The Disruptive Road Ahead for the Legal Industry

Law firms are fairly naive as to the wave of digital disruption aimed straight at their profession. Enterprise applications, mobile communications, the cloud, advanced analytics, IBM Watson, ROSS and the Internet of Things are among a few innovations that are starting to transform the legal industry in the ways that have already transformed the media, retail, health care and banking industries. Legal professionals are well aware of the disruptive forces affecting their clients, but few are aware of the digital storm growing on their own horizon.

Over the next five years digital technology will transform the legal industry, and create significant value for new and old players who get out in front of the coming changes.  Naive are those who think their guild will remain robust and insulated from market disruption fueled by demanding corporate clients and the echo-system of digital technology.

The Perfect Digital Storm

Law, a $300 billion industry and the second largest professional services sector, has become a great place for entrepreneurs.  The market is flooded with an oversupply of lawyers, consumers and corporate buyers of all sizes are seeking more affordable access to legal services, and technology —practically the standard in other businesses — is yet to become widely adopted in the practice of law.  Enrollment at law schools is off sharply and new law graduates are still having a very hard time getting jobs. That in turn has led to a new round of law firm mega-mergers, further isolating much of the AmLaw 100 from the interests of all but the largest corporate clients. At the same time, electronic discovery specialists, software companies, legal outsourcing by in-house corporate legal departments (i.e., Legal Process Outsourcing (LPO)) and new requirements for legal project management are stealing or compressing margins for much of the lowest level, and formerly highly profitable, litigation work from big firms.  None of these alternatives existed at any meaningful scale ten years ago.

The successful start-ups in this steady disintermediation of legal services will be the ones who recognize that they are driven by what legal transactions can and will be, not what they have been historically, and that they are technology companies solving legal problems, not legal companies trying to understand technology. All together this is the perfect storm for digital disruption fueled by innovation.

The Wrong View of Disruption

Business disruption is defined as a radical change in an industry. A disruptive
innovation is an innovation that helps create a new market by creating new value, and eventually disrupts an existing market and its old value proposition. For businesses wishing to survive in the new market they must change their business models. Changing the business model starts by changing the mental model. However, too often leaders view disruptive innovation merely as a mechanical change to the way they run their business rather than a philosophical change as to the way their business creates value and relates to the market. The difference is significant. Let’s examine whether Legal professionals understand this point.

If we look at LexisNexis Business of Law Blog and examine a post titled 2015 Predictions for the State of the Legal Industry  we can get a glimpse into the hearts and minds of some of the leaders within the legal profession. Specifically do they see disruptive innovation on the horizon and more importantly do they understand it. The post covers three categories of predictions  a) the state of the legal industry b) legal technology and c) law firm business development.  All the predictions talk around disruption but never really address the need for radical change. In other words this represents the industry tradition of guild mentality as a gating factor in the ongoing need for transformation of the legal industry. LexusNexis themselves have a tag line that reads “software solutions for the business of law and litigation”. Maybe it ought to read “digital solutions that create more value for customers”. Changing the aim would change the subsequent outcomes.  Within the “about us” section of their site there is a power point presentation that highlights some of the Legal Industry stats that are revealing such as:

• 66% Firm leaders say growing revenues is a top 3 priority for their firm
• 35% of Large Law firms’ revenues are declining
• 4% of total revenue is the average firms are spending on business development
• 16% of Law firms indicate that big data will lead to more strategic use of data
• 85% of IT people agree that big data will lead to more strategic use of data

Someone once told me that lawyers aren’t very good business people but they can be good lawyers. Based on the above stats proudly displayed on the LexisNexis “About Us” web site section I have to ask the obvious questions.

1. What company on planet earth doesn’t have growing revenue as a top priority? More importantly the real question is “How?” Yet a third haven’t indicated it is a priority. What am I missing?
2. So over a third of the industry is in decline and the entire industry averages 2.4% of revenue on business development? Is there a correlation there?
3. So more IT people agree that big data will lead to more strategic use of data than law firms who actually believe the same thing? What am I missing?

The old school legal profession business model still clings to rigid hierarchical work environments that stifles ingenuity, the free exchange of information, and job satisfaction. The billable hour continues to dictate fees (and associate pay), which results in having to perform the awkward ritual of fostering and preserving relationships with clients while financial interests remain disguised  as the dominate factor of “service".

Thinking Differently From The Outside In

The innovators, you know those people who think differently, are changing the nature of law firms themselves, going virtual, offering novel rate structures and flipping the business model of legal partnerships by being transparent, collaborating with clients, community and by leveraging technology. The technological landscape is accelerating rapidly and major changes are on the near term horizon with powerful implications on legal processes emerging every month. A couple developments worth highlighting include:

Case preparation and predictability: Ross Intelligence : by taking advantage of the natural language and cognitive computing platform that IBM’s Watson offers, ROSS can predict the outcome of court cases with a confidence rating, assess legal precedents, and suggest readings to prepare for cases. ROSS will cut case preparation time and thus cost down substantially.  According to Mario Grech “There are applications that service the legal industry, but none that have the artificial intelligence and machine learning capability that Watson has,” he says. “Watson is our advantage".

Case Management (Legal Project Management): Legal-project management is becoming increasingly common, especially in law firms working under alternative fee arrangements such as fixed or flat fees, cost limits, and success bonuses. Such cases require management of schedule, risk, and cost in a more rigorous and measured manner than firms have practiced in the past.  Professor Larry Bridgesmith, of the Vanderbilt Law School, has developed an enterprise digital application, called Lean2Legal®, which enables project management, and all the participants, to effectively and efficiently apply the tools and techniques of lean thinking to legal practices. The client outcomes are faster, smarter and at lower cost.

Richard Susskind writes: “The future of legal service will be a world of virtual courts, Internet-based global legal businesses, online document production, commoditized service, legal process outsourcing, and web-based simulated practice. Legal markets will be liberalized, with new jobs, and new employers, for lawyers.

The mechanics of disruptive innovations are changing the legal profession and the way markets are being served. But more importantly, people are beginning to see and believe in new ways to create value for a larger  market looking for more value from a new Legal marketplace created from disruptive innovation. Do you agree?

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 Jay Deragon  - is a retired management consultant, digital strategist, recognized author, entrepreneur and life long student based in Nashville, TN.  Deragon’s thought leadership in Digital marketing strategies has earned him top recognition globally including Brand Quarterly Magazines top 50 over 50 Marketing Thought Leaders. He has been a noted speaker at conference throughout the USA and in Europe, written thousands of on line articles, three ebooks and regularly contributes to LinkedIn's Pulse