This post is a digest of an important new article on the digital transformation of legal departments.
Me: [Enthusiastically sharing new NewLaw literature with a friend.]
Friend: “My first reaction is…that’s a lot of pages!”
It is a lot of pages. It is also critical reading, even for the newly acquainted. For those who want the bottom line without all of the pages, this digest is for you.
The source material comes from a forthcoming law review article titled, “Don’t Let the Digital Tail Wag the Transformation Dog: A Digital Transformation Roadmap for Corporate Counsel.” The article has three authors with different and complementary perspectives: Michele DeStefano (law professor at Miami Law), Bjarne Tellmann (general counsel at GSK Consumer Healthcare), and Daniel Wu (a lawyer/PhD candidate turned SVP of Product at Stake).
Q. At a high level, what are the key takeaways from the article?
A: The current approach to Digital Transformation in legal departments is arduous, painful, and risky. It starts with a focus on point solution technologies to automate traditional ways of working and reduce cost; progresses to an inwardly focused process redesign effort; and – for some – eventually evolves to a focus on harnessing data to create new forms of value, enhance experience, and more effectively partner with the business. A better model is to focus, from the outset, on purpose, client-centricity, and holistic transformation.
Q: So, what is Digital Transformation?
A: Digital Transformation (“DT”) is the process of using digital technologies to create or improve business processes, culture, and customer experiences to meet changing business and market requirements. Because of the word digital, we might anchor on technology. But DT involves much more, as it a complex, multidisciplinary change management effort that demands a thorough redesign and re-imagination of the organization’s (or department’s) core purpose, operating environment, and service delivery model. For DT to succeed, technology must be recognized as a means to an end and not an end in itself.
Q: Why are we talking about DT in legal?
A: DT has become a “newly urgent” enterprise-wide imperative for most multinational companies (“MNCs”). Global spending on the technology and services that enable DT is forecast to reach $2.8 trillion in 2025, more than double the amount allocated in 2020. A 2021 study consisting of 2,000+ interviews reported that the number one priority among CEOs is digitization.
This expectation extends to expect all areas within the organization, including the legal department as critical to the success of the enterprise effort. See also Post 277 (Jason Barnwell of Microsoft discussing how much legal departments will need to transform just to keep up with the service demands driven by enterprise-level DT).
Q: What is the paper’s call to action for legal service providers?
A: The authors urge legal service providers of all kinds to embrace DT and embark on their own DT journeys, warning that failure to evolve will relegate legal professionals to second-tier status.
Q: How are MNC legal departments currently addressing the DT challenge?
A: In an often disjointed and gradual approach that evolves through the following three phases of maturity. (Note that this is currently the industry “state of the art” that, per the authors, is just not working.)
Phase 1: The “More for Less” Dynamic and Ad-Hoc Acquisition of Tech
Phase Hallmark. GCs mistakenly believe DT is mostly about automation. They acquire technology in an ad hoc manner with no overarching thought as to how the various new investments should come together as a whole. They become overwhelmed by all of the new technologies out there and often get stuck in the discovery stage. Return on investment does not materialize because the technology purchased does not address underlying organizational problems, and in some cases worsened the situation, leaving GCs disenchanted with the whole idea of DT.
Value-Orientation. These GCs are not too concerned with proving or measuring the legal department’s value. Instead, they believe the department’s value is intrinsic and understood and appreciated by their internal clients. They believe most clients would agree that the in-house department is responsive, provides qualitative legal input, is solution-oriented and risk-tolerant, and provides useful guidance. Further, they believe that it would be very difficult to objectively measure the law department’s value. Thus, this difficult, foundational problem is left for another day.
- Time scarcity
- Self-perception that legal department is adequately responding to business demands
- Change resistance by lawyers in the legal department
- Pushback from the business, resulting in a piecemeal approach that does not require universal buy-in
- Technology option overwhelm
- Law firms that are even more behind, or worse are smoke & mirrors
Phase 2: Process Redesign and Strategic Optimization
GC Motivation: Desire to coalesce the department’s digital estate around a single, cohesive strategy and run the department more like a business (and less as a cost center). “The whole point is to free up time and bandwidth so we can . . . focus on the strategic and things that do matter.”
Phase Hallmark. GCs realize that the department should have spent the time up-front to clearly identify the problems they are trying to solve before acquiring technology. Now, they are thinking inwardly about the user experience within the department. Specifically, the GC and an operations specialist identifies and prioritizes needs; maps processes and bottlenecks; redesigns and optimizes service delivery; and leverages appropriate technologies and services to accelerate these changes and achieve scale.
Value-Orientation. The GC is no longer just measuring value based on “how our clients feel about us and whether they like us.” Instead, impact is based on critical performance benchmarks and use cases that demonstrate value to the business.
- Scared lawyers (scared for their jobs)
- Internal clients balking at the simplest self-help tools
- Expert vendors selling smoke and mirrors
- Processes from the past wasting time and energy
Phase 3: Harvesting Data for New Insights & Analytics, Collaborating with the Business, & Focusing on the Experience, Skills, and Culture
GC Motivation: The objective moves from optimizing the legal department in isolation to harnessing DT more holistically and systematically for the benefit of the MNC as a whole. GCs have come to realize that the true value of their DT lies in the data they can harvest, allowing them to better partner with and serve the business and provide new sources of value.
Phase Hallmark. The focus turns to enhancing the experience, not only of the legal department, but also of the client base, and potentially even external customers and suppliers. GCs now see the value of integrating the insights captured from the legal department’s data with the data captured elsewhere in the MNC and begin building towards that end.
GCs realize, however, that these new sources of value can only be harvested by designing new ways of working, including developing new skill sets, and new mindsets. They also recognize that the DT journey is one of continuous improvement, that there always remains more to accomplish. GCs then begin to focus on the transformational aspect of DT, embracing the notion that a successful transformation requires leadership on their part to infuse their team members with accountability and responsibility for department-wide success.
Value-Orientation. Phase 3 GCs wholeheartedly believe that running the legal department like a business means that: “You care about customer service. And you care about the cost of raw materials. You measure inputs and outputs and you are accountable for the delivery or service and the costs it takes. And you measure now vs. years ago. The goal is to measure everything in order to demonstrate ROI.”
- Measuring the quality, input, or output of a legal department
- Talent management
- Change leadership and management
- Redefining the purpose of an in-house lawyer
This GC quote epitomizes the challenge: “I need to start to re-tool and re-purpose and upskill and reskill my lawyers to maintain legacy knowledge but change how they think of their jobs.”
Q: Is what they are doing effective and value-accretive?
A: There are some bright spots of enormous value creation. For example, as part of DXC’s recent two-year DT journey, the legal department contributed to a 20% increase in new business generation by improving its contracting processes. It is noteworthy, however, that DXC is a global IT consulting and outsourcing company–a logical candidate to get DT right. Overall, however, despite best intentions and efforts, most in-house legal teams are failing to keep pace with the complexity and accelerating rate of DT.
Overall, DeStefano, Tellmann, and Wu conclude that the answer is no. And where it is yes, there is often a significant amount of pain involved. This can be attributed to the following missteps in the current 3-phase evolution.
- The Phase 1 focus on technology, as opposed to holistic transformation, can create significant friction in the overall process, resulting in the emergence of change fatigue and other hurdles. Legal departments remain fragmented, focused on short-term work, and lost in an increasing volume of low-value work using traditional delivery models.
- In Phase 2, the focus on what is best for the department, rather than internal client and external customer needs, results in the failure to proactively collaborate with the business. Consequently, GCs risk configuring their DT with an end-state that fails to contemplate business needs and does not evolve with changing priorities and emerging preferences.
- The Phase 3 post-hoc approach that leaves client-centricity and a proper focus on change management until the end is disruptive, adds unnecessary cost and threatens the credibility, viability, and timing of the entire DT effort. Attempting to change mindsets, skill sets (upskilling and reskilling), and behaviors in the final phase risks setting the DT journey itself up for failure.
Q: And importantly, how should GCs approach DT to best generate value?
A: The authors offer a Best-Practice 5-Step Model, as depicted below. This type of prescriptive content does not lend itself to a digest format. For more detail, see pages 47-61 of this important new article by DeStefano, Tellmann, and Wu.