Today's episode of The Contract Lens Podcast features an insightful conversation between Malbek Director of Sales, Kevin Brening, and Managing Director at Valenta BPO, Richard Nohe, as they discuss how digital transformation is impacting in-house legal departments today. Having recently published a paper called "Digital Contracting in the Context of Digital Transformation", Richard brings a deep understanding of the issues facing legal departments in the age of digital transformation. He acknowledges the tension that inevitably exists since technology is inherently forward focused and legal is backward focused on historical precedent. But despite those tensions, legal no longer has a choice to delay from analog and manual methods, and there is great benefit to be gained in efficiencies and off-loading tedious tasks that pull away from more strategic work. Richard makes the case for why legal should align with the broader goals of the business and why AI should really be called "augmented intelligence", and he concludes with his advice for those organizations embarking on a digital transformation journey. So grab a glass of wine, and let's talk contracts!
Intro:
Welcome to The Contract Lens Podcast brought to you by Malbek. In this podcast, we have conversations with contract management thought leaders and practitioners about everything contracts and its ecosystem. On today's episode, we talk about digital contracting and transformation for legal departments. To discuss this, we are joined by Richard Nohe, managing director at the Valenta BPO. A firm focused on process consulting, digital transformation, and outsourcing. Prior to joining Valenta BPO. Richard spent the past 15 years at British Telecom, including time as the general counsel for their Americas region. He has focused on helping businesses achieve sustainable, profitable growth through embracing technology and digital transformation. So now it's time to relax, grab a glass of wine and let's talk contracts.
Kevin:
Richard, welcome. Thanks for joining our podcast today.
Richard:
Yeah. Thank you very much, Kevin. It's really good to be here.
Kevin:
Yeah, I'm excited to talk to you based on an article that I was able to read that you wrote, talking a little bit about digital transformation within legal departments. And I thought we'd be lucky to have you as a guest on this podcast, and I thought it would be good to sort of start with a brief understanding of your background as it relates to legal operations and sort of why you're passionate about this topic.
Richard:
Yeah, sure. Currently, I'm working for Valenta and managing director there and we focus on process consulting, digital transformation, and outsourcing, but if you look back a few months and really years. I was in the in-house legal department. I was most recently the general counsel for British Telecom in the Americas. And we went through a lot of transforming, not only the company, but helping our customers transform and then looking at the legal department in the context of both of those transformations. And that's really where I started getting very excited. I went through a program at MIT called digital transformation for organizational design and really started to reflect on, how is it that the legal department needs to manage its transformation in the context of broader ecosystem transformations? And it's just been a fascinating area. And so I've been lucky to have had that experience and it's something that remains a top interest of mine.
Kevin:
Very cool. Very cool. Yeah. And I think that's a good sort of segue to my million dollar question is, when you think about legal and just traditionally I think probably fair to say they're stragglers in the way of technology adoption. I'm just curious, if you think this is a valid assertion and if it is, why do you think that's the case?
Richard:
Yeah. I agree completely. I think technology is inherently forward-looking and legal is historically, and hopefully it won't always be inherently, but is historically backward-looking and that's because as a profession, we tend to look at history and we tend to look at precedents and laws are made because things have happened in the past and we're trying to deal with consequences in the future. And so when you try to put legal and technology together, they just don't really gel. And it's something that the profession really needs to focus on. How do we make that shift? And it's also a straggler with regard to the finance departments and the HR departments. Finance was the first out of the box with adopting technology solutions. You can think about Oracle and SAP and so forth. And then, HR has done it with Workday and so forth, sales with Salesforce and other CRM.
Richard:
And I think legal is catching up, certainly the likes of Malbek are a key example of that, but it's really that legal tech that is starting to bring it along, even if it's a laggard it's starting to hit its pace at this point, I believe.
Kevin:
It's interesting to think about, and you think about our modern business environment and just some of the technology solutions that are there. Why do you think that legal technology is becoming a focus based on the way business is being done today versus maybe what it was like even three or four years ago?
Richard:
Well, I think a lot of it is that we have no choice. Everything's going digital, you can't have a legal department or even an external law firm sort of sitting in glorious analog isolation when the big corporates are all going digital. You have digitally native companies that are already there. And a lot of the startups, they're looking at Shopify. So they're digital out of the box as well. And big corporates I think have led the way to a large extent pushing the marketplace, which itself is being disrupted, not only substantively with LPOs, but also through legal tech. It's really the legal environment doesn't have any choice, but swim along with the river, you can't go against the current.
Kevin:
That makes perfect sense. And when I was reading through your paper in digital transformation, I was thinking that this term is sort of a general term, the idea of digital transformation, but I'm just curious when you think about that term, when you were writing this paper. Specifically, with legal departments in mind, what do you want legal professionals who are looking to make changes, what should they be thinking about and in terms of digital transformation? What should that mean to them as we look ahead?
Richard:
Yeah. I think it is important to set a broad baseline. When you look at digital transformation, you're really talking about legacy institutions transforming from an analog environment into a digital environment. I mentioned earlier on, the MIT program and they have articulated five building blocks. There's an operational backbone, which is really about a digitized operational excellence. Once the backbone is digitized, it's end to end digital. There's not a whole lot of human involvement. You then have a digital platform, which is about rapid business innovation. And you also need shared customer insights, which is about iterative learning. You have an accountability framework that comes with that, which is about how do you engage the corporate governance.
Richard:
And then you're able to look at external developer platforms, which you can think of like the Apple Store and legal departments really need to understand that, that is what the ecosystem is transforming into. And a lot of them have to begin to align with those broader transformation efforts. And it's really beginning to think more about how do they ingest technology more deeply, whether that's robotic process automation or artificial intelligence or conversational AI, whatever it may be. The departments really need to be thinking about that broader ecosystem change and how they can participate in that in a more effective way.
Kevin:
It's so interesting. And I'm thinking about something you mentioned earlier in this conversation, it's almost like the understanding from the broader business around the need to invest in legal technology is just sort of coming around and you rattled off some other departments where it's already sort of been there. Sales, and you mentioned HR. And I actually come from a background of HR technology. And that was always something that I would hear from HR professionals, that for whatever reason, the business is finally recognizing there is an impact to the bottom line in investing in HR technology, because it impacts people's happiness and attrition and all of that. It's all linked. And it seems like that's happening with legal now, where they're getting the attention of the people with the purse strings and CFOs. I'm trying to put my arms around why that is. Why do you think it's now coming around where CFOs are actually giving the legal department more budget to do what they need to do?
Richard:
I think it goes back to that that island of analog isolation. They recognize that you can't sort of have the legal department sitting there and not integrated with the whole and rather than giving the legal department budget, I think what's happening is there is a broader discussion about transformation and legal is taking advantage of that broader spend. When you look at the spend that has to take place to bring legal along for the ride, it's really a fraction of what you would look at, if you're looking at transforming HR or finance or operations. Now of course, it depends on the industry segment, but there's so much funding going into that. And because legal ties in from lead to cash, and you really need to reflect how the business is operating across that, it's not a large incremental investment compared to the inefficiencies that you would get, if they didn't make that incremental investment.
Kevin:
Yep. No, that makes sense. I think something, you said along that line in your white paper that got my attention was, the fact that the contract itself can be used as a lens into the business operations, digital transformation. I was just curious, if you could expand on that a little bit. I love the concept of that.
Richard:
Yeah. So the way I view it is, there's sort of three pieces to a contract. You have the legal piece, the technical piece, and the commercial piece, and they each have their own audience. The lawyers are going to be legal and you can kind of think of that almost as a ... So what represents that, that's a Word document that you want to mark up. The technical piece is really about the engineering and that's something that you don't really want to mess with because you start tinkering with the engineering and it drives up costs, it becomes non-standard. So you can think about that, like as a PDF. And then you have the commercial element, which is really where most of the negotiation should happen. And that's really around pricing and the commercial model. So you can think of that as an Excel spreadsheet.
Richard:
And when you look at this, you can sort of take the lens of how it's going to operate. You can look at those different audiences and you can really make sure that each of the audience is focused on their particular area of expertise and start to disintermediate the lawyers from marking up a service description or getting into the commercials and disintermediate the consultants from getting into discussions about indemnities and warranties. And it's really about looking at that overall process end to end in order to kind of have a holistic approach that really achieves what both parties ultimately want, which is a service or a product that works.
Kevin:
Right. So just even thinking about that, just more tactically, if I'm a general counsel, head of legal at an emerging company, and I see the need to make an impact on legal technology ant to make some changes. I'm just curious, the importance of sort of taking a big step back and spending the time to analyze what's going on now with the current state of things. What does the end to end contracting process look like now? What should it look like? I mean, how important is that to really take the time to sort of map it all out and just take an honest assessment of where we are now and what the ideal state should look like?
Richard:
Yeah. I think it is important to take a step back and I think when you look at what's going on in the marketplace, you've had a fundamental shift that was really driven from the hyperscale players, at least on the technology side. Where you had a period of time, there was a lot of big scale outsourcing that was worth hundreds of millions in some cases. And what happened is, you had a transition and transformation, so the customer would transition the risk over to the supplier, and then the supplier would have to transform into their systems. And what happened with the likes of Azure and AWS and Google cloud and those sorts of players is, they said, "Look, we're building these hyper-scale environments. You're welcome to participate, but you're not going to tinker with our engine room. And frankly, we're only going to negotiate to a certain amount the terms and conditions, as well as the pricing."
Richard:
And so that really pushed the CIOs to say, "You know what? We actually don't want customized environments. We want standardized environments that actually work." And that has driven quite a significant change in perspective within the market. And I think that's something that any legal department needs to step back and say, "Look, what does the business want?" They don't want lawyers spending a lot of time arguing over things that are never going to get litigated. They want something that's going to help them grow efficiently and work. And so it's really important to step back and recognize that shift in the marketplace and go along with it rather than try to fight it.
Kevin:
No, that's great. That's great. I'm thinking too, prior to our conversation here, I was excited to have an opportunity to get some insight from you, because I know in your article you talked about ... It's clear that you have a lot of experience with multinational corporations, but I know in your current role you're more focused on that mid-market space, if you will. And this is something we think a lot about here, is just the differences between what legal operations professionals care about at a mid-market company versus an enterprise company. It seems to me that the advent of technology and making it a little bit easier to adopt technology is sort of leveling the playing field in some ways for these smaller to midsize organizations to compete at least in the legal function. I'm just kind of curious to know, given your experience and what you see ahead. How do you see that as different the enterprise focus versus the focus at a mid-enterprise mid-market size company when it comes to legal technology?
Richard:
Yeah. I'll answer that in a couple of ways. First, it used to be that decades ago that the large corporates would drive technological change down into the market. We've seen that shift and now consumers are driving the change up into the corporate market. So midsize companies really are right in the middle and take advantage of both. Now, in a mid-sized company clearly you have less legacy to deal with. You're, you're more nimble. You don't have to be as concerned about ... You can take advantage of public cloud offerings, for example, without having to think about, how do I migrate this large private cloud estate? And so there's so many options. Again, like Malbek is a perfect example, that is very compelling, and it's actually at a much lower risk profile.
Richard:
You think about how, not necessarily the midsize companies, but how the consumers are consuming technology, and there's a real benefit from that. And I think that, that is flowing up into the change as well. And so midsize companies are really well positioned to really feed off of the momentum created by larger companies, but really take advantage of it in a much more nimble way and be cost competitive and really be able to achieve sustainable, profitable growth from it.
Kevin:
No, that's interesting. And it's a near and dear topic to my heart. I personally am focused a bit more on the mid-market and how to provide value to them. One thing I noticed is, a lot of times they're investing in technology in the legal realm for the first time. And specifically, with contract management software. We find often that they don't know what they don't know, as opposed to maybe the exact opposite in the spectrum with a large enterprise company, they may have a procurement team. They may have a defined buying process. You have to find all of their needs and have it all sort of mapped out. That's not the case in the mid-market. And sometimes we struggle, when it comes to services and implementation, and how to advise them as where to start, how to get that initial framework, how not to bite off maybe more than is needed in a phase one. I'm curious what you think about that, for organizations of that size, who are doing something for the first time, how do you keep it in scope? How do you keep it in bite sized pieces?
Richard:
Yeah, it's a good point because it's very easy to boil the ocean. And I think you do need to ... I guess there's a consultative element to it, where you really need to start with the process that they're trying to improve, and you need to put a scope around that process so that you're not boiling the ocean. You're not talking about, let's look at the process across the entire company.
Kevin:
Right, okay.
Richard:
You start with, for example, contract management or the procurement piece or the sales piece, but you take a bite sized chunk and it starts with the process, from the process, you start to identify what are the tasks, and then you want to look in your toolkit and say, "What tool most efficiently can perform this task?" And sometimes that's a human, a lawyer, a paralegal, a salesperson. Sometimes it's robotic process automation. Sometimes it's an AI tool, but you really need to start with that process clearly defined in scope, and then say, what's the best tool to use to accomplish each task along the process.
Kevin:
That's great advice. That's great advice. Along that line, something else we hear pretty consistently is just that there's a need to sort of speed things up and executives are wanting the contracting metrics too, they want to see an impact in how fast it takes to get things fully through the cycle. That seems to be different to me and you did mention something about this in your article, which resonated and the old school was sort of the long drawn out legal negotiation, which was sort of expected, where now the pressure is on to just move these things through. How do you measure that against, or weigh that against risk mitigation, risk management, finding that sweet spot?
Richard:
Yeah. Well, I guess there are a couple of ways to manage sort of speed to contract and there's of sales velocity, and things like that. That you can find on the web, just sort of formulas for efficiency. But when it comes to risk mitigation, the point I mentioned earlier with the hyperscale players and also looking at, how is it that you procure standard services when two companies are engaged in a way that is more standard than customized? The likelihood of something going wrong is decreased. Organizations, and this is why it's important for the legal profession to sort of step back and think, "What risk am I trying to mitigate? Is it likely that you're going to have some sort of litigation where an indemnity is going to be very important? And do you want to really burn two weeks on discussing that? And the liability limit ties into the data privacy." All these things that are very important, but take time.
Richard:
Or would you rather just buy something that is proven in a standard package, understand standard terms and let the business decide on where that risk lies? And so I think it's important to recognize that what businesses want to do is grow in a risk savvy way. And that does not necessarily mean risk averse. It's inevitable that you're going to take risks. You just want to be savvy about it and the lawyer's role should be to enable that.
Kevin:
Yeah. I think really technology then, if done properly, it really does allow you to find that middle ground, where you can set it up upfront. So risk factors are taken into consideration, the way you set up workflows and approval flows while also focusing on speed once it's implemented. I think that just allows you to run faster, but with some constraints that are already sort of pre-built in, if you will.
Richard:
Yeah, absolutely. And it's not about, let's just throw the guardrails away. It's more about how do you set up the governance and the risk profile once at the beginning, and then stick to that profile and deal with exceptions, rather than trying to redo it every time. When you're doing very customized deals every time like you used to do in the old days, that made some sense, but the economics were completely different. The technology was different and times have changed. Set it up once, make sure you're comfortable with it, and then let the technology operate as it should.
Kevin:
Absolutely. I think too, that's a great segue to another point of curiosity that I have, and this is again, kind of near and dear to my heart, which is, there always seems to be sort of this natural push pull relationship between legal and sales. Sales wants it now and wants it done. And then they're thinking, "Gosh, this stuff's never going to happen, why are we arguing about this?" And legal is doing their thing. And it seems to me that sales leaders identify this as being a top frustration and I think legal folks do on the other side. Do you think that this is just sort of a natural opposition, or do you think something can be done even outside of technology to better cultivate that relationship, make it a little bit more symbiotic? Does technology help this, hurt this? What are your thoughts on that sales legal push pull?
Richard:
Yeah, I think it doesn't have to be that way, sales and their counsel are on the same side and they both want the same thing. Now, the salesperson may be paying more attention to governance and to some of the things that are a third rail type issues, but sales people really want to get the deal done for the benefit of the company as well. I think we're in the middle of the process within the marketplace of using technology to redefine the role of the participants in the whole lead to cash process. And there will be some give and take, but I think as long as there's an agreement upfront at an executive level of, what are those swim lines? If you go back to the point that you have the legal, the technical and the commercial structure or the contract, the salespeople should be focused on what's the commercials of the deal and what is that P&L going to look like?
Richard:
They shouldn't be tinkering with the engine room and they shouldn't be debating what's going on with indemnities. So it's really about finding that balance and recognizing that we can use technology to alleviate a lot of those pain points, but what we're really all walking in the same direction.
Kevin:
Yes. And I think too, it aligns with some of the feedback that we get from GCs and to legal that who have adopted technology. I mean, more or less that the feedback is not just with sales, but with other parts of the business, that it actually allows those factions to become more of a meaningful part of the process and do some of the heavy lifting along with legal, as opposed to sort of the old way where legal was sort of the bottleneck, because they are over here on this island. It seems to me, if you can figure the technology upfront properly and figure out where everyone's roles sort of factor in. You're actually approaching it more as a team, like you just mentioned.
Richard:
Yeah, absolutely. Frankly, I think commercial attorneys that are dealing with contracts, a lot of what they do and this isn't to put fear into commercial attorneys, but a lot of it can certainly be handled by technology and the salespeople can use that technology in a way that is perfectly acceptable to corporate governance. And what that does, is it frees up those commercial attorneys to focus on things that are more forward-looking rather than again, looking backwards and trying to protect the current environment. Thinking about, "Okay, so what technology is coming down the pathway, should we be looking at supply chain? And how are we going to deal with the intellectual property coming in to supply chains and negotiating. How are we going to handle APIs?" And a lot of this sort of shifts to dealing with supply chain, rather than dealing with the customer side, where technology ... You can use them on both sides, but it's really taking that broader perspective of the business end to end.
Kevin:
Yeah. And some of the feedback I've gotten from sales reps who have now started to use a contract management system, for example, is just one part of the legal technology landscape. Just visibility that was never there before. And it immediately sort of quiets that natural sort of issue between legal and sales because they're not having to do what they had to do before, which is constantly call legal. Where's my contract, where is it? It's sitting where? Who's got to approve it? Just purely giving sales reps and sales leaders that visibility using technology is in itself just a major win. And I've gotten feedback, as I mentioned, along that line fairly consistently.
Richard:
Yeah. I think anytime you put the tool in the hands of the user, you're going to have sort of a fundamental shift and the benefit of the tool. And I think that's a perfect example of that right there.
Kevin:
Definitely I'll tell you what, one topic that I wanted to save as we sort of wind down here that I'm very interested in your input on is the scary topic of AI, artificial intelligence, as it impacts technology and specific to legal departments. Do you believe that the worries of AI sort of removing the need for legal professionals and people in this are founded, how should people think about that?
Richard:
Yeah. There's been a term other than artificial intelligence or augmented intelligence. And to me, it's something that will help reach yes, more quickly. And a lot of what AI will end up doing our tasks. It's a tool for a task that most lawyers would be happy to give up, so that they can focus on more interesting things. Like, how to address broader risks and how to structure it to allow for growth and all the regulatory changes and things like that. The fear of AI is not unique to the legal department. And I think the best way forward is to understand it and then embrace it. And a lot of the things that it will alleviate and a lot of the things that AI will address is probably some of the backwards looking things that legal has been focused on for a long time that we spoke about earlier. And that will allow lawyers to focus on how to create more efficient tasks, and how to be more innovative and focusing on what they really can put their expertise to.
Kevin:
Yeah. It sounds like your advice is really, just take a step back and be open to AI and it really doesn't have to be anything more than supplementation of the legal function in a meaningful way, and really helping make things more efficient for the human element. That's the way I see it.
Richard:
Yeah. I mean, if you go back what, probably 30 years now, senior partners at law firms were afraid of email. Now we're probably all afraid of email right now, because there's so much of it, but it's inevitable and you just have to embrace it. It's a technology, it's a tool, it's not going to take over the world. Just use it in the way that is best suited.
Kevin:
Absolutely. And for the record, I'm afraid of email and Zoom meetings at this point, from a volume standpoint. So as we closeout, I'd love to sort of take it a step back and just broadly, understand any overall general guidance you might have for legal departments that are really, looking to take on this daunting task of digitally transforming their legal team. What would you say to them, is there a parting wisdom, if you will?
Richard:
Well, I think recognize that it's happening, it's happening now, embrace it. Make sure that you align with the business. Don't try to swim against the tide and work with the finance department, the CFOs to leverage the broader budget spend, to make sure that your systems and tools are not left behind as the broader businesses transform.
Kevin:
That's great advice. Excellent advice. Well, tell you what, this has been a great conversation, Richard Nohe. I really appreciate your time. By the way, if people want to find you in some fashion, how do they do that?
Richard:
Yeah. Well, there aren't very many Richard Nohe's, that's N-O-H-E, on LinkedIn. It's not a very common name, so they're welcome to get in touch with me there. I also, Valentabpo.us is the website for Valenta. As I mentioned, we do process consulting, digital transformation, outsourcing. We also have a learning capability, where we do training and we'd be more than happy to engage in helping, especially medium sized businesses increase their profitability in a sustainable way.
Kevin:
That's awesome. You certainly have an excellent background for this type of thing. And thank you for writing such a great piece with your digital transformation within legal departments article. I'm glad it found its way to us. And we were able to convince you to come on and talk a bit with us today. Thank you so much.
Richard:
Yeah. Thank you, Kevin. Thanks for having me. It' been a real pleasure.