June 11, 2019

Technology, Artificial Intelligence & the Legal Services Value Chain

Lev E. Breydo

Will lawyers become extinct in the age of automation?,” a headline from the World Economic Forum recently enquired, reflecting concerns that are increasingly top-of-mind for the profession.

Such zero-sum framing is hardly unusual; the discourse around legal technology generally – and artificial intelligence (“AI”) in particular – typically views the issues in existential, all-or-nothing terms.  However, as this article will posit from a cross-disciplinary analytical vantage point, that doom-and-gloom outlook need not be the case.

In fact, developments in legal technology are arguably part-and-parcel of the organic maturation of the industry and corresponding evolution of the legal services value chain.  Initially developed by Professor Michael Porter, the value chain is a flexible framework that “describes the full range of activities which are required to bring a product or service from conception, through the different phases of production . . . [to] delivery to final consumers.” 

The diagram below outlines a simplified value chain for legal services – which, like any framework, has innate limitations that cannot fully capture the nuance or complexity underlying an industry.

The Legal Services Value Chain: A Stylized Framework

The Legal Services Value Chain: A Stylized Framework

The value chain can be roughly analogized to a production process.  At the onset, the process requires “raw materials” – e.g., cases, statutes and documents – specific to the underlying analysis.  Once obtained through inbound logistics, the raw information must be reviewed and organized.  In the third step, the value chain transitions towards analysis through a combination of legal research and corresponding incorporation of matter-specific information.  Subsequently, the attorney is in a position to prepare work product and provide the client with legal advice.  Finally, the value chain ends with execution and implementation, which may take the form of in-court representation, counterparty negotiation or other form of advocacy.

Though “legal services have traditionally been regarded as relatively ‘bundled’” – e.g., closely-linked tasks requiring advanced legal judgement at each stage – legal technology already covers a material portion of the legal services value chain.  Inbound logistics, for instance, are largely facilitated through research platforms such as LexisNexis and Westlaw for public information and Intralinks for counterparty due diligence.  Further, third-party providers are increasingly moving up the value chain into information processing as well as analysis.  For example, in the bankruptcy and finance space, services like ReorgResearch and Debtwire are increasingly-ubiquitous and highly-regarded for processing and summarizing developments pertaining to individual cases as well as the broader jurisprudence. 

Experience from other industries suggests that as legal technology matures and evolves, it can be expected to continue moving up the value chain, in the process commoditizing activities once considered integral parts of legal representation and key profit drivers for law firms.  As a corollary, evolution in legal technology may incentivize disaggregation of the legal services value chain. 

The diagram below shows the legal services value chain along the key dimensions of value creation and complexity.  Importantly, value creation along the value chain – represented by bubble size – is neither uniform nor necessarily a linear function of complexity; steps towards the end may create disproportionately greater value than those at the beginning.  For example, while effective organization and legal research are important inputs, a successful negotiation or in-court victory creates far more value – and can be accomplished by far fewer service providers.  At the same time, steps that generate less value are also more susceptible to disruption through technological innovation, the frontier for which is denoted by the dotted red curve.

Value Creation Within the Legal Services Value Chain

Value Creation Within the Legal Services Value Chain

The development of AI poses particular challenges because of its perceived encroachment towards portions of the value chain long-considered the exclusive purview of highly-trained attorneys.  For instance, in a recent experiment, a LawGeex AI platform easily outperformed experienced lawyers in reviewing “low-value, high-volume” contracts. 

Yet, notwithstanding important normative considerations, developments in AI need not be viewed as adverse to the legal profession.  As an industry matures, technological developments can commoditize portions of the value chain, disrupting some providers, but, in the process, also reducing prices and increasing the aggregate welfare across constituencies. 

Indeed, rather than render attorneys extinct, legal technology and AI allows them to move up the value chain, “help[ing] secure the legal professional’s relevancy.”

Lev E. Breydo