Introduction
Many industries got turned upside down in the last years by technology and innovation. Currently, the financial sector and the insurance market are subject to disruptive technology innovation.
Only one industry seemed to be immune against radical innovation: the legal services industry. Business models of law firms remained generally stable with a focus on individualized and specialized legal advice to clients based on hourly rates. Even after the financial crisis in 2008, law firms generally continued to operate under this same business model, although they faced increased pressure on their rates. On the other side of the market, legal departments have continued to be an insulated branch in companies and successfully claimed to be different and special from other departments. Therefore, legal departments often refrain from using the standard processes and reporting tools or the same metrics that apply to other corporate departments. Legal departments defend their position as a gatekeeper for legal advice. In the last years, however, researchers, practitioners and experts have started to think, develop and implement innovative ideas for the legal market that will radically change how law firms, legal departments and vendors of legal tools operate.For the legal function in companies, this may seem as part of the usual up and down of the last decades. For most of the twentieth century, legal departments mainly served as switchboard to distribute all prestigious work to one or very few outside counsel who were considered to be the only ones capable of handling complex and important tasks, while day-to-day and routine work was kept in-house. Then, since the 1980s, the legal functions and their General Counsel (GC) gained more power (Ribstein 2012). At that time, clients wanted to regain their control over costs but also over the legal know-how relevant to their business.
Also, more competition emerged between big law firms which gave Chief Legal Officers (CLOs) power in the buyer's market. Recently, however, the legal departments themselves face increasing pressure again—not from the outside, but from senior management which demands that the legal function should cut down costs, both for headcount and in their budgets for external counsel. Additionally they are requested to use management best practices, data analytics and alternative services providers, and generally balance risk with cost. In other words, senior management effectively requests their legal functions to be run as a business. This does not only affect large legal departments, which are often in the focus of attention, but also small companies and their legal functions.In this article, we will analyze the challenges of small companies to run their legal function, and we will examine how they can react with the help of technology. The following Sect. 2 will discuss the current challenges in the legal market and whether these challenges are cyclical or structural. Section 3 will describe the differences between large and small legal departments and what these differences mean for small legal departments or small companies without legal departments. Section 4 finally outlines how small companies can tackle these challenges and describes the elements a perfect solution for small companies would need to have.
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