Legal Innovation Fever
Talk of innovation in the legal market has reached a fever pitch. Here's the evidence and why I think it’s happening.
I created the slides for a June presentation to a group of large NYC law firms and a session at the American Association of Law Libraries (AALL) annual conference. (For more on my AALL presentation, see my LAC Group blog post, AALL 2019 and legal innovation.)
Logo Mania (Fever Symptom 1)
This shows a sample of logos of law-firm-branded innovation initiatives. It does not include all logos. Moreover, plenty of firms invest in innovation without creating a logo.
We can debate the definition of innovation. We can argue how many law firms are “really doing innovation versus issuing press releases”. And can wonder what impact innovation has. We can all agree, however, that three years ago, this list would have been much shorter.
Headlines Galore (Fever Symptom 2)
These headlines supply more anecdata for innovation fever. A few years ago, we would not have seen so many headlines in six months.
A Job for Everyone? (Fever Symptom 3)
Again, the result even 3 years ago would have been way lower. (I searched LinkedIn for innovation in titles in the legal market in June 2019. Your mileage may vary.)
Why Now? (Fever Diagnosis)
Flat Growth. In aggregate, Am Law 100 firms have experienced little growth since the 2008 crash. Revenue growth mainly reflects rising rates. To be sure, demand for legal services has expanded since then. But corporations meet it by hiring more in-house counsel instead of buying more from firms.
Drive for Value. With flat demand, clients have more buying power. And they use that power to pressure firms to deliver more value. I see evidence that they use law firm innovation as a proxy for value. And this works out nicely for law firm management: starting an innovation initiative is way easier than delivering value by changing how lawyers work or the firm’s billable hour business model.
Segment Competition. Also driving innovation is intense competition within peer groups of firms. Once one firm in a peer group announces innovation, others feel compelled to follow. Query whether, with all the announcements, clients distinguish between “innovation by press release” and innovation that changes how lawyers work to reduce cost or improve outcomes.
Substitutes. Many commentators say that firms outside the very top ones are losing business to alternative legal service providers (ALSP), which advertise how they are far more “tech enabled” than law firms. I see less threat from ALSP than many but perhaps PR about them also spurs innovation.
Peer Pressure. And finally, do not discount emotion. Partners at large firms face internal and external peer pressure. When partners read the trade press or hear from friends about innovation, they can develop a sense that “if other firms are doing innovation, we need to do it too.”
Key Innovation Questions (Fever Treatment 1)
Activity vs. Adoption. Innovation talk exceeds adoption and results. Consider what well-known economist Erik Brynjolfsson said early in the tech revolution: “You can see the computer age everywhere but in the productivity statistics.” For all the innovation initiatives, query how much impact that has had on what I view as the two most important metrics: growth in lawyer output per hour and improved outcomes.
Client Uptake. Clients have no clear way to gauge the value they get from firms (see innovation as proxy above). Moreover, most in-house counsel work with fewer resources than outside counsel. Corporate law departments are cost centers. Consequently, they lack resources to improve processes or deploy leading edge legal tech. Most work with cruder tools than their outside counsel. Without good metrics and without relevant personal experience, they cannot easily judge law firm efforts. And even if they can, how often do they drop outside experts for inefficiency?
The Best Path to Innovation? An open question remains what drives the best result: top down, central innovation efforts or bottoms-up, practice-driven ones. In my opinion, for innovation to have impact, it must originate from practices and have institutional support.
Key Innovation Considerations (Fever Treatment 2)
If our ultimate goal is to IMPROVE PRACTICE, how do we get there? We must recognize that innovation is only a means to an end. For innovation to change practice, several ingredients must come together:
- Consult stakeholders – learn their requirements and receptivity to change before assuming they will change how they work.
- Involve clients – Clients have the most influence over partners. Their support for a law firm innovation initiative likely is the best way to get support internally and sufficient internal focus to succeed.
- Plan Adoption – Neither tech nor innovation is a magic wand. The only way to ensure practice improvement is the to plan changes carefully, including extensive adoption measures. Change does not happen by itself.
- Develop metrics – This may be the holy grail but if firms can show improved efficiency, better client value, or perhaps most importantly, higher margins… that will motivate change… and investment in more change.
Conclusion
Innovation fever shows no sign of breaking. We must work to harness the heat generated to change how lawyers practice. Absent a change in practice, a change that generates value for clients and margin for law firms, what good is innovation?
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4yGreat article Ron. Two points particularly resonated with me. The first, already noted by John Chisholm is that starting an innovation initiative is much easier than changing the way lawyers work or changing the billable hour model. The second point is that in the absence of planning (including implementation planning and delivery) innovation initiatives are unlikely to have a real and lasting impact at the coal-face of legal service delivery. Generally, I think law firms have quite a low level of project management maturity and this should be a cause for concern. It takes sustained effort over time to implement change properly and organisations with low levels of project management maturity struggle to do this.
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4yHi Ron, please allow me some comments on your text. I loved the diagnosis part, but didn’t understand why the “symptoms” are a real harm to the market. Instead it is awesome to see firms heading to innovation on all its forms, and as someone who coordinates a law firm program like such, I can assure the benefits of having a specific structure and brand to demonstrate the strength and strategic importance of the initiative. And this becomes even more relevant if we analyze how internal personnel sees the importance of always improving and innovating to make legal services more affordable, efficient and client-focused. If a new brand/structure and impact headlines are a necessary strategy, I can’t see why this is a bad thing. I agree, in the meantime, that a gap between appearance and execution might exist. It is part of the learning moment that we are living, in my opinion. We see big companies in every industry being disrupted, and probably the legal environment wouldn’t be away from this phenomenon... and even such companies aren’t innovating correctly - but they are learning with their mistakes. Normally lawyers won’t bear this fail tolerance, so I believe it is ok that we see many firms learning how to innovate.
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4yNice diagnosis Dr Friedman. Especially agree with you “starting an innovation initiative is way easier than delivering value by changing how lawyers work or the firm’s billable hour business model.”That is precisely why I admire so much those firms that have had the courage to change their business model.