Industry 4.0 is the new buzzword, but it means real change in how data is decentralized
After the difficulties of the long pandemic, I was able to visit a friend in San Diego over the summer. I work in legal innovation, and she is an engineer who works on an innovation team in a pharmaceutical company. She described her work as developing a “smart factory,” which intrigued me, so I investigated the concept. Although we work in very different business units, we found that our jobs had many overlaps: we both work on operationalizing areas of a business, and the concepts around process, data, and technology are very similar.
The “smart factory,” smart manufacturing, or Industry 4.0, was the German government’s vision encapsulated in the April 2013 report, “Securing the future of German manufacturing industry: Recommendations for implementing the strategic initiative INDUSTRIE 4.0 Final report of the Industrie 4.0 Working Group”. Industry 4.0, referred to as the fourth industrial revolution, is the fourth revolution in manufacturing.
Historically, the first industrial revolution involved transitioning from hand production methods to machines using steam power (mechanization). The second industrial revolution involved electrically powered mass production. Computers and electronics have marked the third industrial revolution, and in between the third and fourth industrial revolutions lie Industry 3.5: globalization, or offshoring production to low-cost economies. The fourth industrial revolution is the implementation of automation, the use of the internet, wireless sensors, software, data exchange in manufacturing technologies and processes, cloud computing, and artificial intelligence.
The same technologies and vision driving the fourth industrial revolution have led to the emergence of a new legal operations function in law departments. Though still in its early days within Canada, many US and European multinationals currently have significant legal operations departments.
What are legal operations? The approach uses people, processes, and technology to drive operational efficiencies within a law department. A 2020 Association of Corporate Counsel (ACC) report found that 53.8 percent of legal departments in the United States reported having a legal operations team, which has doubled in just six years. Law firms are beginning to pay attention to this trend. For example, New York-based law firm Shearman & Sterling LLP recently announced the launch of “Legal Operations by Shearman” to support their clients in “setting up, managing and maintaining the operations of a law department.”
As described in Forbes in “What Everyone Must Know about Industry 4.0,” for a system to be considered as Industry 4.0, it must include four themes of interconnection, information transparency, technical assistance, and decentralized decision making, which are all present in legal operations function.
The fourth industrial revolution is here. It’s just a question of how quickly change will come to in-house legal departments. As with any industrial revolution, there will be challenges in adopting the model. In establishing legal operations, the biggest challenges that law departments face are a lack of experience and a workforce to implement the systems, such as expertise around process or technology and having stakeholders invest in new technologies.
Companies may not want to invest in legal and focus their money on revenue-generating functions. Yet many businesses could reduce legal costs with some technology investment, and legal departments could seek assistance from external service providers to transform their business units.
