The first of this two-part series examines how and why legal change derives from business digital transformation. The second segment analyzes the legal function’s transition from cost center to value creator and how to quantify its value.
Legal industry change is a business story more than a legal one. Legal is the tag-along in an epic business paradigm shift that is bigger than any individual, business function, profession, industry, or society. It is a tectonic change in how we live, work, and exchange goods and services. That process is called digital transformation.
To understand the changes unfolding in the legal industry, one must appreciate the digital transformation of business and its unswerving focus on customers. Legal change derives from the business digital imperative, is shaped by it, and involves legal’s alignment with business objectives and its integration with other business functions. The goal is to extract more enterprise and customer impact from the legal function.
Digital Transformation Is A Business Imperative—That Includes The Legal Function
Digital transformation has fundamentally altered business and its relationship with customers and society. It is a multidimensional, enterprise-wide, integrated re-imagination and ongoing change process designed to elevate the end-to-end customer experience. Customers are its focus, and their satisfaction is the principal goal of of an enterprise-wide reverse-engineering process.
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Digital transformation is enabled by technology and driven by human imagination, data-enhanced experimentation, and adaptation (change management). These elements are interconnected and indispensable to reap the benefits of “going digital.”
There is a common misconception, especially in the legal industry, that digital transformation and tech are synonymous. Big Data, Cloud Computing, the Internet of Things, AI, and resource/workflow management are digital transformation’s enablers and backbone. Customer-centricity, new organizational structures and economic models, data, multidisciplinary, agile, and fluid workforces, and constant improvement are its heart.
Alignment Of Purpose And Integration Of Functions
Digital transformation is predicated on alignment and integration. Alignment refers to common purpose, culture values, metrics, and goals. It is sustained by a common mindset, language, metrics, processes, and service orientation. Aligned companies are guided by a corporate compass that sets its course. Even when a course correction is required, the enterprise acts in concert to follow it.
Alignment occurs at the individual, team, functional (including strategic partners and supply chains) enterprise, and customer levels. Digitally advanced companies are not only aligned internally but also with customers. The goal is to create a long-term, trusted, and relationship between business and its customers.
Integration is teamwork. Integrated companies build agile, fluid, curious, and collaborate workforces that operate seamlessly and cross-functionally. Traditional siloed departmental paradigms are replaced by flexible ones designed to proactively and holistically solve challenges and capture opportunities that require different perspectives, skillsets and experience. They are enabled by access to material data that, like talent and technology, is shared across business functions. This promotes better informed, creative, rapid, and holistic responses to complex business challenges and time-sensitive opportunities.
Digitally mature companies are those whose whole is greater than the sum of its parts. Digital transformation is a team sport.
Digital businesses leverage flexible organizational structures, capital, investment, talent, tools, processes, data, and strategic partnerships to create more effective, efficient, accessible, transparent, risk-mitigated ways of conducting business. They provide customers easy access, choice, a voice, transparency, self-help tools, data, and a high level of service. Digital companies are not focused on innovation per se but on new ways of doing things that produce measurable value and an elevated customer experience.
Digital Transformation Is A Journey, Not A Quick Fix
Digital transformation is neither an easy nor a quick process. Notwithstanding the heavy lift required, business recognized years ago that the digital journey is an existential imperative. Covid-19 has profoundly accelerated the speed of digital transformation. Microsoft
The warp-speed of business digital transformation has widened the divide separating digitally advanced companies (as well as individuals and functions) from the pack. Digitally mature companies outperform peers in all meaningful business metrics. Digital laggards are not only increasingly non-competitive but also face extinction. The same can be said for individuals; those that are “digitally aware” are highly sought after. Digital ignorance is a ticket to redundancy.
The greatest peril of the digital transformation journey is the failure to embark on it. This applies not only to companies but also to individuals and business functions—law included.
Law’s Languid Response To Digital Transformation
The legal function is a digital laggard. It is a passenger in its own change process; business is the driver. There are many interrelated reasons for this including: legal culture, indoctrination, training, and hubris. An absence of economic pressure from clients could be added to the list although that is changing.
The legal profession has long operated by its own rules, dictated the terms of its engagement with clients/customers, used self-regulation to maintain ownership control and prevent competition, and unilaterally determined what is “legal” (i.e. requires lawyers). Lawyers have adhered to precedent, not thoughtful experimentation. They have been trained to avoid mistakes, not to be creative. They are inculcated with the myth of legal exceptionalism that divides the world into “lawyers and ‘non-lawyers.’” This ethos has become professionally calcified. It is inimical to the fluid, agile, collaborative “connecting the dots” mindset required of digital workforces.
A Fit-For-Purpose Legal Function Shaped By Business
Left to its own devices, the legal profession has demonstrated little inclination to change. That’s why business has taken the reins. It is refashioning a fit-for-purpose legal function, one that is aligned with business objectives, customer-focused, and integrated with other business functions.
Digital business has reshaped the purpose, role, and remit of the legal function. It expects legal not only to seamlessly meld the practice and business of law, but also to align this integrated legal delivery capability with corporate purpose. The goal—and key performance metric— is enterprise value creation and and an elevated end-to-end customer experience. This issue will be explored more fully in the article that follows.
Law’s alignment with business goes well beyond adoption of corporate purpose. It also requires that the legal function speak the language of business, operate at its speed, provide holistic, data-backed recommendations, engage in 360-degree risk assessment (not just legal), be proactive, leverage its institutional knowledge, expertise, and skills and share them with other business stakeholders, adopt business metrics, produce enterprise value, and enhance the customer experience. Legal has long been a business. Now, business expects it to operate like one. That means, among other things, that the legal function will morph from cost center to value creator.
Legal Innovation Is Not Cutting It; Alignment and Integration With Business Will
The legal industry has convinced itself that it is “innovating,” “disrupting,” and “digitizing.” Business thinks otherwise.
How can law’s digital gap be bridged? Spoiler alert: business is not waiting for legal to figure it out. It is revoking law’s digital hall pass and mandating that legal be held to the same metrics, processes, accountability, and value creation as other business units.
C-Suites and Boards, confronted with the warp-speed pace, complexity, new risks, talent wars, and competitive threats of business are demanding more from the legal function. They see its untapped potential to drive value and improve customer experience and recognize this will not be achieved without aligning/integrating legal with business.
Legal change will not move the business needle so long as it is an intramural legal process. Most legal “innovation” has involved internal efficiency changes that preserve firm margins or help balance in-house budgets. This does not drive material value to business or its customers. That’s not what business is looking for from legal.
Business expects the legal function to reimagine and reverse-engineer itself—as it has—to create value and elevate customer/end experience. That can only be achieved if legal aligns, then integrates, with business and participates in the enterprise digital journey.
Legal must conceive of itself not as a discrete function but as a part of a larger enterprise whole. It must align with business and its purpose and operate synergistically with other business units. This is ground zero for the legal paradigm shift that business is demanding. It is the same starting point that business confronted when it embarked upon its digital journey. Business reassessed its purpose and reimagined from the customer/end-user perspective—how its products and services could be delivered more effectively. It was not afraid to envision the “art of the possible” and to jettison long-standing paradigms, replacing them with entirely new delivery models. This is what produced companies like Amazon, Apple, and Uber.
For the legal function, integration is a two-tiered process: (1) integrating the practice of law with the business of law and making them seamless for clients/customers; and (2) integrating with other business functions to mitigate risk as well as identify and capture opportunity.
Many corporate legal departments struggle with the first prong of legal integration. They still see the legal world divided into in-house lawyers, firms, and “ALSP’s.” Instead, they should ask: “what mix of expertise, skills, experience level, technology, business acumen, data analytics, scale, and cost is required and how can it be integrated seamlessly and delivered at scale?” Legal delivery is amenable to the same platform and managed services arrangements that other business functions routinely enter into.
The second element of legal integration is collaboration with other business units to create value. Digital litigation is one of many opportunities. It does not accept the inevitability of existing dispute resolution/litigation paradigms. Instead, taking a multidisciplinary, data-backed approach, legal collaborates with risk management, compliance, and other functions to proactively detect, prevent, reduce, resolve, and compress protracted litigation. Not only does this paradigm-shifting approach dramatically reduce legal spend and lost opportunity costs, but it also frees up legal and other business unit time to devote that time to revenue generating activities.
Business digital transformation is both cause and catalyst of legal change. A fit-for-purpose legal function will benefit business, its customers, and society. It will also elevate the impact and corporate standing of legal, freeing its professionals to engage in more purposeful, creative, rewarding and revenue-generating activities. Legal digital transformation will produce many changes and will not be painless, but the candle will certainly be worth the game.