The lawyer’s dilemma: challenges for law firms adopting legal tech
Daniel is an experienced Banking Lawyer with an MSc in Innovation Management and Entrepreneurship from The University of Manchester. He participated as a researcher of The Manchester Law and Technology Initiative and worked in Bancolombia as In-house Counsel and Innovation Champion. Currently, he lives in Colombia where he co-founded “Derecho + Innovación”. A digital startup that brings together law and innovation. He is a member of the Board of Directors of the Colombian Association of Legaltech (alt+co). He has written for The Legal Technologist, Business Year and The University of Los Andes and is a public speaker about digital transformation.
In 2019 I submitted my MSc dissertation on the factors that influence the allocation of resources on legaltech inside law firms. As part of the research process, I interviewed senior management personnel at three incumbents in the UK, collected comprehensive secondary data from sources including Deloitte, PwC, Thomson Reuters, Raconteur and The Law Society. Furthermore, Statista and Factiva databases were examined, and prominent magazines including the Financial Times and Forbes were reviewed as well.
Transformation in the Legal Industry
The study found a growing interest in technologies for the law industry. I identified more than 30 unique factors affecting investment decisions in legaltech. These were grouped into 13 themes.
Surprisingly, a pandemic was not mentioned as a driving force in any of my interviews or research. Today, there might be no greater incentive to adopt legaltech than the COVID-19 outbreak. The world has changed. Businesses around the world are realising the importance of digital transformation for surviving and thriving in these uncertain times. Any doubt about the benefits of technologies for improving the business model should now be resolved.
The legal industry has been characterised as conservative with a low tendency for reinvention and change. The legal business model remains practically the same as it was centuries ago. Similarly, the legal profession is taught and law is practised in roughly the same way as it always has been. In contrast to other industries, the legal sector has still not been significantly disrupted by the advent of new technologies. However, this situation may change dramatically in the upcoming years as innovation gains a higher priority in lawyers’ agendas. The chart below illustrates this argument clearly. It shows the publications related to legaltech from 1974 to 2019. What stands out is the rapid growth of the rate of research about technologies and law over the last ten years — an increase of 639%. This rate is likely to increase in the upcoming years as legaltech gains prominence.
Digital transformation of the legal profession is becoming more relevant. Yet, it’s still far from being a game-changer of the industry. For instance, the number of fintech publications in Factiva was close to 115,000 in 2019, compared with just 1,389 found about legaltech. It is clear the digital journey is just beginning for law firms.
The extent to which the digital transformation affects the legal industry remains unclear. Thus, this article attempts to resolve some questions that, as a lawyer, you might have regarding the future of our profession.
The Lawyer’s Dilemma
At this point of my article, you might be thinking that lawyers must adopt legaltech as soon as possible. The answer isn’t so straightforward. Business management literature has long recognised the difficulty of introducing substantial changes inside established organisations. A key study by Christensen (1997) introduced the concept of the Innovator’s Dilemma. It is a paradox in which the manager must decide whether to pursue different markets with novel value propositions or to stay focused on mainstream customers. In other words, it is a decision about whether to maintain the existing business model or push to transform it.
There are plenty of examples of businesses that have come across this paradox. Kodak and Lego are two of them. The former failed to adapt and change and was outcompeted by new entrants offering innovative solutions to customers. The latter reinvented its business model. Among other pivots, Lego went digital and made strategic alliances with relevant partners such as Marvel and Warner Brothers. The rest is history.
While the Innovators’ Dilemma isn’t necessarily related to the adoption of tech, it might help us understand the resistance encountered by firms during this decision-making process. The legal services revenue results from previous years are remarkable. During 2019, growth records were achieved by lawyers in multiple countries, including the UK. Law firms are reaching a historic level of performance without legaltech. It is therefore worthwhile asking whether the legal sector actually needs to adopt new technologies.
It is reasonable to conclude that law firms are facing the Innovator’s Dilemma. Start-ups around the world are introducing legaltech solutions. New players are creating different services from those that markets are used to. At the same time, the majority of incumbents do not seem to be bothered about transforming. I propose that we are facing a Lawyer’s Dilemma which is inhibiting innovation.
How can law firms adopt new technologies?
A key step forward is to consider the features of different technologies, including the differences between sustaining and disruptive ones. Recognizing their likely impact on the legal market is critical to decisions on whether to adopt legaltech solutions. Lack of in-depth knowledge about different technologies and the extent to which they operate may lead to rushed conclusions. For instance, there is a widely-held but questionable view that machines will fully replace lawyers.
Technologies should be adopted in light of a firm’s business model. Law firms can invest in new technologies that improve their offering and customer service, transform a firm’s value proposition, and increase profit margins.
Investment in legaltech is often limited by factors beyond the technology itself. For instance, the culture of the legal profession is a significant barrier. Lawyers’ time-driven mindset and the billable hour model are two key contributors to the cultural block against legaltech. Furthermore, the lack of a sense of urgency makes leaders feel that technological leverage isn’t necessary. Fear also might be a crucial impediment. Change is unlikely if leaders are afraid of the process or its consequences. Anxiety surrounding what technology may do to the industry is in turn fed by a lack of understanding of its real benefits and consequences.
The adoption of technologies is an innovation process in which an organisation reconfigures its assets to incorporate technologies according to customers’ demands. Rogers (2003) defines the innovation-decision process as a sequence of consecutive steps in which a decision-maker moves from acquiring information about the new thing to the execution of the decision. There are five steps in Roger’s model, shown in the figure below. Understanding the steps of this process aids in identifying which barriers must be overcome.
The Innovation-decision process. Rogers (2003)
The persuasion stage is particularly relevant. Here, the leader forms a viewpoint of the new technology, considering five attributes of the innovation:
a) Relative advantage;
d) Trialability; and
The acceptance of the new technology will be faster if these five attributes are part of its features, according to Rogers.
A business strategy should encourage firms to invest in new technologies. When the venture’s scope and legaltech are aligned, investment is more achievable. Market perception is another driver for innovation. The extent to which clients perceive the innovative capability of the firm and the pressure of competitors adopting tech may boost the adoption pace. Finally: knowledge. Law firms that comprehend new technology are keener to adopt it.
Lawyers will not escape the fourth industrial revolution. All businesses are adopting new technologies to improve processes, become more efficient, and produce superior services and products. There is no reason for us to fall behind. What matters is that lawyers remain updated about these trending topics, so that they can make informed decisions on adoption and to avoid falling prey to the lawyer’s dilemma.