As barriers to entry change and profits consolidate to fewer companies, CEOs are under increased pressure to pioneer new products, services and business models. According to Gartner's Digital Enterprise 2020 survey, 68 percent of CEOs plan to increase their investments in digital capabilities, while 67 percent agree that their organization must become significantly more digitized to maintain their competitiveness. Digitization—the process of applying digital technology to conduct an activity that had previously been done through analog means—has become a corporate imperative.

For general counsel, growing corporate digitization means legal departments must change. Where once general counsel served in a pharmaceutical, retail, financial services, or manufacturing company, they now also provide counsel to a technology company. Legal departments must support traditional industry concerns and understand the changes that technology brings to markets, value, risk and processes. To support their companies, legal departments will need to ensure that they are digital-ready.

Understanding the Nature of Digital Business

Some implications of digital business are obvious. The use of new technologies and entry into new markets means new-to-company profit models, processes, third parties and customers. As companies digitize operations and transform their business, the work of in-house counsel will naturally change.

But digital doesn't just mean changes in transactions, contract types and data rights. Digital markets and digital processes don't behave like “analog” markets and processes. Gartner research has identified a few fundamental ways in which digital business is different.

What Digital Changes

• The sources of corporate value. New markets and technologies alter the importance of specific firm assets (g., the value of information, IP and market position). If your company engages in an asset-lite business strategy based on customer information, the value of data rights and the importance of negotiations with cloud and service providers will increase dramatically. Digital changes what's important to the firm, altering both the firm's risk appetite and legal's interpretation of risk. These changes must be clearly communicated throughout the department and to non-legal stakeholders.
• Roles and accountability. A typical digital project has six team members, 10 stakeholders, and a wide network of partners on which value capture depends. Further, digital technologies erode traditional boundaries, creating unclear roles and accountabilities across jobs and functions. In a digital world, it's difficult to determine who should provide input and who has decision rights.
• Project and transaction requirements. Agile and DevOps methodologies follow iterative processes with changing goals, flexible requirements and rapid launches. Legal can no longer expect clear terms at project outset and must be ready for project launches at a moment's notice.
• Drivers of risk creation. Sources of risk creation shift as automated processes reduce the number of employees creating risk. Legal departments will, as automation takes hold, need to shift oversight from individual functions and employees to the creators of underlying processes and algorithms.
• Risk certainty. As the decision-making process of algorithms and the legal interpretation of liability becomes less clear, the predictability of legal risk decreases. In some cases, legal will have to operate with less certainty.

Taken together, digital business transformation means different sources of corporate value in a more complex operating environment and with less certain legal risks.

Preparing the Digital Foundation

So how does a legal department prepare itself for digital business? To find out, Gartner analyzed more than 1,700 digital projects including marketing analytics initiatives, AI-powered chatbots, and construction of e-commerce platforms. We asked how the projects were governed, which stakeholders were involved, the timing of legal's involvement and the use of legal self-service tools. In short, we wanted to understand how legal departments can best support digital projects.

What did we learn? We learned that no amount or quality of client-lawyer service or relationship is sufficient for success in a digital world. No matter how well a lawyer personally supports a project—early involvement, continuous and customized support, solutions-orientation—it only has moderate impact on the success of the project or on legal risk management. In fact, having a lawyer “along for the ride” without a clear, distinct role adds real time and financial costs to projects. If you haven't defined precise project roles, legal involvement can negatively impact on-time project delivery and/or risk management.

What matters in a digital environment is how the legal department prepares to support digital projects. Legal departments must clearly define when they will engage on projects, coordinate involvement with other stakeholders, and empower the business to act independently within defined parameters. General counsel can improve digital success by:

1. Coordinating stakeholder roles and responsibilities. The increasing number of stakeholders in corporate processes makes actively reducing complexity in workflows essential. This means creating role clarity, assigning decision rights, and designing cross-functional processes wherever roles are unclear—whether in information governance, procurement contracting, IT project assessments, or any other workflow. Holistic design thinking helps reimagine corporate processes while rationalizing stakeholder involvement.
2. Defining business enablement. This means specifying how and when legal engages on a project and, to the extent possible, enabling the business to move forward without direct legal involvement. When creating processes, legal must aim for minimally restrictive guidance, removing any requirement that doesn't clearly articulate how it materially addresses total business risk.
3. Building a rapid response capability. Legal departments need the dual ability to recognize new patterns in business (e.g., the need to routinely onboard cloud service providers) and quickly build out repeatable support that allows the business to move forward. This requires staff time committed toward the development of scalable processes and a real capability to execute department projects quickly. Increasingly, legal departments have brought Agile methodology processes to bear on commercial contracting processes, creation of contract playbooks, and vendor due diligence requirements.

These actions work because they address the core operating complexity and ambiguity inherent in digital business. And for the additional upfront investment these capabilities require, legal departments see real returns and long-term time savings. Legal departments with the above capabilities increase on-time project delivery by 63 percent and increase appropriate legal and compliance risk-taking by 46 percent. That is, these legal departments help execute digital projects faster while better managing their risk.

Creating a Digital-Ready Department

Corporate digitization requires a departmentwide focus on the complexity and ambiguity inherent in digital business. This requires cross-functional coordination of business processes, carefully defined legal engagements, and building a rapid response capability. Legal departments that get this right will help their firms capitalize on the promise of digital business transformation.

Abbott Martin is a legal research leader at Gartner, a research and advisory company headquartered in Stamford, Connecticut.