The legal sector is experiencing a real “shake up” in the way legal services are delivered. Since the crisis of 2008, large law firms across the globe have tried to begin to adapt to the needs of 21st century clients. Likewise, “solo” lawyers and small firms have seen how they are forced to learn skills pertaining to new technologies or have even experienced the need to be present in the “new business markets” to render services – such as legal marketplaces.
Conversely, other information-based sectors such as Finance have changed radically since the emergence of disruptive, digitally mature[1], and exponentially growing businesses. In the legal sector we are no strangers to the emergence of these type of businesses which, either in the business model of interdisciplinary advisory, or start-ups or Alternative Legal Service Providers (ALSPs), will change the practice of law forever.
Nowadays, traditional legal service providers hold the task of maintaining competitive efficiency in the market, and the instrument to do this is “innovation”. Viewed from a pragmatic point of view, law firms have at least three possible reasons for innovating: the emergence of new business models, the role of technology in services and changes in business activities.
New business models, new engagement activities
The paradigm of stability in the market of the traditional business model of law firms is at stake. The legal industry is no longer stable and does not have clear borders with other digital sectors. Platforms and businesses based on mature digitization systems can enter the market to offer disruptive legal services. Hence, we must highlight the fact that customer habits are changing, they demand more efficient, adapted, and lower-cost information services.
Greater competitiveness
The use of technology by new competitors is focused on generating and capturing value for the customer. Thus, traditional legal businesses must rethink and reorganize to make the most optimal use of technology. Such an occurrence entails incorporating resources and hiring professional profiles which can make the referred task a reality whilst giving space to test scenarios through trial and error.
New commercial activities
The commercial activity of lawyers and law firms has changed radically, today their presence in social media is essential. This is not only to improve reputation of lawyers within the organization, but it also provides new channels in which to connect with prospective clients. This has profound implications in how managers in those organizations carry out their work – not only do they need to do day to day legal work but also prove their knowledge through articles or other online content. The creation of business through social media and other new commercial channels requires training and a culture of ‘innovation’ to take advantage of these opportunities as they arise.
In this article I am going to review concepts, types of innovation and innovation strategies that legal service providers use and can use.
In the past, law firms could be successful by maximizing the value proposition through their resources (which used to translate into more professionals in the firm) and achieving efficiency over time. Nowadays, excellence in the business model through a trial-and-error approach (exploration) is the core focus of some of the biggest tech companies in the world. These by their nature are the most advanced companies in terms of digitalization. This is the reason why traditional legal businesses must now also develop an understanding of how to ensure that today’s success (exploitation) also translates into tomorrow’s success (given the fact that competition with digitally mature businesses based on the exploration approach is there). This translates into different ways of approaching innovation: exploitation and exploration.
A concept based entirely on exploitation is the belief that the financial results of the firm today allow the same success in the future. However, this belief is not easy to sustain in the competitive and technological environment we are heading towards. For this reason, the ideal approach is to combine both perceptions and, above all, give more relevance to activities that allow exploring new ideas and ways of creating value in the long term (not only based on efficiency).
From law firms we can carry out at least three different types of innovation: in services, in the business model and in collaboration systems.
Innovation in services
This is about enhancing the existing capacities of the firm. Innovations can be made in services, processes and training. These innovations often improve the current service rendered and are focused on addressing the needs of the customer. In this type of innovation, we can infer all those initiatives related to the improvement of internal processes (automation, redesign, systematization…), infrastructure improvement (IP technology, remote work, application improvement…) and customer service (CRM implementation, adoption of collaborative platforms, information flow automation platforms, digital signature…), inter alia whose common denominator is the improvement of efficiency. It should be noted that this type of innovation has a great impact in the short term, as many law firms are already experiencing. However, this type of innovation is subject to expiration marked by technological or regulatory changes/advances.
Innovation in the business model
A type of innovation seldom explored by traditional law firms. The new capacities that we have thanks to modern technology allows us to incorporate strategies to improve the business model. Law firms willing to add new business activities through new or adapted business activities are innovating with their business model (i.e.: incorporating new services such as technology consulting, new ways of billing clients at a fixed price, Legal Process Outsourcing (LPO), alternative services or legal services companies). There are few cases throughout the globe, but we can sense that it is an upward trend and that it will probably differentiate some law firms from others in the future. However, it is a type of innovation that is a trial and error process. The firms have to be willing to test the new business model and be able to create and capture value in a better way than its competitors. It is true that this point can be quite a challenge for traditional hierarchical businesses, averse to risk, inflexible with processes, based on the status-quo and focused on internal innovation. However, it is probably worth the effort as this type of innovation is aimed at long-term survival.
Innovation in the system
This is also a type of innovation aimed at offering added value in the long term. However, this type of innovation lies in the modifications to be made by the firm to change the interdependencies in the delivery of the legal service (internal and external relationships of all those involved in it). The changes will affect the way work is organized (for example: moving from a hierarchical command system to a collaborative and role-based system, closer to that of agile software development projects) and the relationships between the different actors (new ways of interacting with technology providers, Legal Tech start-ups, hubs, or Think Thanks for the development of joint projects with start-ups or clients, and so forth). It is about enabling new connections between different groups and individuals that promote a more adaptive culture focused on the creation and capture of value.
Given that we are heading towards open innovation systems and advanced digitization business models, the best framework for this consists of participation in innovation ecosystems. This is one of the strategies that emerging companies from Silicon Valley have embraced and that can be of great value for the management of innovation on behalf of law firms. Innovation ecosystems are comprised of companies that seek to obtain innovative results, for which companies from different sectors participate and their results aim to offer innovative solutions for different markets. The idea is that there are both formal and informal networks of continuous innovation, a greater movement of personnel and material resources, a vision of global-worldwide expansion (not local) and internal collaboration and with other companies in the ecosystem. At this point, I cannot provide examples of traditional firms that are immersed in this type of strategy in an ideal sense, but we could talk about LegalTech start-ups that end up offering services for RegTech or InsureTech companies, i.e., the key in this aspect it is adaptability. We still have a lot of work to do in this field.
In conclusion, it can be said that the development of innovation in traditional legal service providers is booming. We will see if the legal operators finally take the leap from focusing mainly on exploitation activities to real business model exploration activities. There is still much work to be done in terms of the expansion and participation of players in legal innovation ecosystems which offer not only legal solutions. It is clear though, in this ever-advancing technological age, that law firms will need to continually innovate and adapt to the latest technologies. This is a commercial survival of the fittest. Whoever delivers the most value in the most efficient way using the most effective business models will win.
Ana Burbano Villavicencio
Manager at KPMG Legal Operations & Transformation Services (LOTS)
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First time published at “Un Futuro Digital. El entorno legal y el rol del abogado por Lawit Group”. Available at: https://lexlatin.com/gestion-ebook-vol-4.
Translated for publication in the Legal Technologist. Edited by Marc May.
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[1] According to digitalization expert Peter High, there are four stages of digital business maturity: digitally evolving, digitally active, digitally competent, and digitally mature. The first of the digitization stages, called “in digital evolution”, pertains to digital marketing or digital presence. This is the ability of legal businesses to interact with clients through digital media such as the website, having a social media strategy, by advertising via digital media or by using email or similar tools to communicate with clients, among others.
Digitally active businesses are at the next stage of maturity. These businesses use digital transactions with customers to increase revenue. To do this, they proceed to make changes in their operational processes through the incorporation of agile methodologies in their product development as well as the use of basic metrics and process automation. This is the stage in which some so-called “New Law” legal businesses could be classified, as well as those Alternative Legal Service Providers (ALPS) with technology as part of their DNA. If we define what digitally active businesses in legal services consist of, we must specify the importance of identifying the “operations” of the organization or the use of agile methodologies such as Scrum or Kanban -mainly used to develop software. The mentioned business improvements can be carried out for all kinds of relational processes with clients: from invoicing (e-billing) to the provision of strictly legal services such as litigation management or company secretaries, for example.
The next stage of digital maturity would be digitally competitive or mature businesses. These businesses not only use digital customer transactions to increase revenue, but are also able, through technology, to forecast future business needs as well as respond to current gaps. According to Peter High, the harmonization between the digital operating model, predictive analytics and microservices architecture allows these businesses to access customer expectations and for businesses to turn them into solutions that bring more revenue. At this stage, digitally competitive businesses use AI and Big Data to improve strategic decisions.
