What disruption really means

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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