Reimagining the Operating Model
Digital transformation has effectively missed the legal function, despite the opportunities it provides to unlock real business value for the industry.
Peter Newton, Managing Director of D2 Legal Technology, considers the role of business process re-engineering and standards to ensure legal services and operations remain relevant in a disrupted post COVID-19 world, when digital transformation really is king.
Prior to the COVID-19 pandemic the legal sector, in common with every other industry, had stuttered along a journey to begin to embrace the digital agenda. But the inherent conservatism of the legal profession meant that this was generally token in nature. In many cases, this was simply tinkering at the edges. Adding a little bit of machine learning here; outsourcing to cheap third party service providers there. Worryingly, there has been no fundamental change to the underlying operating model. And simply no standards that we can use to build technology solutions – for example with respect to legal agreement data models. We cannot build smart contracts off the bespoke approaches we currently see! Automation of itself is not the goal – rather it is to add more business value – and we certainly do not want to automate the business processes in place that have a 70s (maybe 80s!) feel to them.
Not only does this fail to reflect the client driven business models inspired by Uber, Amazon and the transformation in for example retail banking, it also misses the opportunity to provide firms with the foundation for the value driven business supply chain that will be the key to success in a post COVID-19 world.
The trends that were slowly, if inexorably, coalescing over the past decade have been accelerated to the point where every aspect of the business model must now be under review. The way we work will change. Where we work will change. Businesses need to be “antifragile” (to quote Taleb); people want to work in different locations. New workspaces will morph from solely physical constructs to increasingly virtual and data driven.
The trends that were slowly, if inexorably, coalescing over the past decade have been accelerated to the point where every aspect of the business model must now be under review.
Most importantly, the manner in which we work and how we work will change. Firms will have to relearn the fundamental business principle: they exist to serve clients. How can firms reconsider the operating model to better service clients while also support the new demands from employees regarding how and where they work?
When considering every aspect of the how, where and why operating model, the focus must be on the need to deliver value at every stage of the business supply chain. How, for example, can a law firm deliver legal advice to financial institutions in a way that enables it to be immediately consumed and drive value throughout the business – rather than taking weeks of expensive and intensive review by the internal legal function? Why not automatically generate drafts of trading agreements, firing off the necessary internal approvals – as soon as the client onboarding team and credit save down the relevant client details?
Systems and data have been at the heart of the scaling of these financial institutions since the 90s, but the inputs from legal departments and retained external law firms continue to be just words – analogue in nature – and more words. Legal advice needs to be provided in a manner that is cognisant of these downstream data-driven systems and processes.
This requires a new way of thinking and a new approach to innovation. Of course, there is a need to streamline processes. There is an opportunity to embrace innovative technology; a requirement to enable secure, effective working remotely as a globally distributed team; and a chance to explore a raft of third-party service options. But to deliver success in a value driven supply chain, the goal must be automation by design, not default – and the focus must be on optimising the client experience, not simply cutting costs or improving internal efficiency.
Adding a little bit of clever technology to speed up processes here and there is not enough. Legal functions need to consider how to use that technology to enable a new way of working that delivers tangible value to clients while meeting employee expectations.
Operating models need resilience. They must be better able to accommodate change without continual work arounds. Why use OCR signed documents when you could simply save them in a machine-readable form? They must enable truly effective collaboration, not only between internal and external teams but also with intelligent technology. Could the legal provider of the future be a part human, part virtual, part machine? The challenge is to maximise each element and play to each of our strengths. This was the future of AI that Kasparov saw on his defeat by Deep Blue – not one of being replacement by machine but seeing the dream team combining the two.
The foundation for this transformation by design is industry-wide standards. These critical building blocks, including common agreement and clause taxonomies, allow consistent representation of the real world. They enable the rapid creation of different, interconnected business outcomes and provide the chance to take advantage of new business requirements, global or market events, tooling and technologies.
For example, with industry-wide standards, internal legal expertise is supported by collaboration with third party providers measured on value, not cost. Lawyers can leverage deep digital information resources. They can mine all the contractual obligations and business outcomes of all lines of business in the bank. Essentially, plug together diverse skills and information resources in a way that allows the legal function to rapidly and effectively deliver more downstream value to clients.
This re-imagination of the legal operating model can be achieved through pretty simple technology The key is to change the approach, to move away from no or just the latest, must have, shiny tool – to meaningful technology and process improvement – through a hard look at what we are doing and the modular and foundational building blocks to make these repeatable and automatable – delivering on the promise of digitisation.
This is not an operating model to be feared; it is one that refocuses the legal function and enables intelligent individuals to focus on higher value issues that affect the P&L. And that is the foundation – value at every stage. Value of skills, value of clients and value of service delivery.