Innovation paradox

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Why do reg tech solutions promise so much but deliver so little? This is the Innovation paradox. Is it a paradox, though?

Classic example, and computers and the law. In 1975 when you wanted to edit a legal contract during the negotiation that would require a typist retyping the entire page. Hence, legal comments in a negotiation were necessarily bounded by the effort of recreating the document.

This was wasteful, time-consuming and painful. On the other hand, it put a natural limit on the amount of legal commentary, and to some extent negated the anal paradox.

By 1995 computers were appearing on lawyers' desks, and the traditional refrain "we don't pay lawyers to type, son" was beginning to lose its force.

Suddenly it was easy to generate documents, easy to insert new clauses, and words. Far from speeding up the negotiation process and leading to enhanced productivity this simply incentivized pedantry. The negotiation process immediately became convoluted and elongated. It also meant that certain classes of agreement which previously could not justify legal negotiation at all would now be in scope for argument.

Curiously, many of the artefacts of the analogue era of document generation - exactly the sorts of inefficiency and complexities you would expect the new technology to remove - persisted. We still have side letters. We still have separate amendment agreements. We still have this page is intentionally left blank. We still have this clause is reserved. So not only has regtech in this case not removed some of the expected complexities, it has created entirely new ones.

This is a function of the incentives at play. Lawyers and negotiators are remunerated by time taken and rewarded for the complexity and sophistication of their analysis. The technology has been extremely efficient from the perspective of the lawyer using it in generating opportunities to Showcase sophistication and complexity.

There is a serious point here for people (like me) who argue that technology implementations should be driven as far as possible by users at the coalface. And that is to bear in mind that the interests of users at the coalface are not necessarily aligned with those of the organisation for which they are working.

A more recent example is that of natural language processing. Lawgeex is a well-known and widely celebrated example of an application which cuts out legal work by performing a preliminary review of a standard agreement such as a confidentiality agreement against a preconfigured playbook of policies. The idea is triage. The machine will scan the agreement and pick up the major points against the firms policy and highlight these for the lawyer who can then quickly deal with the points and respond to the negotiation. Lawgeex will proudly point to a comparison of their software against human equivalents in picking up policy points in a sample of agreements.

But lawgeex get the triage backwards. Rather than the lawyer picking up the major points brackets the high value work clothes brackets and then employing the AI to process and finalize the detail, it is the AI which picks up the major points and requires the lawyer to complete the clerical work. For the process to be productive the lawyer must rely on the AI to have identified all salient points. Otherwise, the lawyer must read the agreement in full as a sense check. In practice, natural language processing is not sophisticated enough to allow this level of comfort, nonetheless lawyers are encouraged to trust it. Hence a buried risk.

Furthermore the reality is that many of the policy points in the playbook will be non-essential "perfect world" recommendations which an experienced negotiator will quickly be able to wave through in most circumstances.

But Lawgeex is designed to "rightsource" the negotiation to cheaper (ergo inexperienced) negotiators who will rely on the playbook as guidance, will bit have the experience to make a commercial judgement unaided and will therefore be obliged either to escalate, or to engage on a slew of nice to have but bottom-line unnecessary negotiation points with the counterparty. Again, an example of reg tech creating waste in a process where investment in experienced human personnel would avoid it.

The basic insight here is that if a process is sufficiently low in value that experienced personnel are not justified, it should be fully automated rather than partially automated and populated by inexperienced personnel

The jolly contrarian's contrarian advice : to increase efficiency, seek to remove technology from the workplace.

• Vendors:
  • Overpromise/Bullshit factor:
  • Misunderstand the actual ask
  • Overambitious - try for the hail mary rather than solving the mundane problems first,

See also

• reg tech.