://blogs.thomsonreuters.com/legal-uk/2018/12/14/biggest-challenges-opportunities-2019/
(3)https://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
(4) https://techcrunch.com/2019/03/26/unicorns-arent-profitable-wall-street-doesnt-care/
(5) https://www.pwc.co.uk/industries/law-firms/pwc-law-firms-survey-report-2018-final.pdf
(6) https://fairfaxassociates.com/insights/evaluating-unanticipated-growth-opportunities/
First published by The Legal Marketing Institute, 10 July 2019
