Why is the legal industry so resistant to tech. Or is it?
Legal Technology or LegalTech, (sometimes also referred to as LawTech) is a broad term encompassing any software or technologies that help professionals in the legal industry to streamline core processes and functions, by increasing efficiency and effectiveness, in providing legal services and support.
By definition, LegalTech has been around for a while - electronic records systems were amongst the first examples of legal technology in helping to improve the efficiency of the practice, but in a modern context, the term has since come to refer mainly to startup fuelled digital transformation of specific aspects of the legal services industry. Technological advancements such as blockchain technology and Artificial Intelligence (AI) are modern examples of LegalTech poised to cause major disruption to the industry in coming years.
Incorporating these technologies, there are several major types of legal software currently available, and whilst the definition of LegalTech has changed slightly over the years, it currently
has grown to encompass two main functions:
Helping customers to better and faster choose lawyers through digital tools, that simplify the acquisition and management of law services, (by reducing or eliminating the need to physically consult a lawyer) and making it easier to find the right lawyer quickly (this consumer-focused subgroup of LegalTech is sometimes referred to as LawTech)
And helping law firms better serve existing & future clients through software and technology tools that simplify and streamline law practice, thus helping them to add value to their services without increasing costs.
So given the inherent advantages of LegalTech in improving efficiency and reducing costs, why is there still such opposition to the adoption of this tech? - To understand this we need to understand a little bit more about law as a profession.
Over the last 12 years in particular, the legal industry has made some major technological advancements, with tech such as: billing softwares, e-discovery, document automation, etc. becoming integral elements of the industry. These techs, state of the art back in 2008, have become nothing less than standard elements of many legal practices in 2020, with most lawyers nowadays unable to imagine running their practice without them. The technological advancements derived through LegalTech are the industry's own unique way of performing digital transformation.
But the aforementioned technologies, despite their glaring need, growing availability, and benefits, in the years immediately succeeding the 2008 financial crisis, were not adopted wholeheartedly without opposition. The legal industry, similar to the financial industry, is one established over generations and generations, through tried and tested approaches, some spanning back hundreds of years. It is traditionally very conservative and also famously very slow to adopt new technology. This industry-wide hesitance to develop and integrate new tech is still very prevalent today, and can be observed with the cautious approach of the industry to emerging LegalTechs such as AI, Blockchain, and Big Data analytics. Once these technologies are established across the industry, ten years from now, perhaps they too will merely be standard yet critical elements of legal practice, with the lawyers of the future, again, unable to picture back to a time such as 2020 where such inefficiencies existed and such technologies weren’t commonly accessible.
The rise and growth of LegalTech came amidst a wave of industry-specific technological developments such as FinTech, RegTech, InsurTech, etc., and represents not only industry wide technological development, but also the rapid pace of global digital transformation. Similar to RegTech, LegalTech owes its first major roots to the 2008 financial crisis, which brought with it increased emphasis on digital transformation, and accelerated development of cutting-edge technologies to help address the unprecedented new market changes and challenges fuelled by rapid advancements in technology, new business models, and ever changing client expectations.
One challenge poised by the financial crisis was the dramatic and fundamental shift away from a seller's market, to a buyer's market for legal services, with LegalTech being, in part, introduced to address the main challenges of in-house lawyers’ greater demands on firms, immense pressures to cut costs, lack of standardisation in client procurement between different departments, the challenge of attracting and charging clients in the new highly competitive market for legal services following the recession, as well as competition from new market entrants who had rejected the traditional law model in favour of unconventional approaches.
The increasingly widespread nature of LegalTech in today’s market also means that smaller, less established law firms, through increased access to powerful research tools, for the first time have more of a level playing field to compete against some of the leading names of the industry, and establish reputations by attempting to improve efficiency and shift towards a more progressively popular agile working environment.. It has been very quickly observed how larger, established brands who maintain their traditional and tested methods of the past have struggled to acclimatise their offerings, and have very quickly fallen behind, serving to further demonstrate LegalTech's substantial influence over the contemporary legal market.
Investment in LegalTech has also taken off in recent years, with Europe taking the lead, closely followed by the US. The British legal market is the largest in Europe, valued at approximately £33bn, followed by Germany at £27bn. British firms in 2018 collectively spent over £61m on LegalTech, almost tripling the previous year’s investment of £22m according to the Reuters LegalTech Startup Report 2019.
Which brings us back again to the original question - Why are law firms not fully embracing LegalTech?
Over the last few years, there has been a notable shift in attitude within global legal markets, as they appear to have collectively begun to recognise the need to shift away from traditional methods and become more nimble, says Emily Foges, CEO of Luminance. As a result, the adoption of AI is gathering considerable pace amongst larger organisations, with pressure for smaller law practices to do the same. A study of London's law firms by CRBE discovered that approximately 48% are already using some form of AI, with another 41% predicted to do so in the future.
As AI gathers pace, fears of this tech replacing human lawyers is also growing amongst consumers of legal services and firms alike. This fear however, for the most part, is unfounded, and could not be further from the truth. Rather, Pattern recognition Technology in conjunction with machine learning complements the human skillset and alleviates much of the low-skill, manual, 'drudge work' that is associated with legal practice, essentially making the human lawyer more central to the legal process than ever before.
A number of other reasons also exist for this laggard pace in tech adoption, with one being that an increase in efficiency brought about by LegalTech would result in a reduction in billable hours for lawyers. As any increase in efficiency means less pay for firms, with every six minute block of time having to be accounted for in a lawyers day, and with lawyers often having a minimum of billable hours that they must meet in a day, there is little incentive (for out-house lawyers) to be more efficient in their work as it would only mean fewer billable hours, and more difficulty meeting minimums set by their employers.
So in a way, by increasing efficiency, LegalTech is helping to catalyse the trend towards more in-house counselling in carrying a corporation's legal tasks, as is most beneficial for in-house lawyers who do not have to worry about securing clients or are pressured to meet minimum billable hours, and who can instead focus their expertise more towards producing excellent standards of work as they are not shackled by the traditional billing processes of the legal industry. As a result of this, in-house lawyers typically push for innovation and new technology that can make their jobs more efficient, whilst layers at traditional law firms may be more reluctant to adopt time-saving technology.
Another presumption is that lawyers and the legal industry are very traditional and risk-averse. Methods in some instances have been tried and tested over hundreds of years, thus making it very difficult for firms and lawyers alike to change their minds and defer from what has worked well in the past in favour of something new that could change or damage their current business model.
If this is true, this would be very similar to the financial industry in terms of Compliance/Risk management departments, who naturally have opposed change to their business models despite rapidly evolving digital environments making regulatory compliance simply unmanageable without machine and tech assistance. The introduction of RegTech & FinTech has helped tremendously to alleviate some of these burdens, with benefits being often very quickly observable upon effective implementation. Perhaps this could serve as an example of the perks of industry-specific technologies to the legal industry with regards to LegalTech.
However, some lawyers argue that this is a baseless accusation, and lawyers are typically willing to adopt new technology that can meet their needs - so long as the tech can do it well, which often, it does not. There appears to be some degree of a divide between the assumptions of startups developing LegalTech products, and the expectations of those in the legal industry that end up using them. As lawyer Jon Tobin puts it: "Wrong assumptions = Bad product", and when startups say "lawyers don't have business skills" or are "resistant to change", it is perceived in the legal industry as the company not getting the traction they had been expecting and choosing to blame the market instead of the product. Tobin goes on to state that the majority of lawyers want new tech and will pay good money for it so long as it is good, addresses their concerns, and meets their needs.
In order to build effective LegalTech, organisations need to take a step back and critically examine exactly what it is that lawyers want. The legal industry, along with the financial and healthcare industries, is one of the most regulated in the world, lawyers constantly live in fear of being sued for malpractice or losing their law licence, and this is more likely than not where some degree of the aversion to adopting new technology comes from. Due to the harsh consequences, lawyers have very low tolerances for LegalTech products that appear to be ‘unreliable, insecure, or otherwise fragile’. To crack the market, startup founders need to place more emphasis on adequately addressing these concerns and assuring lawyers that their concerns have been understood and are being actively addressed, instead of pumping lots of low-quality products into the market that do not meet the market need.
Overall, there is an increasing understanding amongst law firms that developments in good LegalTech would undoubtedly serve to bolster not only the department and firm's reputation, but also result in dramatically increased operational efficiencies while simultaneously reducing costs. This has different consequences depending on the type of law and the type of lawyer, with similar tech-aided tactics already being deployed to increasing extents within the Financial and Medical Industries.
A 2015 PwC report demonstrated that increasing and improving the use of technology was the top priority in 94% of law firms for the following year, yet in 2019 it still appeared that law firms are still not adequately budgeting for technology. Clients are increasingly demanding for greater efficiency and more personalised customer service. If one firm can’t meet these needs, another will. Turning to technology may be part of the solution, but according to the 2018 annual survey of American Bar Association members, only 57% of the surveyed firms said they had budgeted for technology, and with over 62% of respondents indicating that they are required to stay abreast of the benefits and risks of technology under their rules of professional conduct.
There is no doubt that the development and adoption of the latest LegalTech would bring with it immense benefits for the associated firm and clients. Through recent history we have observed how technological advancements are constantly creating winners and losers - the iPhone, Uber, music streaming, Airbnb - none of these existed ten years ago, yet have dominated and decimated the traditional industry that existed before them, and become indispensable in today's environment. Across industries, fleeting technological advancements are opening up so-called "innovation gaps" between early and late adopters. With the legal field being of no exception, law firms who take the initiative to invest in and leverage the latest tech have been seen to peel away from the pack, and enjoy significantly higher efficiency and economies of scale. It can thus be concluded that lawyers of the present and future must keep up to date with the latest developments in LegalTech to competently practice law in today's dynamic social and technological environment. In the free-market it is often said that any market share gained by one firm is always at the expense of another, so the question to law firms very much becomes one of 'are you a winner, or a loser?'.
"Change is the law of life. And those who look only to the past or the present are certain to miss the future"
- John F. Kennedy