5 Legal Technology Trends Changing In-House Legal Departments

In short:

• The coronavirus pandemic created new pressures that have led more legal functions to pursue or consider automation, despite long being resistant to change in this area.

• Gartner experts expect legal departments to increase their spending on legal technology threefold by 2025.

• The following five predictions can help corporate legal leaders plan their legal technology investments and broader transformation efforts.

In-house legal departments have long been resistant to and risk-averse about automation, but the effects of the pandemic forced many to shift gears in 2020 and pursue — or at least actively consider — more extensive automation of certain legal activities, especially those around major corporate transactions. The challenge now is deciding which technologies to embrace to drive real business outcomes.

“The new pressures brought about by the coronavirus pandemic certainly have acted as a catalyst for this shift,” says Zack Hutto, Director, Advisory, Gartner. “Legal and compliance teams have rarely been frontrunners to modernize, digitalize and automate. The pandemic has flattened staffing budgets and increased legal workloads; technology is the most obvious solution for many legal departments.”

Download now: 5 Things Cost-Effective Legal Departments Do Right

Gartner research highlights the impact of technological innovation on corporate legal and compliance objectives. In particular, it looks at legal technology’s positive, direct impact on corporate legal productivity and efficacy, its potential for raising compliance risks and complexity, and its transformational role on the legal value chain.

These five predictions can help you plan your legal technology investments and broader transformation efforts in 2021 and beyond.

Trend No. 1: By 2025, legal departments will increase their spend on legal technology threefold

The proportion of legal budgets spent on technology is set to increase drastically by 2025, according to a 2020 Gartner survey of legal leaders.

Eight-seven percent of legal departments in 2020 expected their total number of in-house full-time employees to stay the same or decrease.

Learn more: Gartner BuySmart™ helps you make smarter tech purchasing decisions.

“The COVID-19 pandemic has heaped even greater workloads onto already thinly stretched in-house legal teams, with staffing levels holding flat,” says Hutto. “Legal leaders are seeing that other departments have found success with their tech investments and also significant advancements in the legal tech market. This is driving their appetite to expand their use of technology to support workflows and meet productivity demands.”

Developing a multiyear legal technology strategy that can evolve with changes in the corporate environment and advancements in the technology market will be critical to success. Legal departments should avoid ad hoc technology purchases that are poorly aligned to supporting the function in achieving short- and long-term business goals. 

Trend No. 2: By 2024, legal departments will replace 20% of generalist lawyers with nonlawyer staff

The trend of increasing workloads and flat budgets puts a premium on efficiency. This means that legal departments must improve their processes, legal technology implementation, analytics and other digitalization strategies to support this increased workload.

Download now: 6 Shifts GCs Must Make by 2025

Efficiency concerns have already led teams to consider the highest and best use of their teams’ time and expertise, including shifting work from lawyers to nonlawyers. However, advancing key improvement and innovation efforts will likely require a different set of skills or perspectives than those typically groomed in a traditional legal education. 

Consider a legal operations role. What was once a novel addition found almost exclusively within technology or financial services firms has reached mainstream status, with 58% of surveyed departments across all industries filling that role in 2020, up from 34% in 2018.

“The next several years will focus more aggressively on continually weighing resource decisions for specific areas of work”

The prevalence of the role tends to increase with the size of the organization. What could be the next innovative role within corporate legal teams? Gartner research finds increasing investments in legal project managers (up 56%) and data scientists employed within the legal function (up 30%).

Leading in-house legal functions in the next several years will focus more aggressively on continually weighing resource decisions for specific areas of work, whether relying on in-house lawyers, in-house nonlawyers, law firms or non-law-firm service providers. Moreover, they will enhance the legal technology and innovation capabilities within their teams by building skills within existing staff; borrowing expertise from other internal functions (e.g., via rotational programs) or external parties (e.g., via secondment); or hiring from novel talent pools.

Read more: How to Be a More Effective General Counsel

Trend No. 3: By 2024, legal departments will have automated 50% of legal work related to major corporate transactions

Demand for corporate transaction work has already rebounded from pandemic-driven lows. M&A work will continue to increase in coming years as companies recover from the pandemic, especially as the effects of the pandemic will have often lowered acquisition valuations.

“Eighty-seven percent of legal departments we surveyed in 2020 expected their total number of in-house full-time employees to stay the same or decrease,” says Hutto. “Traditionally, larger workloads could only be met through higher in-house productivity or costly outside counsel. Advances in natural language processing and machine learning (ML) technologies open a third way for handling these critical tasks.”

“The key to success is to first identify specific issues that can be solved with automation”

Despite the hype surrounding the field, automation isn’t a leap of faith. Even in 2019, the average legal department reported that 33% of its corporate transaction work was automated. There is room for more: In the same survey, legal departments reported that 55% of their work on corporate transactions was automatable.

There’s also no need to go it alone. Some leading legal departments are finding willing (if not enthusiastic) partners in innovation in the law firms and non-law-firm service providers with which their departments already work.

The key to success is to first identify specific issues that can be solved with automation rather than deploying legal technology in search of a problem.

Trend No. 4: By 2025, corporate legal departments will capture only 30% of the potential benefit of their contract life cycle management investments

As noted, automation is no silver bullet. Just because work can be automated doesn’t mean that it’s simple or easy to succeed. The most expansive, highest-potential solutions, such as ML-driven contract reviews, carry a great deal of complexity in the underlying functionality. 

Moreover, most legal departments plan poorly for such initiatives. A common mistake is to pursue a legal technology roadmap without sufficient regard for business or end-user needs. Typically, organizations that consider how a technology will advance specific operational functionality or business outcomes fare better than those that don’t.

“Failing to correct unrealistic stakeholder expectations for a technology’s payback period can contribute to the perception of problems”

Corporate legal leaders who fail to plan sufficiently for their technology investments risk wasting money on ill-fitting and poorly adopted systems. Technology marketing hype breeds lofty expectations and ambitious timelines that can rarely be achieved. 

Most critically, general counsel and their direct reports risk precious political capital when pursuing these technology and automation initiatives. Legal tech and automation investments already take longer than many might like, with the average team requiring 2.4 years to recoup its initial financial investment. 

Failing to correct unrealistic stakeholder expectations for a technology’s payback period can contribute to the perception of problems or underperformance with a new technology; legal leaders may find themselves in a vicious cycle where stakeholder disappointment drives further disengagement, robbing teams of vital inputs to refine and adapt the investment over time.

“Legal departments must prioritize capabilities that match their process maturity as opposed to a “big bang” approach”

If negative sentiment grows too great, organizations may be forced to abandon a technology initiative, potentially resulting in what one general counsel described as a “career moment” after being forced to write off a six-figure investment and thousands of hours of staff time, thanks to a failed contract life cycle management (CLM) investment.

To get the best return on CLM investments, legal departments must prioritize capabilities that match their process maturity as opposed to a “big bang” approach that will likely only accomplish a fraction of the expected value.

Trend No. 5: By 2025, at least 25% of spending on corporate legal applications will go to nonspecialist technology providers

Specialist technology vendors have long dominated the legal tech market, with the largest general-purpose enterprise software vendors making limited inroads among corporate legal departments. However, demand for legal and compliance transformation now transcends the departments themselves as CEOs, CFOs and CIOs recognize the strategic value of legal and compliance.

To exploit some of the broader transformation investments made by other functions, specialist legal tech vendors will increasingly build legal applications on top of business application platforms from Microsoft, SAP, Salesforce and ServiceNow, among others. These will appeal to big enterprises looking to leverage existing investments, and ensure easier integration.

Use of non-legal-specialist technology is also coming from the other end of the vendor spectrum, as innovative startups exploit artificial intelligence (AI), ML, advanced analytics, process automation and other emerging technologies.

This article has been updated from the February 2021 original to reflect new events, conditions or research.