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“Legal Management of Innovation” survey: Pressure to innovate requires courage and vision from legal departments

16/01/2018

  • Corporate lawyers are becoming involved in innovation processes at an earlier stage. They are generating real added value through short response times and a solution-oriented approach.
      
  • Legal departments safeguard expertise and business models from a legal, organisational and technical viewpoint, thereby playing an increasingly pivotal role in the business.
      
  • The conflict between the innovation imperative and regulatory intervention poses new challenges for legal departments.

Frankfurt/Main – German companies generated an export surplus of EUR 257 billion in 2016 alone. Yet success comes at a price: in order for Germany to remain a leading player in world markets, businesses must pour more and more money into R&D. According to recent estimates, spending by German companies on innovation will rise to EUR 175 billion a year by 2019.

These new challenges have already become a daily reality for the legal departments of German companies. They are becoming involved in innovation processes much earlier and more closely: half of German legal departments report such involvement as a frequent or very frequent occurrence. Those are the findings of the Legal Management of Innovation survey conducted by the German Federal Association of Corporate Lawyers (Bundesverband der Unternehmensjuristen e.V. – BUJ) and commercial law firm CMS. A total of 210 legal departments at companies across the key sectors participated in the survey. Half of these firms generate sales of more than a billion euros, while one third have more than 10,000 employees.

Innovation management is an emerging topic

From Industry 4.0 and Big Data to the Internet of Things, the transformational impact of digitisation is reflected in the collective value of data within the EU. The EU Commission’s figure of around EUR 300 billion for 2016 is expected to rise to EUR 739 billion by 2020. "Against this backdrop, more than 80% of heads of legal expect demand for employees specialising in innovation management to increase over the next five years," said BUJ president Götz Kaßmann. So far, however, only 15% of the companies surveyed intend to boost their legal department’s budget to support innovation management. The overwhelming majority are hoping to streamline their legal department such that no additional staff are required. Almost 60% of companies are considering making more use of external lawyers or law firms.

Companies must enter new areas of business

"The survey has also shown that legal departments can make a substantial contribution to successful innovation through greater specialisation and by standardising processes with the aid of legal tech," commented CMS partner and co-author of the survey Dr Jörg Zätzsch. Proactive and solution-oriented commitment plus maximum responsiveness are key to success here. There is no shortage of ways for legal departments to demonstrate their value around innovation, e.g. by developing model contracts at an early stage, successfully advising on fast-track projects or developing processes to increase efficiency across all areas.

German companies still mostly rely on conventional innovation strategies, with 93% focused on upgrading existing products and 91% on introducing new ones. However, 78% simultaneously intend to enter new areas of business and 71% are working on introducing entirely new business models. An encouraging aspect is that almost 30% are also open to alternative approaches, such as supporting start-ups through incubator and accelerator programmes and adopting open innovation strategies, e.g. developing new solutions via collaboration between internal developers/researchers and external users.

Successful innovation as a distributed activity

Companies are increasingly choosing unconventional paths as they compete to come up with the best product ideas. A substantial 65% cooperate with other firms. They are also investing in promising start-ups and joint ventures, establishing venture capital companies themselves, or acquiring a company with the aim of integrating its employees into their own units (acqui-hiring). In short, successful innovation is now the result of fragmented, distributed activity, with the individual players pursuing different short-term and long-term goals.

Legal departments in uncharted territory

As yet, there is no specific legislation on data ownership in the digital economy. This makes it all the more important for companies to take appropriate organisational and technical measures. When dealing both with their own employees and with joint venture and business partners, they must put contractual arrangements in place to safeguard their expertise and prevent data leaking out. Legal departments must also ensure that individual products remain compliant, despite shorter innovation cycles.

However eager legal departments may be to embrace – and be seen to embrace – innovation, one risk always applies. Because legislation is failing to keep up with many new areas of business, from streaming through mobile payments to driverless cars, legal departments face the challenge of transferring law from the analogue to the digital world. This task requires considerable courage on the part of in-house lawyers, since it is currently impossible to predict with certainty if and when managers will be personally liable for innovations if something goes wrong.

Increase in regulatory issues

Corporate lawyers also need to grapple with new and increasingly complex legal matters when reconciling innovative products and services with government-imposed rules and regulations. The innovation survey found that 93% of respondents see themselves faced with greater legal complexity overall due to innovation processes. 89% rate the legal assessment of previously unknown topics and business models as a particular challenge, along with the associated advisory role. 76% expect that they will have to spend more time on regulatory issues going forward, with 68% believing that this will include an international dimension.

These new challenges additionally mean that working routines and practices in legal departments will change and require realignment. Accordingly, 45% think it is important to become more comfortable with risk when responding to legal queries. Almost 42% also regard the ability to better explain the legal background as something that could be improved when it comes to delivering successful outcomes, together with developing a deeper understanding among corporate lawyers of new and previously unknown business models.

Legal departments are also coming under greater pressure to deliver information on a just-in-time basis. "For that to work, they must seek to anticipate the legal issues the company will face and be well prepared ahead of management decisions," said CMS partner and co-author of the survey Stefan-Ulrich Müller.

Press Contact
presse@cms-hs.com

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