Gartner Forecasts Legal Tech Budgets Will Increase 3X by 2025

February 22, 2021

By 2025, Corporate Legal Departments Will Capture Only 30% of the Potential Benefit of Their Contract Life Cycle Management (CLM) Investments

Legal technology budgets will increase threefold through 2025 as general counsel face unprecedented pressure both in terms of managing legal workload and driving efficiency in their departments, according to Gartner, Inc. The COVID-19 pandemic has created more work for in-house legal departments at a time when headcounts are likely to remain flat, at best, due to economic constraints.

“Legal departments will increase spending on technology to reduce the dependency on outside counsel, address COVID-19, and satisfy a long overdue need to modernize, digitize and automate legal work,” said Zack Hutto, director, advisory in the Gartner Legal and Compliance practice.

Below is a selection of the top predictions for corporate legal and compliance technologies through 2025.

By 2025, legal departments will increase their spend on technology threefold.

Legal technology spending has already increased 1.5 times from 2.6% of in-house budgets in 2017 to 3.9% in 2020. Gartner predicts legal technology spending will increase to approximately 12% of in-house budgets by 2025, a threefold increase from 2020 levels.

“Even discounting the new pressures brought about by the pandemic, the trend of increased spending on inside counsel is a tailwind for in-house legal technology spending,” said Mr. Hutto, “Many legal leaders won’t have any scope to further increase headcount or outside counsel spending right now, so they are quite likely to look to technology to maximize the productivity of their existing investments in personnel.”

Legal departments are expanding their use of technology to support workflows and meet productivity demands. Therefore, developing a comprehensive, multiyear technology strategy that can adapt to changes in the corporate environment and advancements in the technology market will be critical to success.

By 2024, legal departments will replace 20% of generalist lawyers with nonlawyer staff.

Increasingly, nonlawyers housed within the legal department provide technical and operational support. As these operational and technical roles increase, it will allow legal departments to do more with scarce resources. From 2018 to 2020, the percentage of legal departments with a legal operations manager (responsible for technical staff) grew from 34% of legal departments to 58%, with much higher use of the role among Fortune 500 companies.

At the same time, some departments at large enterprises are increasing the percentage of in-house specialist full-time employees (FTEs) to replace law firm expertise and control costs.

The increase in specialization is for two main reasons. Firstly, to insource the areas of highest outside counsel spending and secondly in anticipation of legal and regulatory changes.

“Specialist legal work is typically lower in volume but higher in complexity, it is therefore not the best starting point for standardization and automation.” said Mr. Hutto. “The higher-volume, lower-complexity work that is typically carried out by generalist lawyers is where non-lawyer staff will drive efficiency gains for the department, by digitizing key workflows and expanding the use of automation.”

By 2025, corporate legal departments will capture only 30% of the potential benefit of their contract life cycle management investments

Organizations that fail to consider how a technology might advance operational capabilities or improve business outcomes are less likely to achieve a return on investment than those that do. Many legal departments pursue technology roadmaps, lacking sufficient regard for business requirements and end users’ needs. They also often neglect crucial context regarding the investment strategy necessary to inform trade-offs in a solution’s design and gain end users’ acceptance.

“Legal departments that choose to follow a “big bang” approach and implement advanced contract life cycle management (CLM) solutions and features will limit success and ultimately accomplish only a fraction of the expected value,” said Mr. Hutto. “To get the best return on CLM investments, build a deliberate, practical plan for CLM technology adoption by investigating, documenting and prioritizing desired business outcomes and the necessary operational capabilities to achieve them.”