Modern digital technology such as cloud, automation, mobile and artificial intelligence (AI) is changing how businesses use and buy technology. This, in turn, is transforming the businesses of the legal firms that support them.
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Law firms specialising in IT contracts have to get used to dealing with higher volumes of smaller IT outsourcing contracts as technology replaces people in outsourcing deals.
According to Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, outsourcing is on the way out. Such is the speed and scale of change at the legal company, which puts together outsourcing contracts for some of the biggest enterprises, the law firm has had to change its business model.
“We have switched our business away from the big outsourcing deals towards the adoption of technology,” he says. “In our experience – with some exceptions – deal sizes are down dramatically, and it is all about the use of technology rather than an outsourced service in the way we know it. You can call it outsourcing, but it is different.”
When Lewis started in the 1980s, things were very different. He was working in government on huge facilities management contracts, as IT outsourcing deals were then known – and deals with IBM in particular.
This is no longer the norm in outsourcing. “Today, large enterprises are integrating with IT companies they never thought they would be using five years ago, let alone 10 years ago,” he says.
This is especially the case in the financial services sector, where small companies specialise in particular aspects of financial technology. “This could be rating engines in the insurance sector, or robo advisors,” says Lewis. “There are small companies with very large financial services customers.”
The large traditional outsourcing suppliers, names associated with outsourcing for decades, will reduce in size as contracts are broken up. “For example, there are stories of how the big Indian players are shrinking,” he says.
“This is not just coming from western commentators, but those in India as well. Instead of high-volume labour arbitrage offshore models, we now have technology that is even cheaper,” he adds. This includes automation software, robotics and AI.
“It doesn’t matter what you call it,” says Lewis. “It comes down to the same thing. It’s a piece of software doing work that might have been done by a few Indian workers.”
Cloud and outsourcing not the same thing
Cloud computing is arguably the technology that has shaken outsourcing the most. IT infrastructure outsourcing deals in the large enterprise sector, usually high value and long term, are today largely cloud deals using utility-like services from the likes of Amazon Web Services and Microsoft Azure. This is often cited as a new form of outsourcing, but while IT outsourcing service providers are all offering cloud services, it is a different competency.
Lewis says even the Financial Conduct Authority, which regulates some of the world’s biggest technology users, sees outsourcing and the cloud as being the same.
“But we know they are different,” he says. “Cloud and automation deals are not outsourcing because they are not about complex service provision. There are complex services being provided, but you are not buying bodies – it’s a product you have to license, customise and integrate, which is not outsourcing.”
One thing that is the same is the need for legal advice. In fact, as cloud take-up accelerates, the contracts that underpin cloud-based services need more expert attention. “There are still issues around cloud, with CIOs still very concerned about security in the cloud, data protection and where data will reside,” says Lewis.
The use of software robots is also an area that requires legal support on contracts. For example, while robotic process automation has the potential to deliver significant cost efficiencies to many businesses, they could be wiped out – if the robots are not properly licensed to work with the organisation’s existing software estate. This was brought to light in SAP’s High Court victory over Diageo in their indirect licensing dispute. The exact amount to be paid has not yet been decided, but SAP has claimed it is about £54m.
Real savings are still unknown
With huge efficiency savings seemingly there for the taking, businesses will try to adopt the latest technology. For example, Lewis says he is not aware of a single customer that does not use the cloud in some form. “There are even quite a lot using the public cloud as part of a hybrid model,” he says. “They are mainly using private cloud, but also bursting into the public cloud for certain things.”
However, Lewis warns that the true cost of changing to technologies such as cloud is still unclear, even to companies in the IT sector. “From the outside, we don’t really know the total cost of ownership when moving to the cloud, but I do know it’s far more complicated than we are led to believe for a big corporate moving to the cloud.
“It is a whole project deciding what you are going to move to the cloud, how you are going to do it, who you are going to do it with and integrating it with your other systems,” he says. “It is this integration piece where CIOs are still outsourcing to systems integrators. This is creating a secondary market of cloud integrators and cloud brokers. I believe that there are true savings but I would not like to guess.”
Adopting new technology
But with technology disrupting industries in all sectors, businesses have little choice but to adopt new technology.
Lewis says Berwin Leighton Paisner itself is having to change. Not only is it changing its legal services to customers, but it is also changing the ways it works as a result of technology disruption. For example, the firm is using software to assemble documents designed to be read by AI. These documents are structured in a way that makes the use of AI to process them more efficient.
The lawyers themselves will also need new skills. “In the near future, if you want to be a lawyer in my kind of practice, you are going to have to be able to put a document together specifically for AI review,” he says.
“When you are asking artificial intelligence to review a trade document, it first has to be shown what clauses or terms in the contract it needs to identify,” says Lewis. “It then needs to be trained, which it will do through machine learning, but you need to help it develop.”