Firms need to do more than just update their IT systems to beat the competition.
All the talk in legal circles of late is of ‘innovation’. Law firms should innovate, create, adapt and develop, we hear. A Sword of Damocles simply dripping with the venom of demanding, increasingly wily clients is hanging over firms every minute of every day. There are numerous awards available for the most innovative lawyers.
But opening an office in Kettering, Cork or Quezon City is not innovative. Introducing a new client relationship management database or invoicing system is not innovative. Nor is fixed, collared, capped or value billing. Nor is rebranding your banking department the Capital Instruments Risk Assessment Practice. Different staffing arrangements are hardly innovative if they’re doing the same work in the same way, just in a cheaper location.
An award for being the most innovative lawyer in this market is, I’m afraid, rather like the award for being the fastest snail.
Toxic industries
Happily for lawyers everywhere, recent research in the US casts serious doubt on innovation as a long-term play. In fact, an American investor in the 1960s would have been best advised to place his $1 bet on what may well be the least innovative industry in US corporate history – tobacco (this according to Wharton professor Jeremy Siegel, reported on stock advisory site The Motley Fool).
Tobacco, in terms of investor returns, smashes anything else in the US economy, with $1 invested in cigarette company Altria (previously known as Philip Morris) worth $6,638 today, a compound annual return of over 20 per cent. That same dollar invested in the S&P500 would be worth just $87 – a staggering 98 per cent less.
Siegel cites the “hated” nature of the industry, a captive client base, an inbuilt ability to continuously raise prices and a stolid refusal to innovate as lying behind tobacco’s unmatched success. Sound familiar?
Now, one could carry this analogy too far. Lawyers are not literally toxic, but then nor are they especially pleasurable. You’re hardly likely to light one up after exerting yourself with an attractive partner. Equally, they are not addictive, unless you’re a Russian oligarch.
But the ability to raise prices based on controlled supply, the all-but-insurmountable barrier to entry into the industry and the lack of any external pressure to innovate all struck me as having a certain resonance for those engaged in the provision of legal services.
Tobacco companies have not needed to innovate because their customers do not really need them to. Would they like them to? Undoubtedly. But will they keep buying regardless? Definitely.
For the massively successful leaders of global Big Law, there is simply no pressing need to innovate in the sense that the rest of the world understands the term. Why would you, when you’re making a fortune doing exactly what everyone else is doing with no credible disaster-level threats and zero chance of the need for the product you are delivering – such as international M&A – ceasing to be required?
“An award for being the most innovative lawyer is like the award for being the fastest snail”
Rain on your parade
In-house lawyers are often cited as the catalyst for seismic change, but while creating a kind of power battle between the oft-hobbled managers of legal service consumption and their providers makes for good copy, good conference fodder and a little creative frisson in the higher echelons of law firms, it is light years from creating the kind of disruption the industry needs.
There are a few standout examples of where general counsel have been turning what is usually perceived as a cost centre into something that drives business advantage, but too many companies still recruit in-house lawyers who are as junior (cheap) as they can get away with, who are then steamrollered by their law firm suppliers.
I do not envy in-housers in that position. That’s not driving business advantage, it’s just firefighting, but it must be difficult to be pivotal to a company’s future when you are probably not on the board and quite likely to be out of a job anyway if and when your company gets taken over.
Law firm partners, in contrast, have an enviable freedom and an almost cast-iron ticket to great lifelong earnings as long as they are good at what they do and manage their careers appropriately. In-house, you are always working for someone else who is more important than you, while in private practice you never need be.
External threats – the accountants, principally – are like e-cigs: great in theory, but no substitute for the real thing, red in tooth, claw and litigation department.
And technology? Well, not to rain on your silicon parade mate, but the technology to warp, destroy and remake the legal profession has been around for years. And yet the number of lawyers hasn’t been reduced, the cost of Big Law services has only increased and the use of so-called Big Data by law firms seems to be non-existent.
Pause for thought
So next time you’re thinking of entering your perfectly creditable but hardly earth-shattering new invoicing system for an innovation award, why not stop, get yourself a nice strong coffee and a couple of the most awkward and argumentative colleagues you can find, and go and sit in a room and have a proper, elemental discussion about what
clients might find really innovative.
And I don’t mean tongue-scraper-on-the-back-of-your-toothbrush innovative, but the kind of innovative that destroys – literally puts out of business – your competition. Then build it. And screw the award. You won’t need it.
By Mark Brandon, strategy director, Overture London
Surely a copy-editing error is responsible for publishing this today, rather than on April 1 as the author doubtless intended. Still, great fun all around, showing that satire never goes out of season.
Of course, while hedgehogs know one big thing–that BigLaw hasn’t changed and hasn’t needed to so far–foxes know many things. For example: (a) 95% of the work on that indispensable “international M&A” deal consists of due-diligence scutwork suitable for the skills of any conscientious team of $25/hour freelancers; (b) IBM’s Watson is fast approaching the ability to understand language in context, and did we mention it has Moore’s Law on its side?; (c) pricing and efficiency pressure is actually not coming from the GC’s and law departments of clients but from the CFO’s and finance departments, who don’t give a fig about our noble profession and don’t consider it their problem to ensure the profitability–or even the existence–of the Global 50.
The world of the fox may be one of anxiety, but that of the hedgehog is one of comfortable certitude in their ability to keep doing what they’ve always done the way they’ve always done it. After all, it worked splendidly for A&P, Borders Books, Western Union, American Motors and Pontiac and Oldsmobile and for that sake Hupmobile, Blockbuster, White Star Lines, DEC, MySpace, BlackBerry, and on and on. Why should the hedgehog worry? They know what their clients need; who cares if the clients beg to differ?
Well done!
Excellent – insightful and thought provoking as ever Mark.
One of the interesting things for me is that the practical need for creativity / innovation / disruption typically comes from two areas: first, where problems or crises mean that you can’t proceed with the old ways and have to have a new idea; and second, where there’s no pressing need, but a new idea offers advantage and benefit.
It seems to me there are two issues facing law firms in this area: one, do they recognise the need to change; and two, even if they do recognise the need, do they have the skills necessary to deliver the creativity / innovation / disruption required. For too many firms, the answer to both is “no”…
Good challenge. There’s a very slow rate of change. There needs to be more client and law firm cooperation and transparency. That is the challenge we’ve sought to meet with setting up GC Hub (www.gchub.co.uk). Only a few weeks in but lots of positive feedback from clients and law firms.
Thanks all. I think – with due respect to the subs on The Lawyer – that the headline and particularly the cover line on the print version (which nearly gave me a heart attack!) don’t reflect my central point, which you helpfully isolate and amplify, Lee: there just isn’t enough innovation in legal, and what is labelled innovation just isn’t very innovative.
As to your point, Bruce, on my satirical treatment and comparison with the tobacco industry, I’m perhaps more equivocal than I might seem. I have been hearing for two decades that this is all about to change and yet so much of the industry still seems to be doing effectively the same old thing.
Perhaps we are – finally – at that tipping point (or perhaps we are beyond it, and its true effects are yet to manifest), but part of me can’t help wondering whether the impressive defensive powers of the legal profession will defy our predictions.
As to Watson, well I think I’ll be long-dead by the time AI is ‘doing’ law. And by that time, SkyNet will probably have wiped us all out anyhow!
Lawyers on boards driving commercial strategy. Oh goody – lets do that coz we have seen how brilliant lawyers are at managing their own businesses.
That does remind me of the remark of a management consultant friend of mine. I met him for lunch after he’d spent the morning at a Magic Circle firm.
“It’s kind of challenging,” he said, “telling a roomful of millionaires they’re running their business all wrong…”
Law is a crap career. Let’s admit that.
All good stuff Mark and many before me have said that legal innovation is an oxymoron. We might do better to take a peek at what KPMG is doing with its Small Business Accounting service (a technology driven JV with Xero), which it seems to me has the potential to destroy all but the top 50 accountancy practices. And I stress the word potantial.
It’s a good point, Simon, and there’s definitely another article in it. I have to say that my own experience of ‘High Street’ practices, on matters ranging from residential conveyancing to divorce to personal injury to small business advice has been pretty dreadful. The firms we get to know well are at the leading edge, with the resources to keep on top of latest developments and invest in innovation, but my suspicion is that there is a huge, under-served market out there which could be scooped up by an aggressive and intelligent operator.
I, for one, welcome our new accountant overlords.
I, for one, am rather pleased with the tongue-scraper on the back of my toothbrush.
Mark, nice point on the millionaire partner. However, I suspect this is the case despite strong management ability. While clients have been willing (if not happy) to pay prices that have margins at 30% + built in, the leveraged model should lead to riches. However, and the point of this discussion I think, clients are now forcing a change that is leading to downward price pressure particularly for run of the mill services. I have seen lots firms using the Ostrich Defense Strategy – how long they will survive is anyone’s guess but those firms that are looking at how they deliver legal services to a sophisticated and demanding clientele will thrive. Will we see true disruption, I doubt it but I think we will see lots of good change in the sector. (P.S. I agree that there is lots of opportunity for technologically driven service delivery and consolidation in the high street!)
Good post, Andy. You’re right of course. The way I often describe it is that lawyers are closer to the source of their revenue than practically every business-person, able to, technically-speaking, charge for every utterance and in an essentially closed profession (notwithstanding ABS…) with a captive market. Sometimes it feels like some lawyers make money not because of, but in spite of, themselves.
In terms of disruption/innovation, we’ve only seen the tip of a very large iceberg, but how much it will change in our lifetimes I’m just not sure. As long as Law can keep funnelling the top legal talent into optimum-profitability vehicles (BigLaw), how exactly are external disruptors going to compete? Yes, you can systematise, de-couple, fragment and disaggregate til the cows come home but when the proverbial hits the fan, you’re simply not going to pop down to your local low-cost disaggregated legal services supermarket. Given that legal fees are always dwarfed by bankers’ fees on M&A, I am not sure crushing that budget will be enough of a priority for companies playing on the international stage.
Hi Mark,
Thanks for the article – very thought provoking, especially for a trainee solicitor like myself who in the last 7 years since starting my law degree has seen various seismic changes in the world generally and in the legal sector, particularly with regard to access to justice. However the 3 firms I have worked in have managed to stay relatively insulated from it and reluctant to embrace it, even if it may improve their services to clients and indeed potentially their revenue.
As part of the new generation of lawyers, how do you think I can be pushing for and encouraging innovation and change from within when I don’t yet (and might never) have the luxury of a partner status from which to influence? Interested to hear your thoughts.
Hi Anonymous, and thanks for the post. I think the mere fact you’ve chosen to post and not simply dismiss the point of the article signals that you could be in the vanguard of change.
Your intimation is correct, of course. As things stand the only way you’re really going to influence your firm (or any firm) is to become a partner and then take up some kind of administrative role such as Group Head or Managing Partner, and effect the change you want to see happen.
There are other professionals, in business support roles, who can have an influence, but ultimately the real source of power in a law firm is the revenue stream, and that’s where to focus your interest.
Much of the focus to date has been on improving process, what Henry Ford would refer to as creating a faster horse. I’m more interested in what firms can do to ensure that their clients are really getting solutions to their problems, not the same old bundle of ULS (Units of Legal Service) packaged up in a different way. That means proper continuity of service, understanding business markets in a way that law firms just don’t for the most part (‘sectors’ usually being a convenient term for aggregating departmental offerings rather than any genuine business understanding) and breaking and remaking the legal process, rather than simply compacting or smoothing it.
I’m fortunate to be working with some of the most innovative firms, but I am still awaiting a public announcement from the market which raises more than an eyebrow.