What disruption really means

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You keep using that word,” said Inigo Montoya. “I don’t think it means what you think it means.”

“That word,” in the current legal marketplace, is “disruption,” a terrific word that’s instrumental in understanding what this market is going through, but one whose overuse is generating a growing backlash. The tipping point might have been the ReInvent Law Silicon Valley conference, or it might have been the wave of updates from ABA TECHSHOW that seemed to feature “disruption” every few tweets. Any buzzword, if adopted too widely and too quickly, risks burning out its meaning simply because people get tired of hearing it all the time, and “disruption” is at risk of that outcome right now. Sam Glover at Lawyerist put the sentiment best in a post last week:

Here’s the thing: disruptive innovation is not coming to the law. At least, not quickly. …

LegalZoom and Rocket Lawyer are not disruptive innovation, either. They are basically just selling forms and pre-paid legal services, which have been around forever, in one form or another. People who think this is disrupting the legal industry do not have a very good grasp of the legal industry. Customers of LegalZoom and Rocket Lawyer were never your potential clients. They may have been Office Max’s, or Hyatt Legal‘s, but they were never yours.

So far, the only disruption to the practice of law has happened around the edges. Sure, Rocket Lawyer and LegalZoom may have siphoned off a few clients. And predictive coding will put some contract lawyers out of their jobs (although doc review is only “legal work” due to a technicality), but can anyone point to an imminent threat of disruption to the legal market? I don’t think so.

So who is actually threatening the legal market for lawyers representing clients? I’m not sure. In fact, I’m not sure anything is going to.

I’m in qualified agreement with Sam on this, as I responded in a comment on his post that I’m expanding upon here. What I really want to do is help establish some specific parameters around the use of “disruption” in the context of the current legal market. I summoned Inigo Montoya to this discussion because I don’t think “disruption” is the empty vessel its critics believe it to be. Disruption is real, and it’s a contributing factor to change and upheaval in the legal market; but not every change or upheaval is an example of “disruption.”

When we talk about disruptive innovation, then we’re squarely in Clayton Christensen’s territory, because he gave us the idea of “sustaining technology” vs. “disruptive technology” in The Innovator’s Dilemma. Sustaining innovations (we can safely substitute “innovation” for present purposes) provide improved delivery or performance of an established product or service, “along the dimensions of performance that mainstream customers in major markets have historically valued,” in Christensen’s words.

Most innovations are sustaining, and while incumbents might struggle with them a little at first, they can and usually do handle and implement them. Sustaining innovations in law firms include email (a more efficient communication medium than letters or faxes) and time-and-billing software (a more efficient docketing methodology than making hand-written entries on timesheets).

Under this definition, LegalZoom and Rocket Lawyer are actually sustaining innovations: they are providing a more efficient and accessible method of acquiring legal documentation. Any law firm in the world could do what these companies are doing right now — offering legal documents over the internet — without having to completely re-engineer their operations. (That they’re not bothering to do so says more about lawyer intransigence and biases about “low-value” products than about these companies’ offerings). Incumbents eventually find an answer to sustaining innovations: they can adjust to them without tearing apart their basic structure in the process.

Disruptive innovations are different: in Christensen’s words, “they bring to the market a very different value proposition than had been available previously.” Disruptive innovations normally offer worse, not better, performance or quality than the incumbents when they first arrive. But they arrive at a time when the market is ready for something smaller, cheaper, easier, or more convenient than what’s already out there. They almost always start out at the lowest level of the market, or even tap into markets that have previously been invisible. Most importantly, they offer something that the incumbents can’t replicate, even if they wanted to, because the attempt to replicate would require such a radical reconfiguration of the incumbent’s business and production model as to cause it to be fundamentally undermined.

Neota Logic, to take an example, is disruptive technology: it guides users through an automated process of data gathering and analysis, based on a powerful legal KM engine, and produces an answer to a legal, regulatory or compliance question. Neota cannot replace a lawyer — yet. But it is going to displace lawyers, to start taking on some of what lawyers now do. What Neota wants to do is provide a way in which legal questions can be answered more efficiently and cost-effectively than the standard law firm model allows. It is being picked up first at the market’s edges — law students, in this case, in Georgetown Law’s Iron Lawyer competition, are using Neota to create apps that can address legal needs for people who don’t want to or can’t use lawyers. Disruptive innovations never start at the top. They start at the bottom and work their way up.

Here’s what’s important: The vast majority of law firms cannot replicate this type of innovation, because it would essentially destroy their businesses. This is because law firms are not in the business of solving legal problems; they are in the business of billing hours devoted to solving legal problems. That’s a key distinction. Law firms don’t really sell legal solutions — if they did, they’d price everything on a flat fee or as a percentage of the value of the solution. They sell hours, and if you’re in any doubt about this, pick up a law firm invoice and see what’s actually being charged out. Neota, however, is in the business of solving problems, quickly and efficiently. These are two quite different production models.

A law firm that integrated this kind of disruptive program into its operations, and contributed to the ongoing expansion of its capabilities, would soon find itself cutting loose many of its associates, because they would no longer be necessary: the computer would be performing tasks they previously undertook. In most business models, this would create greater efficiency and drive profits up; but in law firms, reliant upon leverage for profit, creating greater efficiency drives profits down. If you make money by selling inventory, and if your inventory is billed hours, reducing your inventory is going to kill your revenue stream.

This returns us to the original question: can law firms employ disruptive innovation? If we use the strict definition we discussed above, then the answer is no. Disruptive innovations start at the bottom of the market and introduce offerings that are inferior in quality, but that engage the market on new criteria such as price, portability or accessibility. Law firms, by their nature as incumbents, are bound to be the high-quality disruptees, not the low-quality disruptors. They’re destined to be the ones from whom market share will be taken, as the disruptors get traction in the new market and move steadily up the food chain.

If we’re true to Christensen’s definitions, in fact, then almost the only true disruptors among law firms are the likes of Berwin Leighton Paisner’s Lawyers On Demand and Pinsent Mason’s Vario, contract lawyer agencies that run parallel to the incumbent firms and essentially compete with them for the attention and affection of clients. Christensen taught that companies seeking to “disrupt themselves” cannot do it within the incumbent enterprise: the cultural inertia will be impossible to overcome. The disruptive forces must be housed in a separate location and allowed to chart their own course. Extremely few law firms have the intestinal fortitude to take those steps, not least because of the possibility that the parallel disruptor might actually succeed.

All that said, I do think it’s possible for law firms to introduce changes and innovations within their own operations that qualify as at least quasi-disruptive to their status quo. For an excellent example, consider the two winners of last year’s InnovAction Awards, handed out by the College of Law Practice Management: Littler Mendelson’s CaseSmart knowledge management system and the firm-wide implementation of Lean Six Sigma at Seyfarth Shaw.

In both cases, these firms ripped out their internal machinery, rewired and re-engineered the way they did things, and ended up with better procedures and more efficient systems that delivered improved results for clients and increased revenue for the firm. It wasn’t easy and it wasn’t overnight, but these firms recognized an opportunity to work differently in ways that mattered to clients. They no longer work the same way they did before, and that’s as close to pure disruption as you can ask from market leaders in a conservative industry like law. We should welcome and encourage these innovations, while recognizing that they don’t quite strictly qualify as “disruptive innovations” for the legal market as a whole.

The thing about truly disruptive innovations is that you can’t forecast them. Show me any futurologist who, when we were all making millennial predictions back in 1999, predicted the smartphone. All you can do is watch the market and identify the disruptors when they appear. If you want to know what they look like, ask yourself:

  • Does this innovation deliver a decrease in quality, rather than an improvement?
  • Does it interact with the bottom or periphery of the market, rather than the top?
  • And if a law firm tried this, would it drive itself to the brink of breakdown, having to partly or even completely reconfigure its financial, procedural and cultural infrastructure?

If the answers to these three questions are yes, then what you’ve got there is a disruption. If not, then, as Inigo advises, it might be best to stop using that word.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.          

 

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13 Responses to “What disruption really means”

  1. Susan Cartier Liebel

    Jordan, you know I pretty much agree with you on many things but I don’t necessarily agree we are talking the same thing here.

    The confluence of events – the economy, the internet, the D2C of legal plans, the widescale use of attorneys, the downward pressure on pricing all will conspire to ‘disrupt’ the way consumers ‘think’ of legal services and how attorneys deliver those legal services for the majority of consumers. This defines disruption as disruption is the activity. One could argue semantics or purity of definition, but when implementation has the ability to make this kind of dramatic change in how consumers ultimately will ‘consume’ a service such as legal services, I’ll call it a disruption.

  2. Alison Monahan

    Great post, spot on. Although I think it’s actually possible for “Does this innovation deliver a decrease in quality, rather than an improvement?” to be false and still have a disruptive innovation.

    Think, for example, of Turbotax. Is it bespoke tax advice? No. But it probably “knows” more about the US tax code than your average first-year associate in a law firm. So it a decrease in quality, or an improvement? Hopefully, it’s a decrease from a very experienced tax lawyer. But probably an improvement from an inexperienced one…

  3. Jon Busby

    Hmmm yes and no.

    Couple of adds…

    Does it matter what the word is? What is important is whether what is delivered is needed, wanted, matters, makes a difference etc…

    Lawyers fixate on words, ideas…they spend way less time trying, experimenting, executing, acting. Lets be honest…talking about change is way easier than doing it. In fact…you can blog to your hearts content ‘talking.’ Many, many do. There is a whole strand of this sector that makes a handsome living doing just that.

    I would say players…Zoom, Riverview, Reinvent may think they are disrupters, they may use the word disruptive to ride a PR wave, but there is ultimately one disruptor the matters and that is the client.

    What I would say though is that Zoom, Riverview, Rocket are creating new models so the client can disrupt. But…the client will decide on those models and those models will constantly refine and shift.

    Amazon never shut down a single book shop, clients (you and me) did by choosing better. We were presented with an alternative…we chose that alternative…we disrupted that market. The book shops were undisruptive they wanted things to stay the same.

    And in my view the client as a disruptor in the legal market hasn’t arrived yet. We just think they have because of the PR releases from new entrants etc. That is just grandstanding and when you look behind the headlines you tend to find little substance or just a fresh lick of paint on an existing broken model.

    As a rule of thumb, after knocking round this market for 5+ years…if someone claims to be disruptive…they probably aren’t. If you are truly disruptive you don’t have to tell your peers. You just keep building, believe in your vision and let the market be your judge and jury.

    Jon

  4. Jon Busby

    One other add…I have been trying to source this quote for ages…no luck but I really like it,

    “Disruption from above is slow, ordered and changes little. Disruption from below is fast, chaotic and changes everything.”

  5. Venkat

    What will happen to “the futurists” when disruption comes.

    On a more serious note, I really struggle to see the role they play in this. (People talking about disruption aren’t doing much usually.)

  6. Erik Mazzone

    Hi Jordan,

    I disagree with the notion that firms selling flat fee legal services are selling solutions to legal problems, while those billing hourly are not. That’s akin to suggesting that airlines are solving transportation problems while taxi cabs are not. Both are exploiting the ownership of machinery for money.

    I agree that firms using flat fees focus their bills and clients’ attention on solutions rather than process but this strikes me as a marketing tactic rather than evidence of a material difference between services offered.

  7. Nicole Black

    I’m glad you expanded on your Lawyerist comment by creating this post. You raise some really interesting points. And I agree that lawyers can introduce systems into their firms which can constitute a form of disruption.

    For example, lawyers, by using affordable online legal software to manage their practices and communicate with their clients can oftentimes provide more cost-effective and responsive legal representation.

    Likewise, lawyers can take advantage of mobile apps to enhance their ability to represent their clients. For example, attorneys can interface with their law practice management software and communicate securely with their clients using an app and their mobile device. Similarly, emerging technology allows solo and small firm attorneys to compete with BigLaw by using just their iPad and a trial presentation app that costs less $100 to present a client’s case to a jury. Before the recent advent of these types of apps, trial presentation software was premise-based and thus used primarily by large law firms since it cost thousands of dollars. Now solo and small firm attorneys have this affordable and powerful tool available in their arsenal. These tools are leveling the playing field.

    But, is this type of technology truly disruptive? According to Clayton M. Christensen, the person who coined the term “disruptive innovation” in his book The Innovator’s Dilemma, it is.

    As he explains in his 2007 Forbes article A Decade of Disruption:

    “A disruptor redefines the notion of performance by pulling an overlooked innovation lever. Simplicity. Convenience. Accessibility. Affordability. All of these are hallmarks of disruptive innovation…

    Generally, the true disruptive power of an innovation lies not in the technology itself but in the business model that surrounds that technology. Successful disruptors have the ability to make money at low price points. Or they have low overheads that allow them to start small and adapt. Or they play in a very different value chain, with new partners, suppliers and channels to market. It is these business model differences, and not technological prowess, that so often throw incumbents off-balance.”

    Simplicity. Convenience. Accessibility. Affordability. These characteristics are the very essence of disruption. And the delivery of online legal services– including communicating and collaborating with clients, co-counsel, experts, and more via online law practice management platforms and mobile apps–is at the heart of the disruption. Just as the MinuteClinic’s low cost health care kiosks disrupted the delivery of health care services in 2000 (see: http://www.forbes.com/2007/08/31/christensen-disruption-kodak-pf-guru_in_cc_0904christensen_inl_slide_5.html), the business model of the practice of law is likewise undergoing a dramatic transformation. The method of delivery is changing. The playing field is leveling. Disruption is occurring.

    –Nicole Black

  8. Jose A.

    A good place to look in the legal profession for fast adoption of potentially disruptive technology is startup law – corporate law applied to early-stage technology startups. Given the deflationary economics surrounding forming a startup, clients (companies and venture capitalists) have been demanding that firms be able to provide quality service quickly and efficiently, and fixed/cap fees have played a large component in that.

    I documented some of the major developments here: http://siliconhillslawyer.com/2012/09/14/the-economic-deflation-of-startup-law/

  9. Karen Dunn Skinner

    I’m in the same camp as Jon…yes and no. Clients will ultimately drive the major changes in our industry and perhaps Jon is right: they’re not doing it enough. Most BigLaw clients are GCs, usually products of the very firms they now employ. They are unlikely to disrupt anything any time soon. However, clients around the edges are starting to demand value, not time. Innovative clients look for innovative lawyers willing to give them the same type of customer service they give their own clients.

    I don’t think we’re going to see major disruptions in BigLaw. Disruptions never start with the incumbents. I do think we’re going to see major changes in the way small and mid-size firms deliver legal services. Those firms are trying new ways to give their clients simplicity, convenience, accessibility and affordability, Christensen’s hallmarks of disruptive innovation. We wrote recently about Vancouver’s Miller Titerle: http://bit.ly/WEK7xz. They’re doing some very creative things, including expressly rewarding the non-billable time employees spend thinking up innovative ways to improve the firm.

    Firms that want flexibility must maximize their efficiency and allocate their resources to ensure they have the time and finances to create and capitalize on new opportunities. I was very pleased that you mentioned Seyfarth’s use of Lean Six Sigma as an example of a disruption of the status quo. Back in January, I wrote about Lean Six Sigma as just such a disruptor: http://bit.ly/W2asDs. It’s a huge cultural shift for lawyers that implement it, and firms using it are outliers now. But more and more attorneys are considering it, learning about it and trying to find ways to incorporate it into their practices. Why? Because it frees up human, financial and technological resources for other valuable work. It allows firms to look for new ways to compete. It permits smaller firms to punch above their weight class and nip at the heels of BigLaw. Maybe it doesn’t fit the classic definition, but to me, it’s a disruptor.

  10. Jon Busby

    The fact is no customer woke up one morning and said “you know what…I am sick of walking to book shops…I’d far rather be able to surf on a device…whatever that is…in the comfort of my armchair, choose, order, pay and then wait for it to arrive the next day.”

    The first disruption is the creation of the disruptive force; Amazon. Thats niche. But the really big disruption is its execution…by the customer. That’s mainstream, speeded up by all of our little social networks (offline and online communicating ‘better’)

    So far it hasn’t happened because despite how bad this sector delivers clients have not been tipped over. But two forces are working in their favour to generate a shift in legal services delivery; economics and technology. These are the difference between then and now.

    And yes it will be crude and clunky, at first but all technology evolves into better and it does it faster today because technology is cheaper to deploy, flexible and if you don’t evolve someone else will.

    Then when the client tips…game over.

    Here is your problem with disruption (and innovation) in this sector…lawyers do not think of an alternative way…they have been engineered by a hierarchical system that resists disruption.

    Sure the odd person will speak up at some conference and many will flock around him but do they change anything beyond an initial Twitter ‘rush?’ Not really apart from maybe alienate a bit more the very people they are trying to engage.

    So my feeling is that a disruptive force like an Amazon or device or Spotify etc will be created by someone who has a knowledge of how this sector works but is not wedded to it. But more than that they will understand the one big thing that lawyers just don’t…what customers really want; open, accessible, transparent and easy to use.

  11. J.B. Ruhl

    Very thought-provoking post. I am new to this blog and as a legal educator appreciate the value in following this dialogue. I have started a blog recently, Law 2050 (www.law2050.com), to do so from the law school perspective.

    As one of my recent posts explored, I think much of what is being touted as disruptive technology for legal services is small potatoes compared to the potential impact of embedding legal compliance in what economist Brian Arthur calls the “second economy.” Arthur believes this emerging “second economy” lurks below the physical economy, acting as the new neural system. It it “vast, silent, connected, unseen, and autonomous.” It controls many corners of economic and social activity, from supply chain management to banking transactions to airport security checks. It is “remotely executing and global, always on,…self-configuring,…and increasingly self-organizing, self-architecting, and self-healing.” It is, of course, the expansive network of computer servers set up to process billions of digital transactions and decisions on a 24/7 basis.

    Arthur’s article spurred tremendous interest in the implications for our economic future. The main concern Arthur raised is that, while a lot of good comes out of the work of the second economy, a lot of that work used to be done by humans. And with its virtually unlimited buildout potential, Arthur predicts there is more of that to come. The industries most likely affected, moreover, are not going to be the manufacturing sectors, where robots have already replaced humans; rather, the second economy strikes at the heart of service industries.

    Law is a service industry. What are the implications of the second economy for lawyers?

    Richard Susskind suggests a trend toward “embedded legal knowledge,” by which he means programming our “systems and processes” to comply with the law. Susskind has some simple “systems and processes” in mind–an in-car breathalysing tester and a building temperature control system are his examples. These could reduce violations–a good thing–and also reduce the need for lawyers as a result, he points out. But the idea of embedded law, when paired with Arthur’s second economy, suggests a vast potential for embedding law into our “systems and processes.” The digital record of the second economy has made it easier for companies to track compliance, and also for authorities to find violations forensically. What if corporations (or government) simply required the second economy to be wired for compliance in the first place, unable to transact a violation and automatically reporting any attempted violations? If the physical economy can’t transact its work without the second economy, and the second economy is programmed not to allow violations of law, then the physical economy will comply with law.

    The idea of programming the second economy to automate legal compliance is far from fanciful–it would rank as a no-brainer in Silicon Valley. It is a cost-effective move for companies and for governments. It likely will cost legal jobs, as well, but it will also create legal jobs. Hackers will hack the second economy (they already have), leading to criminal violations. Governments will go too far with requirements for the second economy, leading to privacy claims and other citizen complaints (already in play). The second economy will experience failures (it already has), leading to lawsuits over liability. Congress will write new laws regulating the second economy (it already has), leading to new agencies, new administrative law issues. And so on. Just as the Internet did, the second economy will “embed” some legal jobs and it will also create some legal jobs.

    Whether the legal industry sees a net loss or gain in demand is hard to predict–what’s clear is change is in store for the legal industry as the second economy increasingly is wired to require compliance in the physical economy. It’s not a trend lawyers should ignore, and creative lawyers will turn it to their advantage.

  12. Michael Mills

    Another two cents, , or maybe four, from the perspective of a not-disinterested observer – the CEO of Neota Logic.

    On the hard question “can law firms employ disruptive innovation?” Clayton Christensen’s research counsels pessimism but not despair.

    Hewlett-Packard jumped the disruption curve from laser to inkjet printers by creating “a completely autonomous organizational unit” in a different state and then “let the two businesses complete against each other.” The Innovator’s Dilemma, Ch. 5 at Fig. 5.4. Before counseling a managing partner to adopt HP’s strategy, one should, in fairness, note that Christensen titled HP’s story “Survival By Suicide.” Managing partners lives are hard enough.

    Intel responded to the threat of low-end chip manufacturers by learning how to beat the disruptive competitors at their own game – a rough ride, but in the end successful. Clayton Christensen tells the story here: http://www.youtube.com/watch?v=qDrMAzCHFUU, March 30, 2012.

    The initiatives by Seyfarth and Littler that Jordan describes follow this line.

    Millions of TurboTax users certainly hope the program is “an improvement from an inexperienced” tax lawyer. In fact, I will wager it is an improvement over most experienced tax lawyers—in its proper domain, which is most tax problems of most people most of the time, not hard cases for people with complex business affairs. Even at higher levels of tax challenge, most accountants (including the Big 4) use software to solve most problems—from the Intuit Pro Series on up to Vertex and Big 4 proprietary programs. These programs are better than any one—or two or five—tax lawyers, because they encode the collective expertise of dozens of specialists, and because they neither forget what they have been taught nor wilt from fatigue as April 15 approaches.

    Even the IRS uses expert systems—not only to advise taxpayers but also to coach the IRS employees who answer taxpayers’ questions on the phone. Have a look at http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1.

    As Jon Busby wrote, the players who matter most are the clients. But I see more client activity in this arena than evidently he does. Is that a US/UK difference? Initiatives like the Association of Corporate Counsel’s Value Challenge and Legal Services Management Workshop, and the changes that many general counsel have made to outside counsel management and fee structures, have created a field on which innovation is possible, indeed essential.

    J.B. Ruhl’s blog may be named Law2050, but we don’t need to wait 37 years to see “embedding legal compliance”, or in Richard Susskind’s phrase “embedded legal knowledge.” I don’t expect my car to know the traffic laws any time soon, nor would I want it to, but software systems in government and business already have lots of law written into their code. With conventional software tools—programming languages, databases and the like—that’s a very hard slog, the resulting rules are invisible or opaque to those affected, and keeping up with changes is expensive. Purpose-built tools for law and compliance make the task manageable.

  13. Jerry Bruckner

    Great thoughts Jordan! Speaking about technology/disruption in the legal services sector:

    My name is Jerry Bruckner. I am a New York Attorney for 20 years, and I have been extensively involved in developing and operating Ecommerce websites for over 15 years. I am the founder of http://www.LetsGetDivorced.com, an online uncontested divorce forms preparation website.

    LetsGetDivorced.com was recently launched. It is not a law firm. LetsGetDivorced.com is an online self-directed legal document assembly service for people looking to file a simple uncontested divorce, where both spouses agree on all issues of their divorce, such as equitable distribution of their marital property and marital debts, spousal support (a/k/a alimony), child custody, visitation and child support.

    For the low-cost and very affordable flat fee of only $95, customers can enter all of their divorce details into the website’s easy to use online questionnaire (takes about 15-30 minutes depending upon the complexity of the divorce). Naturally, this service is not designed to handle very complex divorces… those divorces should be handled by very competent attorneys. However, there is a very large number of people who only need to file a simple uncontested divorce and this service is designed for them.

    LetsGetDivorced instantly generate all of their required New York State uncontested divorce forms based on their answers, plus a custom marital settlement agreement ready to be signed and filed with the Court. Unlimited free customer support is provided via phone and email. Also, customers can make an unlimited number of edits to their information, and instantly generate and print out updated divorce forms.

    While there are several similar companies, their websites are “clunky” at best, and many of them do not appear to be real companies…. just a website with no physical address or significant contact info listed.

    For the initial launch, LetsGetDivorced.com only handles uncontested divorces in New York State. The service will be expanded to additional states. At some point, I will reach out to the investor community to see if there is interest in funding the growth of this company.

    I’d love to hear any feedback about LetsGetDivorced.com
    I can be reached via info@letsgetdivorced.com

    Cheers!
    -JB

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