Is Your Legal Department Aware of an “Innovation Gap?” Here’s What You Can Do About It

When it comes to technology and analytics, the legal industry tends to lag behind those in the business world.  Whether it is comfort with tradition or the fact that lawyers are trained to look backwards for precedent rather than seeing what’s on the horizon, it is fair to say that those in the law tend to adopt new ways and new technologies later than most.

That “late adopter” characteristic is starting to become apparent in the relationship between an in-house legal department as client, and the outside law firm providing that client with legal services.  Simply stated, some in-house legal departments are starting to take the lead on innovation because they are realizing that their outside law firms are not.

This concept was coined “the innovation gap” by Ohio law firm, Thompson Hine, back in 2017.  Thompson Hine just released a new report, concluding that the innovation gap still persists today.

In this article, we are going to discuss some details about the innovation gap between in-house legal departments and their outside counsel, and we are going to suggest some ways in which your in-house legal department can make the most out of that gap to help your company.


In the Race to Innovate, It’s the Clients Who Are Winning

Thompson Hine wrote its initial survey report, titled Closing the Innovation Gap, back in 2017.  Similar to that report, the firm conducted a new survey of 107 in-house counsel and senior business executives across the United States.  The result is its latest report, just released on December 2, 2020, titled The Innovation Gap Persists.  As both titles suggest, the creators of the report noticed in 2017 an innovation gap between in-house clients and the law firms that serve them, and now they conclude that the gap has not decreased at all.

According to the most recent report, in-house legal departments want more innovation from their outside law firms, yet those law firms are not answering the call.  Specifically, the report revealed the following:

  • 69 percent of those surveyed stated that their law firms have not improved their level of innovation at all over the past year;
  • 72 percent stated that law firms have not been responsive over the past three years to the pressures faced by in-house legal departments; and
  • The percentage of those who reported that their law firms have taken some action, around 28 percent, is only one percent higher compared to three years ago.

Indeed, the kinds of innovation that in-house departments are looking for include managing internal workloads, reducing outside legal spend, and improving efficiencies.


What Have In-House Departments Done on Their Own?

As with the 2017 report, the latest report indicates that in-house legal departments are taking innovation matters into their own hands.  Compared to three years ago, it appears that corporate legal departments are putting that innovation into high gear.

  • Project management. 63 percent of in-house departments have made enhancements to their project management, compared to 8 percent in 2017.
  • Restructuring. About 41 percent of in-house departments reported successful restructuring of their legal departments, compared to 8 percent in 2017.
  • Outsourcing to Alternatives. 33 percent of corporate departments report outsourcing legal work to alternative legal service providers, compared to 3 percent in 2017.

In addition, many in-house legal departments are trying to get their hands around the power of data analytics and artificial intelligence (AI), to find efficiencies for their legal function.  As we all know, predictability is key when running a business, and unpredictability can be catastrophic.  Thus, in-house departments are looking to use AI and data analytics to identify trends that will help their company prepare for possible legal issues or quantify legal exposure ahead of time.

In-house departments are particularly interested in:

  • Identifying business trends that might result in a higher volume of legal claims;
  • Estimating the most likely settlement ranges for litigation matters;
  • Evaluating metrics that suggest whether it may be more difficult to close a deal with a particular company;
  • Using “transaction attribute” data (i.e., the specifics of each business transaction) to determine what is “hot” in the market.

Overall, Thompson Hine’s survey indicates a general disappointment with outside law firms because they are not innovating more, and a surge in innovation within in-house departments themselves.


Embrace Innovation in Your Legal Department

As GC in your organization, you might be feeling the same as those respondents in the innovation gap report.  So, what can you do to foster innovation in a way that improves your company’s bottom line?

First, it would be constructive to start a dialogue with your outside law firms.  Find out more about what their culture is with regard to legal and business innovation.  Inquire as to what kinds of strategic business counseling they typically provide for their corporate clients.  Once the conversation begins, you might find that your outside law firm (i) is already making concrete efforts to improve its innovation game, or (ii) the dialogue will motivate the firm to improve its services for your company.

Next, you should look inward to see what your in-house department can do to embrace innovation and perhaps lower your company’s legal spend.  It makes a lot of sense to join those other corporate legal departments that are outpacing their outside counsel counterparts.

Finally, when hiring, look for candidates who understand and want to capitalize on the latest innovations in the legal industry.  Human capital is, and always will be, the most important aspect of your in-house legal department.  Thus, when looking for candidates to join the ranks in your department, be sure that data analytics, AI, and legal innovation are part of the discussion.  By creating a culture of innovation internally, with in-house attorneys who understand the need to innovate, you may find that outside law firms will eventually follow your lead.