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LegalTech: make, buy or borrow?
Gerard, could you please briefly explain, what you currently notice in the legal industry regarding the usage and implementation of Technology?
We are seeing globally two distinct legal services markets. One, where law firms and a growing number of alternative legal service providers look after the legal needs of private consumers and SMEs (small and medium sized enterprises). At the other end of the scale, major business law firms service the needs of larger organisations. It is worth noting that these business law firms increasingly compete with expanding in-house corporate legal teams.
In the first segment, the Business to Consumer (B2C) legal market, we see rapid change where LegalTech applications and the Internet redefine entire market segments and create new ones, such as automated flight delay claim processing. Law firms in this market are more likely either already embracing LegalTech and deliver their services directly and cheaply to consumers, or they are ‘on the way out’.
The second segment consists of major business law firms servicing larger companies and government. This is the B2B segment. Here we still see many firms generating very attractive returns, particularly at the top end and in specialist niche markets. LegalTech has been adopted less widely at these law firms, and there are good reasons for this. Not least among them – it is extraordinarily difficult to convince top-earning partners that the market is undergoing a fundamental shift and they need to be part of it or miss out. Surprisingly, many of these clients also fail to demand the use of technology to improve client service and provide better value. This part of the legal services market shows a classic example of the ‘innovators dilemma’. Until recently, few major business law firms have taken notice of the arrival of IT powered legal service providers, including the legal arms of some of the Big Four accounting behemoths.
In the B2B market, we see interesting geographical differences in the uptake of LegalTech. A handful of large B2B law firms in the Anglo-Saxon countries (US, UK, Australia, NZ, SA) and parts of Asia are starting to invest in or collaborate with innovative tech players. At the other end of the scale, only very few, if any, continental European firms have shown much interest in LegalTech.
Could you give us some more details on what law firms should have done or should have invested in until now?
Law firms that have stayed current with their operational systems are in a far better position to use LegalTech to serve clients and collaborate with in-house legal teams through modern platforms. A law firm that has not yet invested in these technologies is well advised to engage with its customers and build this critical infrastructure sooner rather than later.
Is it too late to climb onto the bandwagon?
It is never too late, but any law firm that has not yet invested in its own production technology will need to make up for lost time. They are well advised to involve experienced consultants to help them avoid costly mistakes. The market has evolved to include a number of specialist LegalTech advisory organisations. Many of them come from an Anglo-Saxon background. In Switzerland, Germany, the Netherlands and Scandinavia there are some well-known legal IT consultants, too. The challenge might be to convince partners in these law firms to invest in something that they might not fully understand and they may not see the full benefit of during their tenure. This is even more challenging for senior partners only a few years away from retirement.
What options does a law firm have to stay up-to-date regarding LegalTech?
In most European countries, the UK, the US and elsewhere, there are peer groups of legal technologists that meet regularly and keep each other updated on innovations in LegalTech. There are also number of publications, all of them online that regularly cover the topic. It is more a matter of sifting through too much information than too little. In addition, there are a number of high-profile conferences, where both law firms and in-house teams cover their LegalTech experience. Some of these events also include clients, which is particularly valuable.
Do you see any benefit in building, instead of borrowing or buying, own software/legal Technology?
Over the past 20 years, law firms have adopted a ‘buy rather than build’ approach for their own IT infrastructure. This makes good sense as firms can ‘stand on the shoulders of giants’, i.e. they benefit from the experience of those ahead of them. However, in the past three to five years, that wisdom has come into question as digitization offers opportunities to build relatively simple applications that have a direct impact on clients and reach the client in ways that has not been possible before. Start-ups regularly use this opportunity to enter small and – in some instances – larger segments of the market. There is nothing to stop law firms from using the same opportunities to develop their own innovative services online. This has already started, particularly in Australia where the market is very competitive, and has continued more recently also in the UK and the US. We have not yet seen much of this in Germany, Austria or Switzerland, but we expect to see changes in coming years.
What will happen to law firms that keep the use of legal technology to a minimum or even refuse to use it?
I think one has to make the distinction between leading law firms, a handful in Switzerland, and ‘the rest’. The latter employ the vast majority of lawyers. In Switzerland, there are currently around 10,000 attorneys and of those, there would be fewer than 1,000 working at leading firms. This means that some 9,000 lawyers keep the usage of legal technology to a minimum. Many of those will find it increasingly difficult to compete with their more advanced peers. Some of this relates to faster and cheaper service delivery. More important, however, is the ease with which clients can interact with technology enabled lawyers, in particular by offering online access and other innovative forms of technology usage. 24×7 is fast becoming the new normal, even for legal services.
Even leading law firms might need fewer people in the future, which may help them protect partner profits. We have seen quite a few firms where equity partner numbers are gradually decreasing. Much of the lower rank work moves to tech enabled legal service providers and only the high margin very high-end work remains with the law firms.
What are your recommendations?
I think that very active engagement with LegalTech is a good insurance policy in a market that is rapidly changing. The pressure on profit will continue for those firms that do not make good use of technology. Management is well advised to get a very firm understanding of what the specific LegalTech options are that align with their firm’s overall strategy. If they cannot do it on their own, there are organisations that can help to inform and guide this discussion.
04/2018Read more interviews