In the first part of this article, we examined the innovation wave behind digital transformation and how law firms can tap into this potential new practice area.
The US market, the largest and most mature as to digital transformation, is also one of the fastest growing and was the first to go all out in this area. And while law firms have been slow to identify this micro-niche as a lucrative area of focus, the consulting profession has not.
In the general consulting market, digital transformation reached $26 billion in consulting revenues by the end of 2017, the last full year for which there is data. Indeed, digital transformation work makes up 40% of all US consulting revenues.
The key driver behind this? Ongoing disruption across multiple industries that are being driven by new competitors, as well as incumbent players that now recognize the need to invest in digitally transformed models in order to stay one step ahead of these aggressive new entrants. Even those companies who were slow to invest are now taking steps to change. A fear of being left behind combined with a strong economy and the recent tax windfall provides companies with the means to invest.
Participants in the financial services sector represent the largest buyers of digital transformation work, accounting for 28% of the digital transformation spend. These companies focused on customer experience transformation initially but are now also looking at end-to-end digitization initiatives, using automation to re-engineer entire processes and starting to experiment with artificial intelligence (AI) to drive up efficiency.
The clear leadership role in digital transformation is now being assumed by the CEO, as seen in 41% of companies. This is largely because digital transformation is now one of the top three priorities of many corporate boards.
Manufacturing is the second largest market segment, representing 15% of the dollars going to digital transformation work, followed by Energy and Resources at 12%.
Of course, digital transformation means different things to different sectors. In consumer products, it’s about themes like cost reduction and better supply chain integration. Telecoms are focused on new service offerings and infrastructure. While Mining, which has operated with the same business model for decades, is now planning how to innovate using digital.
What to Look For in Digital Transformation
Some developments to watch during the coming year:
⇒ According to the latest data from the MIT Sloan Management Review, the clear leadership role in digital transformation is now being assumed by the CEO, as seen in 41% of companies. This is largely because digital transformation is now one of the top three priorities of many corporate boards. Expect to see more CEOs committing their attention and resources to this initiative and becoming more actively involved in the selection of external support resources.
⇒ Labor and employment support will become more critical as the personnel-side of the changes needed for digital transformation often go under-addressed — yet arguably are one of the key success factors. Often, human resources departments in these companies are tasked with carrying out the digital transformation, yet they are often inadequately equipped to do so from a skill, culture, mindset, inclination, and talent perspective. Many organizations have had their digital change initiatives crash upon the shoals of insufficient human capability for execution or an inadequately enabling environment.
⇒ New digital regulations — like General Data Protection Regulation (GDPR) — are adding complexity to many digital transformation efforts. While some organizations may decide simply to ignore or abandon (at least, for now) those regions with expensive or cumbersome regulations, that path is not possible for larger organizations that have a global commitment to customers and partners. Companies should expect more focus on digital regulation in 2019 and be ready to deal with it proactively in order to prevent a large-scale slowdown of digital projects and initiatives.
⇒ New technologies will emerge during the year to augment the vast and growing list of existing technologies that companies must absorb to stay relevant. Companies will be required to learn how to experiment quickly, often with partners and startups, to begin promising pilots to better enhance their business. And these companies will require legal guidance in their efforts.
As digital transformation grows in importance, clients are looking for guidance around legal and business solutions to best develop digital strategies, including how to harness new technology to upgrade their customers’ experience. And incumbents need to determine how best to deal with market encroachment from new digitally enabled competition.
Further, efforts to digitize the back office through the use of tools such as robotic process automation has raised numerous operational improvement legal issues. Labor and employment, human resources, change management, and even cybersecurity risk assessment and regulatory efforts are all being reshaped as clients start to grapple with the implications that digitization has for their workforces.
Law firms would be wise to wake up to the potential legal solutions that their clients will need in this area as well as ramp up in this practice micro-niche area to better identify and service new potential clients.