6.2 Paradigm innovation at industry-level: the importance of a cohesive Welsh LegalTech ecosystem Paradigm innovation, i.e. a radical shift in the approach of a company to a given business problem, normally happens as a result of a combination of factors: expertise, investment, risk, and reward. The expertise provided by leading technology experts, in a business environment willing to sunk large investments in research and development and to accept a substantial risk of failure with a view to achieving an exceptional reward (a paradigm shift that disrupts established market dynamics), can drive a company towards paradigm innovation. Looking at the characteristics of the Welsh legal sector, the geographical spread of its law firms and their relatively small size, would suggest that paradigm innovation is out of reach for most, except for the largest law firms and start-ups or scale-ups. We believe this conclusion to be incorrect, as the Welsh LegalTech ecosystem has, in itself, everything that is needed to achieve industry-level paradigm innovation. Welsh universities are increasingly training lawyers with a range of technological competences, which complement graduates in neighbouring fields, including computer science, data science and cyber security. Thus, the availability of technology experts in Wales, as a first step towards paradigm innovation, appears set to improve and grow in the coming years. LegalTech start-ups and scale-ups have benefitted from access to early-phase investment by private funds, as well as through the Development Bank of Wales, although access to following rounds of funding is not always immediate. Welsh Government, Business Wales and other government-led initiatives have provided funding for research centres, business incubators, and technology demonstrators. Other government funders, such as Innovate UK, have also provided funding for Welsh start-ups, which have also been supported by accelerators and mentorship schemes in the UK. Several large and medium law firms in Wales have invested significantly in developing their own LegalTech products or implementing commercial solutions. Thus, it appears that large investments in innovation are possible in Wales, and the legal services industry, as a whole, has the capacity to support them. Risk is a clear obstacle to innovation for individual companies, as well as for universities. This is the case also for law firms, which are subject to stringent regulatory requirements, and even more so for the many small and medium Welsh law firms that have limited annual turnover and cash reserves. Once again, however, an industry-level perspective changes the picture, as risk can be drastically reduced when shared among all the players in the legal services sector. Finally, the reward that the industry may obtain is clearly substantial. Although we noted above that client appetite may be affected by issues like digital exclusion, the availability of market opportunities valued at over £22 billion in 2021 376 suggests that concerns on a potential cost-reward basis do not constitute a substantial barrier to industry-level paradigm innovation (even if the tasks of addressing digital exclusion,
376 Lawtech UK, “The Lawtech UK Report 2021, Shaping the Future of Law” (5 July 2021), 13, available at https://lawtechuk.io/insights/shaping-the-future-of-law-the-lawtechuk-report-2021.
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