Innovation Part 1: What it Is and What it Isn’t
With so much buzz about the need for innovation in the legal profession, it can be overwhelming and also very misleading. Many misconstrue that innovation in law firms is all about technology. It isn’t. Some of the most fundamental innovation that is occurring has to do with how work is done, why, by whom and for whom. Innovation focuses on people, process and platform. Technology will be an essential enabler of the transformation taking place in the profession, but it is not in and of itself innovation in the delivery of legal services.
Innovation must solve a problem as well as create value or benefit to the client business. It also addresses the critical question of who delivers legal services. Traditionally, law has been practiced strictly by lawyers in law firms (and more recently by in-house lawyers in companies.) Even with the recent advent of technology tools used for eDiscovery, contract management and other areas, the majority of legal services provided to clients by law firms still are managed and executed by lawyers who charge very expensive rates by the hour.
It is estimated that 50-70% of the work currently being done by lawyers in traditional law firms could be done by other professionals, providers and automation. This is why the alternative services market has grown so rapidly in the last ten years. Legal expertise now requires that lawyers work with others to deliver solutions clients want, including project managers, technologists, data analysts and paraprofessionals. According to legal industry thought-leader Mark Cohen , “Clients need legal services but not necessarily lawyers. Firms solve legal problems. The new providers solve business challenges that raise legal issues.” He posits that technology alone will not transform law, however, “it has recast what ‘legal’ work is and when lawyers are required, substituted products for services, and propelled law into the digital age.” Technology has illustrated the difference between law practice and legal service delivery.
What Do Clients Want and Expect of Innovation?
Perhaps most importantly, the quest for innovation has been recalibrated around a client-centric model. Law firms focus on the practice of law, as if clients’ legal problems were isolated from the businesses they support. Firm lawyers have not yet distinguished between the legal practice and the business of delivering legal services. In-house counsel, on the other hand, in part due to the pressure from the business to reduce costs, the arrival of their own legal ops and procurement professionals, and continuing frustration that law firms are not efficiently delivering value and solutions, are more aggressively seeking or demanding new approaches.
According to Jason Moyse, a consultant at Law Made, “In business, it’s always the client that drives the ‘Why.’ It is the client centered outputs that matter. The measures adopted by firms are very often in the hopes of preserving margin or maintaining business, not increasing or creating new value to the end user.” This is where law firms have the most work to do when it comes to changing the way they seek to understand the true business problems of clients, develop appropriate solutions, monitor and measure the outputs, build better delivery methods and incentivize those who deliver measurable results for clients.
Innovation Is Not a Shiny Bright Object, A Checklist or a Branding Exercise
With so much pressure to “innovate,” firms have responded with a rash of efforts both to genuinely innovate and to look like they are innovating. Press releases announce everything from hiring Chief Innovation Officers, to forming Innovation Centers/Incubators within their firms, to hiring legal operations experts including pricing and project management specialists, to attending and sponsoring CLOC conferences. This might be construed as substantial commitment to innovation on the part of law firms. To be fair, many firms truly are investing in these efforts with both money and talent in order to address what they perceive to be what clients are asking for. We noted many innovative approaches law firms have taken in our four-part series on multi-disciplinary practices and there are now many more out there:
- Law Firm MDPs and New Delivery Models Part 1 – A Primer
- Law Firm MDPs and Delivery Models Part 2 – Subsidiaries
- Law Firm MDPs Part 3 – Integrated Multi-Disciplinary Practices
- Law Firm MDPs Part 4 – Service Delivery Solutions
The problem is that in many cases, firms have not committed deeply to innovation. They can check off the boxes on some of the steps they have taken but it remains to be seen whether the financial, time and talent commitments required for effective innovation will be sustainable. In some cases, firms are developing innovation without constant input from clients to clearly:
- Define the problem that requires a change of approach, process or staffing
- Determine the outputs that are measurable and then measuring them
- Look for ways to improve continuously
As a result, firms are developing their own approaches to innovation which may or may not address the frustrations clients are expressing or the solutions that will substantially improve delivery. In order for firms to innovate, they will have to:
- Acknowledge that 50-75% of legal services do not have to be delivered by lawyers or law firms
- Align with ALSPs that can effectively provide legal process outsourcing, managed legal services and other aspects of legal solutions that they can deliver more cost-effectively
- Stop controlling their data and knowledge as proprietary and secretive – share it with clients and use it to improve processes, predictions and outcomes
Unfortunately, the traditional partnership structure impedes innovation as partners are reluctant to sacrifice annual profits for long-term, ongoing investment in development. Since revenue is still largely generated using billable hours and lawyers are asked to bill 2,000 hours per year, the drive for greater efficiency, transparency and better outcomes, while desired by clients, works against how firms make their money and reward their talent. Still, firms want to be perceived as innovators and often the marketing professionals and partners are touting newly launched initiatives before there has been much traction or track record of results. Innovation takes time, investment and an ongoing commitment since there will be many failures before there is success. Some of the most fundamental innovation in law firms will occur only when there is a reconstruction of the traditional model, when baby boomer partners retire or when the next recession forces firms to change or die.
“Smart businesses will find ways to measure and predict legal, compliance and governance risk and apply operational analytics to optimize ‘run the business’ legal activity.”
A Few Last Words of Advice
- Beware of creating solutions in search of a problem; don’t guess at the need or solution, work with clients to find the problem
- Avoid getting too enamored with technology as a silver bullet
- Don’t focus only on costs – focus on process/inputs and outcomes/outputs and on knowledge management (KM). Prior knowledge, precedents and data analytics are core components of innovation
- Align solutions to the commercial business and their goals (not just to the legal department)
- Law practitioners are not what clients need – they need legal solutions that solve a business problem. Since it may not require a lawyer, explore alternatives
- Relationships don’t carry the same weight as they used to – be aware that that the buy-sell ecosystem is changing
- Don’t be tempted to promote your innovation unless it truly has been getting traction
- Engage your clients in meaningful discussions around problems and how they’d like them solved. Remember that unless your solution helps drive value and revenue to the business (not the legal department,) it likely won’t be deemed valuable
“The work of innovation does not end with talking. It must lead to action.” – Jae Um, Director of Pricing Strategy at Baker McKenzie