In our latest Insight, the Hg team from our Legal & Reg Compliance cluster focus discuss the effect of COVID-19 on the Legal Tech sector:
Restrictions on movement have highlighted the importance of technology in the legal industry – so what are the implications for the legal tech providers?
Ben Meyer, Jean-Baptiste Brian, Hector Guinness, Thomas Martin, Greg Coates and Si Si: Legal & Regulatory Investment Team, Hg
The pandemic and associated lock-down has had an impact on businesses across most industries. Law firms have not been immune, with clients reducing their business activity, several M&A transactions on hold and many courts closed. A recent research report for law firms estimates a revenue decline of 15-20% in 2020 compared to the previous year* which will have an even greater impact on profitability, driving many law firms to the difficult decision of freezing costs and in some cases taking more drastic measures such as reducing staff hours and cancelling partner pay-outs.
The restrictions on movement have also highlighted the importance of technology. Like most of the world, law firms have also had to make the transition to a work-from-home environment, relying more than ever on technology to connect employees and drive efficiency. For firms that invested in, particularly, cloud solutions and collaboration tools over the last few years, the transition to a remote workstation has been easier. However, as an industry the legal world has tended to lag in technology adoption to general businesses** and many are expected to play catch-up over the coming years if they are to successfully “futureproof” against other scenarios.
Low cost tech enablement in constrained times
Many law firms already plan to overhaul their IT systems once the economy bounces back to ‘normal’ but, for now, most are focused on lower cost options with an attractive return on investment in the near-term – and there’s a lot that can be achieved here.
Whether it is reviewing the existing tech stack for performance and efficiencies or perhaps further planning and reinforcement of cybersecurity measures in this more risky environment, there is actually a great deal of action that can be taken to significantly modernise and improve IT agility for the near and medium term, all of which can be inexpensive or potentially for free.
Many legal tech and software providers, including some in Hg’s portfolio, are offering free products and services in direct response of the crisis. For example, Litera is providing a free trial of Litera Transact, a tool which allows for the remote management and signing of transactions and Mitratech is making a free workflow tool to check on the health and COVID-19 risk status of employees available. Initiatives like these enable law firm CIOs to roll out or trial new tech for free, testing what might work best in the future for their firms.
Furthermore, CIOs can utilize potentially quieter employee workloads to push updates of existing systems. Updates may be free or at least less expensive than buying new systems and can unlock new features, stability gains, and cybersecurity threat mitigation.
Good leaders will hopefully be able to look past the crisis and move their firms from the ‘react’ phase of dealing with COVID-19, and plan tech initiatives to innovate into what will become the ‘new normal’ of law practice – so what does this mean for the legal tech providers?
Lasting impact of legal tech post crisis
Professor Richard Susskind was recently quoted as stating that “technology barriers have been surmounted” in the law industry and the “effect of COVID-19 is an acceleration of the use of technology.” So does COVID-19 present a big opportunity to legal technology businesses?
Law firms and legal process have adapted new norms over the past months, several that are here to stay. For example, remote working will likely be more acceptable going forward as managers see similar productivity levels, or in some cases even increased productivity. Similarly, in a world of e-signatures, online collaboration and remote closings, it seems archaic to go back to physically sending documentation back and forth, now that this more modern method has been successfully adopted.
All of this suggests a higher adoption of tech post COVID-19. However, legal tech has to be mindful of the situation that presents itself and its responsibility to its customers. The current mandate has to be about supporting existing clients. Budgets will be limited for some time, so customer engagement, frequent interactions, ensuring customers are looked after and protecting your brand, is all crucial. This can take many forms, from free services discussed above, to providing free information and collaboration – bringing customers together to solve current issues and soften the blow of what is happening.
All in all, the current COVID-19 pandemic creates several challenges in the short-term but guides to a new way of working and adopting technology that is here to remain. This creates an opportunity for software vendors and law firms alike, and it is a supportive philosophy of customer support, alongside a solid business model, that will determine the long-term legal tech winners of a ‘post-COVID’ tomorrow.