Innovation in the legal sector
Ten years ago, most law firms did not use social media and, if we go back a little further, most did not have even a website, while in other sectors the use of these platforms was not optional at the time. However, there has been a change recently, so we can see a certain awareness and consequent transformation in many organizations. In fact, this has led in recent years to the awakening of a generalised self-criticism due to the lag of the legal services industry in terms of innovation.
This has generated great debate and numerous articles, papers and conferences in relation to innovation in the legal industry. However, this profusion of content means that key concepts in the field cannot always be found. This could lead to a lack of clarity about what innovation is, especially when applied to the legal sector. Therefore, the aim of this article is precisely to clarify this term and contextualize it within the framework of legal services.
What is innovation?
The fact that it is not easy to define the term innovation is no coincidence, as there are many different approaches that were developed by a wide variety of authors over the last century. From the concept developed between 1912 and 1935 by Joseph Schumpeter and the definitions formulated by Peter F. Drucker in 1986 or Fariborz Damanpour in 1991, to most recent approximations, such as this paper by NFM Zawawi published in 2016.
Notwithstanding the above, most of the different definitions have certain elements in common. In this way, one of the most widely used definitions today that, from my point of view, includes all these essential elements, is the one coined by A. Baregheh, J. Rowley, and S. Sambrook in the article entitled Towards a multidisciplinary definition of innovation:
Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace
In my opinion, we can extract from the above that innovation is composed of the following four elements:
-Process. Innovation begins with an idea, but encompasses all the stages and operations necessary to transform that idea into reality and implement it.
-Change (internal). Innovation necessarily implies a change within the organization, as it involves designing new products, services or processes, or improving existing ones.
-Novelty (external). In order for innovation to be considered as such, it must allow the organization to advance in its marketplace. This necessarily involves developing or introducing something different taking into account what other companies within the same industry are doing at the moment. If we implement a measure that, being new to our company, is not a novelty within the sector (we have simply applied what most competitors already do), this would not be innovation.
-Purpose. As described in the definition, we innovate to compete and differentiate ourselves in our market. In my opinion, innovation should normally pursue, in one way or another, two possible fundamental objectives: reduce costs or improve the supply of products or services (either including new services or improving existing ones).
Therefore, any initiative that includes the previously elements could be an innovation. It is worth clarifying that, contrary to what is sometimes thought, innovation does not necessarily involve the use of technology. In fact, Ben Allgrove, Baker McKenzie’s global R&D lead, recently commented in an interview that “everyone wants to talk about technology and artificial intelligence, but the real changes that are taking place have to do with the business model, project management and process unbundling.” Of course, there are numerous initiatives that involve introducing a new software or technology system into our organization, but it is important to keep in mind that innovation is not limited to these areas.
How does innovation impact the legal industry?
As explained above, innovation must be understood and interpreted in the context of a particular industry. Therefore, we would only need to apply the above to the area of legal services to define whether an activity, initiative or organisation is innovative. From here onwards, the possibilities for innovation are practically unlimited and vary with the over time.
To ground the concept, below are a couple of simple but instructive examples of possible innovation scenarios in the legal field, with their corresponding explanation:
Example 1. Introduce an IT tool to automate part of the document review in due diligence. Here the necessary elements could be considered as an innovation (with a little nuance in “novelty”):
- Process: the initiative would range from the design or choice of software, to its implementation (with all the phases involved), employee training and other activities.
- Change: this measure entails an internal change by introducing a new process in the area of contract review.
- Novelty: it could be considered that there is a novelty within the sector, since there are not so many companies that are using this type of systems to automate the review of contracts. However, in some countries there have been some initiatives in this field for several years, so that the novelty factor could probably be questionable depending on the specific market (the level of use of these systems is not the same in, for example, the United States than in Spain).
- Purpose: this measure could aim to reduce costs, increase the speed of completion of due diligence and eliminate human errors, which could translate into more competitive prices and better service (therefore, the purpose requirement would also be met).
Example 2. Change human resources processes in a large law firm to introduce a flexible work system. We would also find in this case the necessary elements to be considered an innovation:
- Process: in this example, the initiative would encompass different areas, from changing human resources policies to modifying employment contracts with employees.
- Change: as I said, innovation means designing new products, services or processes. In this case, what has been designed is a new process in the field of human resources (not only can innovation occur in services, but also in the internal management of the organization).
- Novelty: in this case, there would be a certain degree of novelty within the sector, since, in general, many law firms do not have flexible working schemes or initiatives to promote work-life balance. However, this is something that is currently changing, so the novelty component in relation to this measure may disappear in the future as well.
- Purpose: This measure is intended to attract and retain high-level talent, which should translate into better service (therefore, the purpose requirement would also be met).
These are only two quite obvious but at the same time illustrative examples, while the possibilities for innovation are practically infinite. Now, once the definition is established and understood, there are several questions we could think about. Why has the legal sector been more reluctant to innovate than other sectors? Are all the companies that claim to be truly innovative? Are the lawyers really leading this innovation? These are all questions that are generating an immense debate and, without a doubt, this debate will necessarily result in more and more organisations joining the transformation process that we have been witnessing in the legal sector for some time now.