Stick or Twist
The Law Gazette
4 December 2020
Law firms will struggle to stay in business without modern tech capability and interactive client resources. But too many are running on ancient systems
The legal tech procurement debate is split between economic prudence and fanning the flames of the digital transformation necessitated by the lockdown. The legal tech market is equally divided between a rush to consolidation, and massive private equity (PE) investment driving start-up activity.
Conflicting trends confuse decision-makers in a market that is contracting because of M&A activity and expanding as external investors see legal tech as a potential winner. NPR’s Hidden Brain podcast host Shankar Vedantam recently observed (in regard to media coverage) that pessimists often sound like they are trying to help you, while optimists sound like they are trying to sell you something. Something similar is happening in legal tech, as procurement is becoming a ‘stick or twist’ decision.
Stick or twist?
The Law Society’s Technology Conference included a panel session dedicated to advising law firms to make best use of existing tech before considering new tools and applications. This would be sensible advice for some businesses, but there are important considerations specific to law firms. For example, most law firms replace core systems very infrequently – the average life of a practice management system is 13 years.
Therefore, notwithstanding updates and integrations with Microsoft and other enterprise systems, many firms are operating seriously outdated technology. Would you consider making the best use of the mobile phone you used six or seven years ago, instead of replacing it with a new smartphone which is several times more powerful and capable? Similarly, if firms do not upgrade the hardware and software that lawyers use and ensure that they have adequate connectivity, they will struggle with every Teams and Zoom meeting. They will also waste potentially billable time and make remote working unnecessarily frustrating – running modern software on outdated equipment with insufficient processing power and bandwidth. These days it cannot be ‘all about the people’ without capable, user-friendly tech.
It surely does not make business sense to cut costs on the equipment and systems that your firm, like every other organisation right now, relies on to transact business, collaborate and communicate. Having – and being seen to have – reliable, modern tech capability, and online interactive client resources will be a critical success factor for the coming months and years. Without them, any firm will struggle to stay in business, let alone gain any competitive advantage.
Clio’s cloud practice management system is a popular choice for small and medium-sized firms. Its Legal Trends Report, launched at its virtual conference earlier this month, found a positive correlation between the use of cloud-based, client-centric technology and higher earnings per lawyer. This is an unsurprising finding from a cloud vendor in current conditions, but it makes an important point about perception. Apparently, when law firm offices, like everywhere else, were forced to close by the pandemic, a significant number of clients thought their firms had stopped offering legal services during lockdown. A website that includes interactive client-facing tools, for example enabling clients to submit initial enquiries and check the status of ongoing matters and related fees, is a practical demonstration that the firm is still open for business when its offices are closed.
Furthermore, magic circle firms and firms whose brand is predicated on tech innovation are investing heavily in legal tech and actively promoting this. For example, Mishcon de Reya launched MDRxTECH consultancy and its MDR LAB legal tech accelerator is collaborating with Founders Factory for its 2020 programme. Baker McKenzie is working with artificial intelligence (AI) company SparkBeyond on a prediction engine for client demand, while Travers Smith has open sourced its contract labelling tool. The Big Four consultancies are sharply focused on legal tech, with new announcements almost every week.
The Global Legal Tech Report North America, launched on 19 October, is based on a survey of legal tech companies that was conducted between 12 May and 10 September. A similar report for the UK was due to be published as the Gazette went to press. A global map showed the variety and concentration of legal tech companies. And although there are some variations in the product mix across different regions, it is clear that the global legal tech market is focused on specific solutions, with document automation dominating the market, and legal and contract analytics, and legal operations, showing a strong presence in multiple regions and jurisdictions. Other findings related to the size and composition of legal tech start-ups, and which categories were most successful in attracting funding.
AI companies were most attractive to external investors.
Private equity and investors
While the upbeat PE investment announcements from legal tech businesses are welcome news in challenging times, it should not be forgotten that this type of funding puts pressure on businesses to monetise within a limited time frame. In three to five years, PE investors will be looking for a return on investment.
Some of those investors are themselves legal tech companies – contract management company DocuSign (which acquired AI contract analytics company Seal Software for $188m in May) was part of a consortium that invested $3.2m in automated contract mark up technology vendor BlackBoiler.
Jae Um, Six Parsecs
The flip side of this investment is that a multitude of well-funded legal tech offerings (many of them providing similar tools) complicates decision-making for firms looking to boost their tech capability. Moreover, as Jae Um, executive director of US research and insights company Six Parsecs, said at the launch of the Global Legal Tech Report North America, the people who buy legal tech are not the people who use it, so they need to find ways of making well-informed selections.
Navigating an embarrassment of riches
Two new start-ups directly support legal tech procurement. Nicola Shaver, who works in knowledge and innovation in a large Am Law 100 firm, and her partner Chris Ford, chief marketing officer at ZERØ, launched LegaltechHub. This is a comprehensive directory of the global legal tech commercial market with a carefully designed taxonomy, enabling users to search legal technology tools by function, application, region or name. They are currently working on a direct comparison feature. In an interview with Litera TV, Shaver explained that one of the challenges when attempting to use conventional search engines to find legal tech tools was their unusual names. She referenced Clifford Chance’s Intelllex, which recently launched in Singapore, and two UK offerings Sysero (document automation/workflows) and Scissero (AI contract negotiation). There are currently 1,600 listings, all of which are verified, which is especially important given the pace of M&A activity and the dynamics of the start-up ecosystem. LegaltechHub is free to access (tinyurl.com/y6tokhx8).
While LegaltechHub enables you to explore what is out there, LexFusion helps decision-makers navigate an embarrassment of riches when it comes to selecting legal tech by curating a collective of best-of-breed tools and selling them to law firms and corporate counsel. Recently launched by Joe Borstein and Paul Stroka, formerly of Pangea3 (which EY acquired from Thomson Reuters in 2019) LexFusion is about creating a tailored selection – like joining a fine wine club. And like any club, there are membership fees. The collective includes only one representative of each type of software, which are therefore complementary rather than competing. LexFusion currently represents seven vendors and has plans to expand its portfolio.
Efficiency gains and losses
An HBR IdeaCast podcast, ‘When efficiency goes too far’, discussed economist Professor Roger Martin’s theory that efficiency gains do not necessarily produce better outcomes. This month saw Legal Geek move its flagship conference online. It included a series of bite-sized talks from legal tech luminaries. There were two about efficiency. Peter Flynn, CEO and co-founder at Libryo, advocated the ‘ruthless elimination of inefficiency’ – applying the eight wastes of lean manufacturing to legal services and discussing how to address them. Libryo is a compliance tool and compliance is one area where ruthless efficiency is critical. But in legal services generally, too sharp a focus on efficiency can be counterproductive to important principles – it is one of the major challenges for legal AI.
Richard Punt, managing director for legal strategy and market development at Thomson Reuters, discussed the difficulty of making a case for legal tech investment based on efficiency gains. You cannot always quantify the return on investment on adding value because clients do not pay for efficiency when they engage a law firm (although of course they expect efficiency).
So perhaps legal tech needs to be evaluated in a more strategic way: on the extent to which it adds value in terms of achieving desired outcomes while enhancing the client experience in a way that differentiates your firm.
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