Legal tech budgets ‘will increase threefold’ by 2025
In response to unprecedented workplaces challenges, and in order to reduce dependency on outside counsel, law departments will triple their spending on tech in the next few years, predicts Gartner.
Spending on legal technology has already increased 1.5 times since 2017, research and advisory firm Gartner said, going from 2.6 per cent to 3.9 per cent in 2020. Such spending is set to increase, it predicted, to approximately 12 per cent of the total in-house budget by 2025 – marking a threefold increase from last year’s levels.
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Legal departments, the firm continued, are expanding their use of technology to support workflows and meet productivity demands.
“Therefore, developing a comprehensive, multiyear technology strategy that can adapt to changes in the corporate environment and advancements in the technology market will be critical to success,” it surmised.
“Legal departments will increase spending on technology to reduce the dependency on outside counsel, address COVID-19, and satisfy a long overdue need to modernise, digitise and automate legal work,” said Gartner director Zack Hutto.
“Even discounting the new pressures brought about by the pandemic, the trend of increased spending on inside counsel is a tailwind for in-house legal technology spending.
“Many legal leaders won’t have any scope to further increase headcount or outside counsel spending right now, so they are quite likely to look to technology to maximize the productivity of their existing investments in personnel.”
Moreover, Gartner went on, law departments will replace 20 per cent of generalist lawyers with non-lawyer staff, allowing them to do more with scarce resources.
In the last three years, the firm noted, the percentage of legal departments with a legal operations manager (responsible for technical staff) grew from 34 per cent of departments to 58 per cent.
The increase in specialisations is for two reasons, it posited: to in-source the areas of highest outside counsel spending, and in anticipation of legal and regulatory changes.
“Specialist legal work is typically lower in volume but higher in complexity, it is therefore not the best starting point for standardisation and automation,” said Mr Hutto.
“The higher-volume, lower-complexity work that is typically carried out by generalist lawyers is where non-lawyer staff will drive efficiency gains for the department, by digitizing key workflows and expanding the use of automation.”
Gartner also predicted that, by 2025, corporate legal departments will capture only 30 per cent of the potential benefit of their contract life cycle management investments.
Organisations that fail to consider how technology might advance operational capabilities or improve business outcomes, the firm mused, are less likely to achieve a return on investment than those that do.
“Legal departments that choose to follow a ‘big bang’ approach and implement advanced contract life CLM solutions and features will limit success and ultimately accomplish only a fraction of the expected value,” Mr Hutto submitted.
“To get the best return on CLM investments, build a deliberate, practical plan for CLM technology adoption by investigating, documenting and prioritising desired business outcomes and the necessary operational capabilities to achieve them.”