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New report: digitalization transforming the legal market

Is digitalization changing the legal market in Sweden? The Swedish Competition Authority has recently published a report produced by Dr Christian Sandström of the Chalmers Technical University in Gothenburg on this topic. We have read the report with our in-house eyes and made the following observations.

1st and 2nd wave of digitalization

The study concludes that the first wave of digitalization took off in the 1990s and concerned previously analogue information along with the introduction of electronic office equipment. In the next phase, parts of the lawyer’s work is automated using software. The second wave has entered a growth phase in recent years and will continue to expand. The first wave led to considerable productivity improvements and the second one has similar effects.

Our view is that the trend  in the in-house community largely corresponds to what has happened in the law firms. The first wave of digitalization gave us sharing of information and know-how within the legal teams. In the second wave more of the work is automated and allows the in-house counsels to free up time to focus on more strategic high value work. However, we still see legal teams struggling with the first wave despite the fact that we today have affordable and user-friendly off the shelf solutions available on the market to a fraction of the price that such solution costed in the past. A contract database project in the mid 2000s could take more than a year to finalize and could cost millions. Today you can achieve much more sophisticated functionality for a couple of hundred Euros per month and implement it overnight.

Artificial intelligence – the 3rd wave

The third wave is frequently referred to as Artificial Intelligence (AI), and implies that technology can analyze vast amounts of documents and may help the lawyer to draw conclusions. The report points out that AI solutions is in the trial phase among Sweden’s larger law firms and implementation will start to take place later this year.

The question is what impact AI will have on the in-house community? Our view is as follows: In the short term AI will change the way DD will be performed. Quicker access to data and the possibility to make sophisticated analysis with little efforts are two upsides for the in-house teams working in M&A projects. Further the in-house counsel will get new tools in the tool box to carry out risk analysis in the areas of contracts, compliance and data privacy. Finally, AI-based tools will be able to handle more of contract review work. There is already a tool on the market that can analyze contracts and make a one page summary of the most important points. Once this technology has been fine-tuned contract review will be much more efficient and likely move into the commercial teams.

Impact on the legal market

While the report points out that the general trends towards productivity improvements, increased price transparency and more price competition run across the entire legal sector, the impact of digitalization will differ across various segments of the legal market. Within the highly profitable segment of international M&A, AI is increasingly required. British law firms with larger development budgets are ramping up investments, imposing competitive pressures on Swedish firms.

The report argues that the legal sector will in the coming few years be subject to a swift evolution rather than a revolutionary transformation. Digital solutions are primarily developed by specialized suppliers, meaning that they are available for anyone on the market, which in turn lowers their impact on competition. Second, while digitalization requires new skill sets, knowledge concerning legal matters remains intact and for most clients, this expertise remains the most important selling point. At the same time, the report points out the there is a number of new players with innovative business models, like LegalWorks, that start to flourish.

We believe that the developments are purely positive from the in-house perspective. The emerging new technologies and the new players will offer more solutions and cost-efficient alternatives to choose between. Equipped with smart tools the in-house teams can be in better control of risks and do more in-house if so preferred. Low-end work can be automated freeing up time for more strategic work.

If you want to read the report you will find it here.

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