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Why the legal function must be reimagined for the digital age
EY Global Law Leader
10 minute read22 Feb 2019
The EY global survey finds that legal functions must change their operating models to maximize value from digital transformation.
The recent EY legal operations survey of 1,058 senior legal practitioners from businesses around the world demonstrates the pressures that legal functions are currently under and how these may ultimately drive a change in operating models. In one of the most comprehensive surveys ever undertaken into the legal function, responses revealed that legal functions are having to balance an increase in demand against a squeeze on costs, while remaining compliant with a challenging and ever-changing regulatory environment. At the same time, they are struggling to capitalize on technological advances and are having difficulty attracting and utilizing talent resources.
As a result, many legal functions acknowledge that their operating model may well have to change – including exploring increased use of external providers – in order to meet these challenges.
Five key trends have emerged from the survey response data.
1. Cost pressures are driving change
It’s evident from the responses to our survey that legal functions are having to do more with less.
Indeed, responses to our survey indicate that 82% of businesses plan to reduce legal function costs over the next 24 months.
Despite this, nearly 9 in 10 respondents (87%) reported that their legal function had undergone either a large or moderate increase in demand for management information over the past five years.
These opposing forces are likely to squeeze legal function operations further, especially when taking into account the level of cost savings anticipated by respondents.
While businesses on average are planning to reduce costs by 11%, this figure is even more significant in certain regions and by business size. Notably, businesses in North America plan to reduce costs by 13% on average – and the figure is even higher for larger firms.
is the average cost reduction planned by legal functions with a headcount of more than 1,000.
In order to meet both increased demand and cost reductions, businesses are likely to increase their focus on re-evaluating operating models, which may include increased use of external providers.
Our survey indicates that legal functions are reaching a critical point. We urge general counsel to look widely for ideas to help reshape the function, as relying on leaner teams to continue to perform at above-average levels is unsustainable.
2. A need to capitalize on technology
While it may be widely accepted that digital readiness and the use of innovative technology across any business are essential for operational efficiency, responses to our survey indicate that the legal function is in danger of falling behind other functions, such as HR, IT and Finance, and the benefits they have realized in their moves to modernize.
Indeed, nearly two-thirds (64%) of respondents believe that other functions in the organization, such as finance, have benefited more from innovation, be that through the adoption of the latest technology or higher innovation funding.
Our survey also highlighted that there are a number of barriers to implementing innovation in the legal function. Largest among these were “ongoing business-as-usual pressures”, cited by 36% of respondents, closely followed by “budget constraints” (32%). The latter is understandable, considering the cost pressures highlighted above.
Barrier to innovation
of respondents cited “lack of management skill/interest” as a barrier to implementing innovation.
Legal function leaders must put change on the agenda
Responses also pointed to the fact that management itself may lack the necessary skills to drive innovation – this could be either technological knowledge or change management abilities, for instance. Similarly, a lack of “interest” may point to decision-makers having competing priorities.
Failure to take advantage of innovative technology could make the legal function a weak link in the operational chain. Those businesses that change their operating model to capitalize on technological advances may well find operational efficiencies as well as cost reductions. More efficient organizations will be best placed to steal a competitive advantage, whether that’s speed to market with new services or faster adaptation to new regulation. As businesses become fitter and faster in the digital era, the more they need their legal function to keep up the pace.
Although simple, short-term cost-cutting measures such as reducing headcount or adopting technology seem to be common ideas, our experience shows that unless you unlock process and workflow, you will end up with the same problems in your legal function down the line.
3. Confidence around the regulatory environment
The legislative and regulatory landscape has provided considerable challenges in recent years and the pace of regulatory change shows no sign of slowing.
In spite of some prevailing uncertainty, legal functions report being largely confident about having a readiness plan to comply with future regulatory challenges, including new privacy and disposition rules, third-party data requests and regulatory events, such as US tax reform and BEPS.
Confidence about readiness is lowest for Brexit planning – which is arguably unsurprising as, at the time the survey was conducted, this was the one area about which there was the greatest lack of certainty.
Despite the apparent general confidence across a range of regulatory issues, businesses must continually ensure they have the right talent and technological capabilities to effectively monitor, evaluate and respond to major legislative change around the world.
Cost pressures and technological shortcomings as already highlighted may well make this more challenging than anticipated.
4. Challenges in attracting and deploying talent
While making the most of available talent across every function is key to optimizing business operations, our survey points to particular increasing challenges which face the legal function.
Not only are businesses encountering difficulties in finding the right staff, they are also struggling to deploy them as effectively as possible.
Nearly three-in-five businesses (59%) reported facing challenges in attracting and retaining talent they needed.
Use your resources wisely
Furthermore, on average, businesses appear to be exhausting a considerable amount of time and effort on routine/low-value tasks.
Time spent on low-value tasks
of total hours are spent conducting routine compliance and low-value tasks across the legal function.
As the World Economic Forum's Future of Jobs Report 2018 says, it's jobs - not people - that will become red…
29 Oct 2018 Monica Dimitracopoulos
These two findings point to a resourcing environment which businesses need to address as a matter of urgency. While one answer may be in improving internal training and skills programs, these tend to be mid-to-long-term solutions. As such, it is likely that legal functions may seek to use external providers, especially with regard to routine tasks. Legal functions need to ensure that their thinking is in line with the wider business on these points, and that they have learned the lessons about automating intelligently that the broader workforce have applied.
5. Re-evaluation of operating models
Considering the backdrop against which legal functions are currently operating, it’s understandable that many are continuously evaluating their operating model. This is especially true in the areas of outsourcing and procurement.
Our survey shows that while an average of 33% of businesses are already outsourcing a wide range of legal function processes, such as legal entity management and compliance, a larger number would consider doing so.
of businesses would consider outsourcing routine legal function activities.
Successful procurement teams prioritize value alongside driving lower prices
Procurement models are also shifting, with increased consideration given to alternative legal service providers (ALSPs) and legal process outsourcers.
While this is true across businesses of all sizes, this is particularly true among smaller legal functions, with 60% of those with a headcount of less than 1,000 considering ALSPs and legal process outsourcers.
How EY can help
EY Law supports in-house legal departments evolve the way they provide legal and commercial support. We help companies build an enhanced legal operating model allowing them to allocate legal work to the right teams, in the right place, at the right time.
Digitalization is transforming the relationships between businesses, individuals and governments.
Effective procurement offers businesses a powerful way of delivering services more efficiently. In light of the current pressures facing the legal function, they must continue to examine which options enable them to meet the complex and changing demands they are facing, as made evident in this survey.
As revealed through our survey findings, legal functions are facing pressures from all sides, and those pressures are all compounding to create an environment that is driving change.
The need to meet increasing demand is in direct conflict with anticipated cost reductions, so legal functions are having to look closely at operating models in order to deliver on these opposing expectations.
Technological innovation and optimizing talent would naturally be expected to be part of a solution, but legal functions admit to struggling in both of these areas. As a result, many are now considering outsourcing and external procurement as a solution.
It is clear that legal functions are going through a seismic shift – something that we explore in greater detail in our full survey report.
Key action points
- Include in-house legal functions as part of larger transformation initiatives
- Explore areas of innovation without delay to avoid widening gaps between the legal function and the business strategy
- Attract and, even more importantly, deploy legal talent effectively
- Monitor global and regional regulatory challenges closely
- Re-evaluate the legal function operating model to obtain maximum value
Legal functions are facing pressures from all sides, and those pressures are all compounding to create an environment that is driving change in the digital era.
About this article
EY Global Law Leader
Global Law Leader. Passionate about integrity and diversity. Father of five. Fond of classical music.
How HR legal professionals should consider automation in the workforce
Multidisciplinary professional services organization
3 minute read10 Jan 2017
AELC 2016 - Global Transformation of the Workforce through Technology and Artificial Intelligence (pdf)
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Are existing laws sufficient to accommodate robots in the workplace? We explore the legal areas of concern for HR professionals.
Some scholars argue that the introduction of robots into the workplace will have a severely negative impact on employment, while others argue that, as with the industrial revolution, jobs will change in nature but humans will still find employment.
First, a couple of observations on what is truly different in this “revolution”:
- This is global — it is happening all over the world almost simultaneously.
- It will affect almost all sectors, not only manufacturing and basic service industries.
- It will affect not only blue-collar workers but also white-collar workers — and maybe even professional services, even lawyers.
- It is occurring with mind-boggling speed thus the real issue as to whether legislative change can really keep up, even if it wanted to.
- Everyone should be preparing for this revolution and productivity accelerator — survival of the fittest.
It is important to note that robots can function with almost all existing technology. This means that the onboarding of robots into the workplace can be achieved rather quickly and relatively inexpensively. Moreover, no computer knowledge is actually required to “teach” the robot its job.
From the HR legal professional’s perspective, it is essential to have our eyes wide open and be aware of the parts of the business that can be impacted, the positions and tasks, and be attentive to the preparatory steps to robotization, even if no one mentions the “R” word.
HR legal areas of concern
What are the challenges to robotization under existing laws? Are existing laws sufficient? What new legislation could potentially help ensure a peaceful and productive working relationship between humans and nonhumans? Can the legislative response adapt fast enough to the changing digitalized working world?
The issues to consider under existing laws that are relevant in the transition stage to robotics in the workplace include:
- Is collective bargaining with unions required?
- Are works council consultations required?
- Need one inform or obtain authorization from data protection agencies?
- Is health and safety consultation required?
- Is labor inspector authorization required?
- How should one manage employees’ privacy issues, for example, as robots detect inefficiencies in the workplace?
- Are there obligations to retrain impacted employees?
- What about us? Will robots do our jobs as HR lawyers?
An understanding of what artificial intelligence (AI) can do for lawyers in order to better organize and prepare for future challenges is necessary. One thing is certain: we have no choice but to embrace a new way of practicing law. Our clients will increasingly expect this, and survival of the fittest should be kept in mind. A request for proposal will be asking bidders to explain how AI will be used in the provision of legal services to keep costs down, increase productivity, shorten delivery time and lower the risk of human error.
In the area of HR legal services, we have significant opportunities to increase productivity while reducing risk at a potentially lower cost. Specifically, as to HR law, the human element, the combination of psychology, sociology, culture and law should ensure that human HR lawyers will remain relevant and employed for the foreseeable future.
Transformation of the workforce brought by technology and AI is inevitable and hard to predict. The actual impact of the digitalized workforce and the rules regulating them, and the scale and significance of the impact cannot be measured today. This revolution will fundamentally question not only human working models but also more broadly, business models.
The future workplace: How to automate intelligently
EY Global Digital Leader, Markets and EY Global Knowledge Transformation Leader
EY Global People Advisory Services Leader
Ernst & Young LLP US Knowledge Transformation, Innovation and Strategy Leader
EY Global Tax Knowledge Leader
12 minute read29 Oct 2018
Right people, wrong place (pdf)
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As the World Economic Forum's Future of Jobs Report 2018 says, it's jobs — not people — that will become redundant.
Automation offers tremendous potential for leaders looking to drive transformation in their organization: from cost savings and increased delivery speed, to new operating models, to higher value activities for employees. It's this latter point that we feel is the most important — something that has just been confirmed by the World Economic Forum's recent Future of Jobs Report 2018.
Business leaders understand that successful implementation of automation is complex and likely to have far-reaching effects on their organizations. With “business as usual” no longer possible post-automation, leaders must navigate risks unrelated to algorithms, such as maintaining employee morale, building support for change and helping teams adapt to new ways of working throughout the reshaped organization. Getting automation right requires a strong focus on people strategies, transforming the business while maintaining an engaged, motivated and appropriately skilled workforce.
Earlier this year we undertook proprietary research aimed at providing actionable insights to leaders ready to take advantage of automation and effectively drive business transformation. As part of this effort, we mapped Frey & Osborne automation scores to nearly 2,000 occupations in four economies (US, UK, Canada and Australia); categorized those occupations into 15 business functions and 50 subfunctions across 16 industry sectors. This detailed mapping allowed us to understand how applicable automation was to different economies, sectors and business functions. Then, using transformations of ONET work activity data, we derived the amount of time that workers spend on individual tasks. When linked to the business function data above, the task-level analysis allows leaders to zoom in from a business function all the way down to an individual task, to identify the highest ROI automation candidates.
Our analysis uncovered a few surprising findings. The potential to automate tasks differs by more than 2X across sectors and up to 7X between functions as varied as finance (heavily rules-based, where 80% of tasks hold potential for automation) and learning and development (with only 12% of work potentially subject to automation). While it is important to understand the applicability of automation in your sector, we found that every sector can transform roughly a third of its work.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.