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.
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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.
- Interconnection: The ability of devices and people to connect and communicate via the internet. Cloud-based technologies have changed how we work, who we can work with, and where. We can see this employed in legal due diligence, where some routine legal works are outsourced to jurisdictions with lower labour costs, made possible by cloud-based communications.
- Information transparency: Industry 4.0 technology provides clarity by collecting large amounts of data and information and providing comprehensive information to identify areas of improvement.
As law departments become more automated, there will be more data. We already see reporting features in legal tech software. There are many examples of law firms mining data to make intelligent decisions. As legal tech software becomes more sophisticated, we will see more sophisticated tools around reporting. Invoicing software is a promising solution for a legal operations department. Some of this software gives analytics of legal spending broken down by firm and legal matters. Some software even provides benchmarking against other law firms for similar legal matters.
- Technical assistance: There are many examples of legal technology used to support people in making or solving problems. A favourite of mine is using legal expert systems and document automation software as technical assistance tools. For example, Neota Logic, a legal expert platform, has a list of solution projects, one being for Fujitsu, an expert system for use by Fujitsu’s lawyers to identify and analyze contract risk or to create self-serve automated non-disclosure agreements.
- Decentralized decisions: The Industry 4.0 report defines cyber-physical systems as “comprised of smart machines, storage systems and production facilities capable of autonomously exchanging information, triggering actions and controlling each other independently.” In other words, cyber-physical systems perform tasks as autonomously as possible. An example of a software solution that attempts to decentralize decisions is Lexcheck. This AI-based software can be programmed with a company’s playbook and then used by a non-lawyer in the same company to get redlines on third-party NDAs without involving a lawyer. There are also self-serve agreements, like simple NDAs, that companies set up to allow people to generate the agreement independently and flag it for review to legal under certain conditions.
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.