Innovation and Transformation Perspectives From Around the World

This article was first published in International Legal Technology Association's Peer to Peer publication on February 5, 2021.

P2P - Winter2020

Peer to Peer: ILTA’s Quarterly Magazine

Winter2020

Innovation and Transformation Perspectives From Around The World

There’s tremendous variability in how the legal industry approaches innovation and technology initiatives, greater still when you expand the scope to different jurisdictions and regions worldwide.

Through a series of interviews with innovation leaders and a review of published materials, this article will explore the factors that influence innovation levels across different regions. Namely, we’ll focus on the UK, Africa, Australia, and India.

We found many interrelated factors are at play: regional regulations, the maturity of the legal services industry, competitive pressures, and willingness to make financial investments in innovation and technology initiatives. Of course, there are significant variations across firms within the same region, influenced mainly by their business culture.

First, we must define what is meant by innovation and the goals underlying the actions.

The Spectrum of Innovation

Innovation is not a monolith. It runs along a spectrum from the minuscule to the majestic and encompasses technology, process, or both.

At one end are incremental changes to existing methods and processes. These efficiency drivers are often small initially, yet over time they can produce marked results. On the other side of the spectrum are seismic disruptions, which may involve doing something in an entirely novel way or something that no one has done before. The disruption completely changes how a firm completes a task or follows a process.

Innovation is, therefore, both incremental changes and seismic shifts. It may affect technology and process, as each will have different primary challenges. With technological innovation, adoption is often the biggest challenge. How do you get users engaged and active with the technology, so the business yields a positive return on its investment? Process changes may or may not involve technology. In these instances, often change management is an obstacle to overcome. How do you introduce the change and convince legal professionals to embrace it?

This begs another question—why innovate at all?

What’s The Purpose Behind Innovation?

Before a firm embarks on the transformation journey, the business needs to establish what it is looking to accomplish. There are regional factors which introduce a difference in approach, but also common ground to be found. As Caryn Sandler, Partner & Chief Knowledge and Innovation Officer at leading Australian firm Gilbert + Tobin explains:

“there is a large variation within and between geographies, with some firms engaging and pushing the boundaries of what can be done in this space, and others only starting their transformation journey. There is now a general recognition in legal of the imperative for innovation and transformation globally, and we’re seeing different ways of achieving that goal play out within law firms and in-house.”

These regional ‘variations’ impact the type of initiative. In new and emerging legal markets, it is harder to satisfy the need to spend money on technology where the business need has yet to be proven. Instead, we find that these areas may readily embrace new processes—since they don’t have the inertia of established methods to overcome.

On the other hand, in mature and highly competitive legal markets, law firms and legal service providers can add value for their clients by making incremental efficiency improvements. Those firms are likely focused on adopting technology, getting it off the shelf and into their practitioners’ hands as quickly and as smoothly as possible.

Lastly, some firms are looking to bring their client along on the transformation journey. They can do so by including the clients in the technology & innovation design process.  These firms often find value in adding a consultancy arm that can provide dedicated innovation services and digital transformation assistance. In all kinds of markets, firms are also exploring how they can pivot, perhaps by setting up technology incubators or otherwise investing in legal technology start-ups.

Factors Driving Innovation: UK, Australia, Africa, and India

While there are numerous forces influencing innovation around the world, one can roughly classify them into four broad categories:

• the legal system and regulatory structure,
• the maturity of the legal profession,
• the level of competition in the region, and
• the sensitivity to spending on technology or innovation efforts.

The Legal System and Regulatory Culture

Regulation can constrain innovation, and so can the flexibility and makeup of the legal system. There can be more opportunity and less constraint in emerging markets with less regulation and fewer established firms. These open markets can present considerable gaps in service, creating opportunities for firms to innovate and quickly move the needle on providing services. In more heavily regulated markets, the amount of work required to bring about substantive changes is significant and will have fewer players attempting to do so. Without a complex web of regulations, law firms have free rein to innovate.

In Africa, for example, “there are pockets of extreme innovation, driven by the opportunity in the sense that many countries in Africa are not necessarily as regulated,” says Cathy Truter, Head of Knowledge Management at Bowmans, an top African firm with offices in seven African countries. “Whereas in other jurisdictions you might be held back by the current, and having to go through regulators to get approvals, we can have very fast-moving innovation in these areas.”

Where regulations are more established, cultural differences can still drive an appreciation for innovation. For example, many European countries enjoy a data-centric culture that embraces “AI, data, and analytics as elementary parts of their future success.” This attitude is spilling over into the legal profession.

Maturity and General Culture of the Legal Industry

The flip side of the regulatory structure is generally the maturity of the legal industry. In largely unregulated areas, the legal sector is nascent and open to new approaches; in heavily regulated areas, the profession can be so established as to be stultifying. For example, in some regions in Europe, the legal industry has a heavily institutionalized culture, which can make change an uphill battle.

“In a jurisdiction where they’ve never done something when you give them this new [technology] solution, people will grab it with both hands and use it to its maximum efficiency,” Truter said. “By contrast, in a place like South Africa, where we have more institutionalized processes, it’s harder to get the lawyers—and clients—to adopt those technologies.”

There’s a balance to be found here: a region that is starting entirely from scratch may, counterintuitively, not be as free to innovate because it is still figuring out what needs to be done and how to do it. This tension also plays out on the micro-level with individual lawyers in firms. The junior lawyers—commonly thought of as the most tech-friendly—are often consumed with learning the law and the job that they are less able to appreciate and embrace innovation. As a result, it’s often the experienced [senior] associates who are the real innovators. These established practitioners know the law, understand the necessary results, and grasp innovation’s value in reaching those results more quickly and efficiently.

Competitive Pressure

Countering an established legal market’s inertia is one of the most significant innovation drivers: business competition. Competitive pressure is perhaps the primary driver of innovation in the UK legal market, which has had to grapple with the Big Four accounting firms, amongst others, ever since the Legal Services Act 2007. The Act allowed external ownership of law firms, known as Alternative Business Structure (ABS). That pressure has led to some widespread practices, such as firms developing consulting arms to aid clients with legal technology. A recent example, Mishcon de Reya has launched its consultancy, MDRxTECH, to “provide clients with digital transformation advice and legal engineering services.”

The competitive picture is similar in India. A part of the market is dominated by legal process outsourcing firms (LPOs), and independent practitioners and law firms must decide if they wish to compete or collaborate. Komal Gupta, Head of Artificial Intelligence and Innovation for Cyril Amarchand Mangaldas (CAM) in New Delhi, explains,

“LPOs are a class apart in using legal technology because their outsourcing work is only possible through technology. Their lawyers are always going to be tech-savvy, and that’s driven some changes.”

In response to the competitive landscape, CAM has adopted dedicated technology for contracts and due diligence review, eDiscovery, and legal research, as well as proofreading and document automation.

In other emerging markets, there may be a question of who firms should consider their competition. For example, Truter says that in Africa,

“The majority of our customers are international clients that operate with the best international law firms, so that’s who we benchmark ourselves against. That’s why we’re trying to be first movers with AI, Transaction Management tools, and other innovative approaches.”

Jumping over an ocean to Australia, similar pressures are at work. The legal services industry there is valued at $21 billion, and—due to the rise of legal services provided by the Big Four accounting firms and disruption from more agile, streamlined “NewLaw” firms—has become intensely competitive. This has led to intense pressure for innovation and legal technology. While many Australian firms are taking a cautious approach, Australia’s “thriving legal tech start-up scene enjoyed more than $1 billion in investment in 2018.”. Sandler offers her perspective:

“Culturally and from a legal system perspective, Australia is well placed to take advantage of start-up and legal operations growth in these geographies, and we have a competitive legal market with few large players, which forces many to engage with innovation and transformation. As such, I think we are seeing a strong focus on innovation in Australia within law firms and are starting to see in-house teams really focus on this as well.”

Investment in Innovation

Unfortunately, despite the availability of legal technology offerings, legal departments across Australia tend to underinvest, allocating only 4 percent of their internal expenditures to technology. Without investment, innovation can stagnate. Conversely, with the right strategy and investment behind innovation efforts, it’s possible to produce results that impact the business and broader profession. For example, UK firm Travers Smith recently open-sourced the code for its contract labeling software, Etatonna.

In emerging markets like India, the economies of scale can make a tremendous difference in technological investment. Because the legal industry’s spending power is only equal to the value perceived by the market, firms—and vendors—have to find ways to establish the market through massive adoption of technology before necessarily seeing a full return on their investment.

To counter that challenge, Indian firm CAM has recently launched the second round of its tech incubator, Prarambh. Gupta explains,

“As we were exploring available technologies, we realized that people didn’t have confidence in the market. There was a lack of both supply and demand, so there was a lack of investment. While there were great legal tech products available, none of them were being made in India.” Subscribing to foreign technologies introduced shortcomings with translation and training. “We think domestic talent can do best justice here, but they need encouragement, support, and investment. That’s what CAM is offering through our incubator.”

Individual Firm Characteristics Influencing Innovation

Regional factors aside, there are also undoubtedly firm-specific characteristics that influence innovative approaches’ likelihood and success. The structure and culture are high on that list, along with interest, energy, and investment. The more that a firm is willing to come to the table and talk about innovation—and, better yet, ready to invest in it—the better position that firm will be in to innovate.

Gilbert + Tobin is repeatably recognized as the Most Innovative firm in Asia-Pacific. The innovation mindset must permeate the DNA of business to find such success:

“to meet the challenges of tomorrow, the legal operations area of the firm must shift from being considered support (overhead) to an essential and ‘expected’ part of high-value legal services. To this end, we have created and nurtured a dedicated Legal Services Innovation (LSI) team to support and cultivate the development of a transformational mindset within G+T.  This team is made up of data scientists, management consultants, capability experts, lawyers, lean, and design thinking specialists.  By bringing these skill-sets together on client matters, we leverage our diverse expertise to better support legal service delivery”, Sadler explains.

Innovation is, in a real sense, subject to the physical laws of inertia and momentum. And while 2020 has thrown everyone for a loop, it has provided an enormous shot of momentum for innovation, as capabilities like remote work and transaction management have taken on new importance.

Conclusion

Recognize that innovation and transformation initiatives sit along a spectrum —covering incremental to disruptive. Understanding the intent behind the project will allow the business to consider the best approach.

As we’ve highlighted throughout, innovation approaches vary worldwide, impacted by local pressures and constraints, and it can range just as much within an individual firm.

However, what is undeniable is that the firm’s culture is critical in directing the shape and pace of innovation.

“The unknown of our experience is not the same as the unknown of knowledge. Moving into the unknown and making it known in a new way is just what we living things do” – (Sharpe, B. (2013), Three Horizons, Op cit. p.97).

How will you foster innovation in your practice?