Law is lagging in digital transformation

Law is lagging in digital transformation by Mark Cohen adds to Dialogue’s focus on digitalisation. Last year I featured a new book by MIT’s Peter Weill and Stephanie Woerner, What’s Your Digital Business Model?. I stressed its relevance to law firms and law departments; now Mark adds more to the why and how.

A recent survey by KPMG confirms digital transformation is a key strategic priority for CEOs. It is also time sensitive—85% of enterprise decision makers think they have a two-year timeframe to make significant inroads on their digital transformation before sustaining adverse financial impact and/or lagging the competition.

A McKinsey report reveals the upside of digital transformation– data-driven organizations are 23 times more likely to acquire customers; six times as likely to retain customers; and 19 times as likely to be profitable as a result. CEO’s, in the words of Jerry Reed, have got “a long way to go and a short time to get there.”

The Legal Industry Is Not Prepared For Digital Consumers

How prepared are corporate legal departments to support their client organizations’ digital initiatives? Not very, according to Gartner—only 19% of in-house legal teams are well positioned to support enterprise digital efforts. Law firms fare even worse; the 2018 Georgetown Report  concludes “most are still fighting the last war.” The Big Four and a handful of law-based companies—notably UnitedLex and LegalZoom(retail segment)—have crossed the digital divide and are positioned to capture greater market share. What about the vast majority of legal providers for whom digital transformation is not even on the radar screen?  How will they competently engage with and compete for digital clients/customers? Short answer: not well.

The legal industry’s overall lack of digital awareness and preparedness is a serious problem that is seldom discussed. Legal providers instead tout their “innovation,” “client-centricity,” and “cutting-edge technology. Repetition of these buzz words-no matter how frequent or strident-does nothing to advance digital readiness. Understanding what digital transformation is, its transformative effect upon businesses, and its focus on consumers is a start.

Digital Transformation Is More Than Tech—It’s About New Customer-Centric Paradigms 

Digital transformation is a holistic business paradigm shift that impacts a company’s people, activity, process, and culture. It is technology-enabled and data-driven, but those are the means-not the objective-of the process. Digital transformation involves harnessing data to create business insight that changes the operations/delivery capability of the company. This enables it to connect with consumers in different ways that include providing easier access, more choice, transparency, predictability, speed, and cost-effectiveness. By applying machine learning and artificial intelligence (AI) to large datasets, businesses can identify previously unknown correlations among data, providing them with enhanced capacity to predict outcomes, optimize delivery, mitigate risk, and tailor solutions to consumer demands and expectations. Automation enables businesses to act upon and scale these insights.

Digital transformation is much more than platforms, AI, and data. The human element is paramount at all levels. To achieve digital transformation, a business must engage in cultural change that involves collaboration, new skills, a more holistic approach to problem solving, diversity, cultural awareness, constant improvement, lifelong learning, and an agile workforce. Digital transformation also demands “soft skills” essential to complex problem solving, cultural change, and the agility required to keep pace with the ever-accelerating speed of business and pace of change . End-to-end customer experience optimization, operational flexibility, and innovation are key drivers and goals of digital transformation.  They produce new revenue sources and an expanded customer base. All this requires a cultural change within an enterprise—and its business partners. Change management—convincing people to accept, adapt, and engage in constant improvement and training in anticipation of and response to change—is perhaps the biggest hurdle in the process.

Technology enables new models and paradigms; human beings adopt or reject them. Digital transformation is enabled by technology, but its success depends upon the willingness and ability of humans to operate differently. It means taking on enterprise-wide change  to evolve an organization’s business and operating models, as well as the way its people work –integrating the front and back offices as well as enterprise silos. It also involves integrating people as well as high volumes of data to predict, influence and respond to customer behavior–all with the objective of better advancing consumer outcomes and improving the customer experience.

If CEO’s Are Focused On Digital Transformation, Why Aren’t Their Legal Providers?

There is no easy or single answer to this question. There are, however, several explanations for the legal industry’s digital diffidence: (1) lack of awareness; (2) focus on the immediate demands of the job, not the “big picture;” (3) an internal focus, not a client-centric one (i.e., what we sell, not what consumers need); (4) cultural stasis–systemic resistance to change and the new leadership, skills, roles, economics, investment, and socialization that it requires; (5) a short-term mentality; (6) no financial pain (yet); and (7) few legal buyers are demanding it. These factors are especially prevalent among law firms because of their structure, economic model, culture, and growing divergence with corporate legal departments.

The Gartner findings on in-house digital unpreparedness will likely change soon—especially among larger corporate legal departments. One reason is C-Suite pressure. A growing number of in-house teams are no longer exempt from the standard operating procedures of the enterprises they serve. Many are mandated to integrate with the business and that means, among other things, to function at the speed of business; to harness data for internal operations and customer knowledge; to be proactive, not reactive; and to provide holistic, interdisciplinary solutions, not legal recommendations. Data is replacing conjecture; customer satisfaction is paramount; and in-house teams are increasingly provider-agnostic provided that the source delivers expertly, efficiently, measurably, consistently, collaboratively, and cost-effectively.

The cultural transition to digital transformation will be easier for in-house teams than law firms, because corporate teams “know” the client better—its culture, politics, leadership, risk tolerance, business, and challenges. Many corporate counsel already have dual roles — guardians and business partners. Evolved in-house lawyers operate as business partners with law degrees; they have transitioned from the traditional—and narrower—mindset of most lawyers and go well beyond dispensing legal advice. They do not see the world as “lawyers and ‘non-lawyers'” and have a different mindset about non-licensed legal professionals.  In-house department status is not derived from business origination but by expertise, experience, delivery capability, and value to the consumer. They are also less proprietary about their work—sourcing it to a more expert, efficient, cost-effective provider that advances client/customer outcome is a win, not—as firms often view it—lost revenue.

Digital transformation will also be an easier climb for law companies than firms. Law companies have corporate structures and economic models more closely aligned with business than traditional law firms. They have responded to a market void caused by firms’ laggard adoption of  technology, process, “right-sourcing” of tasks, and value-driven, client-centric delivery. This explains their revenue growth, expanded breadth of services/products, and infusion of institutional capital. Law companies have a DNA that is well-suited to the digital age.

DXC’s in-house legal team and UnitedLex recently pulled off the legal industry’s first “post-digital realignment.” Bill Deckelman, DXC’s General counsel, is a staunch advocate of legal digitalization, and his in-house team was an early adopter DXC’s enterprise digital transformation. A legal department in the vanguard of such change is rare, but that was just the beginning.  Deckelman’s blockbuster managed services agreement with UnitedLex, the largest such agreement in legal history underscores the fluidity of the digital marketplace. Deckelman and UnitedLex CEO Dan Reed agreed to transition/rebadge hundreds of DXC’s legal team employees to UnitedLex, leveraging UnitedLex’s expertise, depth, global delivery capability, financial backing, and technology  — notably its customer lifecycle platform (CLM). Deckelman says the move “reduced our internal contracting costs by over 35% in the first year and also increased speed to final contract.” He sees other benefits resulting from the implementation of the company’s Digital Transformation Plan, including “training ‘digitally-minded’ professionals that produce higher quality work product, increased speed-to-market, even lower cost to deliver, and data and metrics-driven management capabilities.”

Deckelman’s alignment with Reed and UnitedLex illuminates law’s evolution in several ways: (1) the ascendancy of law companies; (2) a collaborative, provider-agnostic, customer-centric approach to optimizing return derived from legal services ; (3) the fluidity of providers in the digital age; and (4) the impact collaboration between digital collaborators can have for the ultimate consumer as well as the providers themselves and its divergence  from law’s traditional law firm as sole source model.

Conclusion 

The legal industry should put digital transformation on the front burner if for no other reason than that’s what’s cooking with legal consumers. McKinsey’s eye-popping findings on the impact for those that “go digital” are compelling. So too are the results of the DXC-UnitedLex deal and others that will follow. Still, many in the legal industry—especially partners that have enjoyed an especially prosperous 2018–will think, “Why bother with digital transformation—I’m doing just fine.” Duly noted, but this year’s bounty does not presage future success as it once did,

Business is going digital. That’s an opportunity for legal providers with enlightened leadership, expertise, resources, delivery capability, agility, scale, capital, cultural flexibility, willingness to collaborate, and customer-centricity. For others, it might be the end of the legal world as they knew it.

Author

Mark Cohen is a lawyer, law professor, legal innovator and strategist, and founder of Legal Mosaic. Mark says of himself “I write about changes in the global legal marketplace”.

Law is lagging in digital transformation was first published by Mark on Forbes on December 20, 2018 as Law Is Lagging Digital Transformation – Why It Matters.