Klaus Schwab – Founder and Executive Chairman of the World Economic Forum- noted in 2016 that
“We are on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another.”
Schwab was referring to the fourth industrial revolution. This latest milestone in human evolution has altered the status quo, producing a new world order. People and businesses have witnessed how the internet and digital media are transforming almost every possible social interaction. As a result, long-established business models are forced to accept the changes, challenges, and opportunities brought by new technologies and innovation.
However, not all industries have experienced the same pace. For example, the legal profession has a long way to go to compete with highly innovative sectors. While the value proposition offered by lawyers remains faithful to traditional culture, lawyers are finally starting to prioritize transformation. Currently, there is a significant debate regarding the future of the industry, with a surge in webinars and research focused on LegalTech, legal design, and legal innovation.
As research shows, knowledge of industry trends is vital for organizations to stand out. Studies on a company’s ability to address changing environments have a long history. For instance, in an exhaustive investigation on strategic management, Teece (1997) introduced the theory of dynamic capabilities, arguing that a company’s ability to achieve a competitive advantage begins by detecting and shaping opportunities. Therefore, lawyers are moving in the right direction by recognizing what the future holds for legal services.
The specific objective of this essay is to help understand the factors influencing the future of law. In the following pages, I will discuss the decisive signals determining the new legal industry. The legal industry has proven to be one of the last to adapt. Generally, law firms remain traditional and formal, with an almost non-existent tolerance for risk. Consequently, lawyers lag behind other industries in technology adoption. Nevertheless, the sector can no longer resist the pressure; change is imminent, and the legal business model is beginning to undergo a drastic transformation for the following reasons:
Covid 19
Although it may seem counterintuitive, the coronavirus crisis did not trigger the debate on digital transformation. In recent years, there has been a growing interest in the digitalization of economies. For example, the journalism business model was disrupted by the internet long before Covid-19. It allowed new competitors to emerge, created alternative revenue structures, and revolutionized relationships with users. Additionally, fintech businesses forever changed financial services. Customers now have access to 100% digital banks that offer greater security, no hidden fees, and a better user experience (and digital).
Along the same lines, trend discussions about the future of the legal profession were emerging shortly before the Covid-19 outbreak. Potential industry challenges posed by new entrants and innovative services and technologies were already being examined as medium-term scenarios. However, the awareness among lawyers to quickly transform their traditional methods to seize the market is attracting considerable critical attention after a year of the pandemic.
Lockdowns and social distancing worldwide pushed the adoption of new ways of working and interacting with clients. Companies realized that to face the new normal, it was necessary to transform and reorient their assets. The legal industry was forced to accept that adopting changes in its culture and strong traditions is vital and, more importantly, feasible.
Technology and Law (LegalTech)
Recently, there has been growing interest in introducing technology into the legal sector. The concept of LegalTech is becoming increasingly familiar to students and lawyers, both in academic and practical settings. On one hand, leading law schools worldwide are beginning to incorporate LegalTech into undergraduate and postgraduate courses, as well as executive education and continuing professional development programs. On the other hand, academic research exploring LegalTech themes and concerns is reaching record levels every year.
Furthermore, the number of LegalTech companies established in various countries is on the rise. They are also securing more funding and capital from investors than ever before. Additionally, enthusiastic and diverse professionals are creating ecosystems and associations. For instance, ELTA in Europe, UKTA in the United Kingdom, Avotech in France, ASEAN in Southeast Asia, Alt+co in Colombia, and ILTA are just a few examples of these groups emerging globally.
New Entrants
The expansion of legal startups could serve as a cautionary note for understanding the future of the legal industry. Established firms are now being challenged by new entrants who are restructuring market boundaries. Thus, traditional companies are recognizing the significance of the improvements made by their innovative competition.
Christensen (1997) observes that disruptive innovations are generally distinguished in two large markets that are frequently neglected by incumbents. Low-end customers constitute the first. The second refers to new market segments with no previous users. Therefore, the process of disruption is usually linked to the value propositions offered by startups, rather than traditional firms.
Legal entrepreneurs are applying innovation strategies and concepts that are reshaping the industry. The traditional culture, where the lawyer takes precedence over the client’s relevance, is changing. There are now iterative developments of Minimum Viable Products (MVPs) linked to technologies and new services that offer a fresh perspective on the interaction between law and clients.
Innovative Services
The adoption of technology and the acceleration of innovation are not only improving the industry’s current processes but are also generating opportunities to execute activities (and offer new legal services) that were previously not possible. Consequently, startups are providing customers with cheaper, simpler, and more convenient solutions. Big Data, Artificial Intelligence (AI), and Legal Design illustrate this new wave of legal services.
Existing studies suggest that Big Data improves the legal sector in two ways. First, creating efficiencies for organizations. For example, it allows for cost prediction, improving billing strategies and time management, and assisting in resource allocation. Second, Big Data has the potential to reorient the value proposition for clients. It is being used for judicial analysis—in other words, to anticipate how judges might resolve cases. This issue has gained importance following a recent debate in France, where legislators chose to ban this practice.
Furthermore, AI is reshaping the industry. First, it can free professionals from operational routines, giving them more time to focus on substantive tasks. For instance, AI is being used to search for documents, cases, and precedents. Additionally, AI is enabling more people to have access to legal services. With the help of machine learning, “chatbots” are being introduced to resolve frequent client questions. Moreover, high-quality automated contracts are being created, offering more affordable options for clients who might not be interested in hiring a traditional lawyer.
Finally, Legal Design is contributing to the new era of law. Beyond functional technologies, innovation also plays a prominent role in the future of the industry. A user-centric vision is expanding the legal business into new markets. Legal Design is the result of applying innovation theories, such as Design Thinking, to improve user experience. Making the law more accessible, understandable, and usable is the ultimate goal. Therefore, lawyers are adapting to meet the needs of clients who demand solutions aligned with the expectations of end-user interaction.
Conclusions
This article aims to explore the influence of the Covid-19 outbreak, new entrant technologies, and innovation on the future of law. Perceiving market signals is the first step toward sustaining or achieving a competitive advantage. Therefore, this article can help establish a strategy to face a rapidly changing environment and uncertainty.
The coronavirus precipitated the digital transformation of the legal industry. It proved to lawyers that it is necessary and feasible to change the traditional legal culture. Furthermore, awareness surrounding the combination of technology and law is increasing. Both academia and professionals are beginning to develop capabilities in LegalTech. Along the same lines, startups are offering innovative services like Legal Design that could bring about dramatic reforms.
It may be a matter of time before we face the disruption of the legal industry. However, what lies ahead for lawyers might be no different from what other industries have already experienced.
We are not developing new technologies. Big Data, AI, and machine learning existed long before their introduction into the legal sector. Similarly, Design Thinking and the Lean Startup method that support legal innovation are well-known management theories. There are many examples of markets that have already introduced them to conceive novel products and services. Therefore, my final advice is to look closer at what other markets experienced before to understand what the legal business model may face.
Perhaps an advantage of being a late adopter (i.e., an industry resistant to change) is that we can learn from the experiences of other sectors. Seizing opportunities and avoiding mistakes can be easier for us if we acknowledge the past.
1. Christensen, C. M. (1997) The Innovator’s Dilemma: when new technologies cause great firms to fail. Boston, USA: Harvard Business School Press.
2. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509–533.
3. Alvarez, S. and Barney, J. (2007). Discovery and Creation: alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal, 1(1-2), pp.11-26.
4. Schwab, K (2016). The Fourth Industrial Revolution: what it means, how to respond. World Economic Forum, [Online], p. 1. Available at https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/
