Below are two beliefs I carried with me for many years.

  1. In all human endeavors, incentives exert a powerful effect on behavior
  2. Within the legal industry, the billable hour is the primary impediment to innovation and efficiency

efficiencyengines2Belief 1 still stands. But belief 2, which I viewed as a corollary of 1, recently fell like an oak tree. This shift in worldview happened during my research for Efficiency Engines, a story on rise of legal managed services.  During visits to several managed service facilities, I witnessed quantum leaps in legal productivity for relatively sophisticated legal work.  And in each case, the work was priced and sold by the hour.

The biggest value of visiting an innovator is the possibility of learning something that disconfirms one’s own belief system.  A character in a John le Carre novel once quipped,  “A desk is a dangerous place from which to view the world.” That’s good advice for those seeking to understand today’s legal industry.

A better theory

After the fall of belief 2, I needed a theory on innovation and efficiency that incorporated my new learning. Here is what I came up with: Continue Reading World Class Innovation and Efficiency, Billed by the Hour (010)

modriatylertechEarlier this week, Modria (mentioned in Post 008) was acquired by Tyler Technologies, a publicly traded company that specializes in information management solutions to local governments. See press release.  Tyler Technology is headquartered in Plano, Texas and has 3,800 employees. It’s total 2016 revenues were $776 million. See 2016 Annual Report. Modria’s founders, management team, and employees will all join Tyler Technology.  Per the press release, they will help build out Tyler’s “portfolio of courts and justice solutions, particularly for its Odyssey File & Serve™ solution.”

The sale price of Modria was not disclosed. Although I suspect that Modria netted a decent return for its investors, I think the financial details are a lot less significant than what the acquisition means for the future of state and local courts.

For readers unfamiliar with Modria, here is the essential background. Modria is an online dispute resolution (ODR) company founded by the technologists who created eBay’s and PayPal’s ODR systems.  In these early days, ODR has been targeted at disputes where the amount at stake cannot support attorneys’ fees, court costs, or travel.   Continue Reading Online Dispute Resolution Leader Modria Acquired by Tyler Technologies (009)

Rogers Figure 6-1

If you have been readings the foundational posts for Legal Evolution, this installment (Post 008) will reward you with something of clear, practical value: An empirically grounded model that identifies specific factors that influence the rate of adoption of an innovation.

What is the specific practical value?

  • If you are an innovator, this model can be used as a functional checklist to assess whether your innovation is ready for market; and if so, where to focus your limited bandwidth to maximize the odds of successful adoption.
  • If you are an early adopter, this model helps you assess whether you want to cast your lot with a specific innovation or, instead, hold your powder until the innovation is more developed or another innovator produces something better.

More below the fold. Continue Reading Variables Determining the Rate of Adoption of Innovations (008)

Post 007 is another building block in our understanding of diffusion theory.  This sounds like the spinach of blog posts.  And perhaps it is. To make high quality decisions in a complex, rapidly changing legal industry, we need a high quality theoretical lens.  Others have done the hard part — building and validating a useful theory over a period of decades. The purpose of these foundational posts is to understand diffusion theory well enough to apply it to the legal context.

For background on Legal Evolution and a current listing of foundational posts, see the About page. Part I of this post covers units of analysis. Part II presents composite sketches of the five adopter types. Before getting to these new topics, however, let’s briefly review the previous foundational post. Continue Reading Units of Analysis and Adopter Types (007)

lawgraduates006The ABA just released 10-months out employment data for the class of 2016.  The percentages of grads employed in full-time/long term Bar Passage Required and JD Advantage jobs is up (72.5% compared to 70.1% in 2015).  However, the total number of these jobs is down (28,029 to 26,923).

Is this good news for law schools? Continue Reading Supply of Law Graduates Is Shrinking, But So Is Demand (006)

Six Types of Law Firm Clients
Six Types of Law Firm Clients

As the legal market remains flat for law firms, the focus naturally turns to clients.  How they think. What they care about. How they spend their budgets. Etc.  Yet, to the extent that clients vary in significant ways, the generalizations aren’t particularly helpful.

Six Types of Clients

There are many ways to categorize clients, but by my lights the most useful is size and organizational structure of the in-house legal department. As shown in diagram above, this metric varies from zero for individuals (Type 1) and business owners (Type 2), to the equivalent of a specialized law firm embedded inside a large corporation (Types 5 and 6). Continue Reading Six Types of Law Firm Clients (005)

Everett Rogers Photo and Book CoverThe purpose of Post 004 is to introduce readers to the Rogers Diffusion Curve. The Rogers Diffusion Curve was created by the eminent sociologist Everett Rogers.  It was first published in his book Diffusions of Innovationsone of the most widely cited works in all of the social sciences.

The Core Insight of the Rogers Diffusion Curve

Rogers’ core insight – one that is absolutely foundational for Legal Evolution readers – is that the diffusion of innovation is a process that occurs through a social system. As shown in the figure above, the social system has five “adopter” segments that fit a normal distribution. The segments move from left to right over time in order of adoption: (1) innovators, (2) early adopters, (3) early majority, (4) late majority, and (5) laggards.

The groups move in this progression because each group has attributes that make it more (or less) open to change. Obviously, innovators are the most open, and laggards are the least. With the exception of the innovators, each group adopts an innovation by observing experiences of the adjacent reference group.  As favorable observations and testimonials accumulate, adoption spreads through the entire social system.

Innovators and Early Adopters

Within a social system, the relationship between innovators and early adopters is different than any other adjacent pairing. This is because innovators tend to be substantially outside the mainstream. They are drawn to ideas based on intellectual curiosity and passion for what is possible. As such, they have the patience and stamina for extensive trial and error and experimentation (think Thomas Edison).

Innovators are a good match with early adopters because the latter have intellectual curiosity and patience. Yet unlike innovators, early adopters tend to have significant influence within in the social system.  Their motive is not necessarily to touch off the widespread adoption of an innovation. Rather, they want a competitive advantage over their peers or, alternatively, to maintain leadership status. Early adopters tend to be ambitious.

faviconThe special relationship between innovators and early adopters is reflected in the Legal Evolution logo. These two groups make up the light blue portion of the bell curve.  This is a population more than one standard deviation from the mean in terms of willingness to adopt a new idea or innovation. When this group (roughly 1/6) meets with relative success, the rest of the social system eventually follows.  (By the way, by virtue of finding and reading this post, there is a very high probability that you are either an innovator, an early adopter, or a very curious member of the early majority.)

Does the Rogers Diffusion Curve Apply to Lawyers?

Legal Evolution is directed at a specific social system:  those entering or working within the legal industry.  This raises a threshold question likely of interest to readers:  Does the Rogers’ Diffusion Curve apply to lawyers and the broader legal industry?

I am confident that the answer is yes.  Further, I believe that knowledge of diffusion theory has enormous practical value to anyone who is seeking to understand and adapt to the sea change is that is now occurring in the legal services market. Indeed, that is why, at least for the next year, I will dedicate the majority of my professional focus to Legal Evolution. See What is Legal Evolution? (001).

Note that if the diffusion theory applies to lawyers, we are confronted with a difficult takeaway:  For roughly 5/6th of the legal market, the adoption of new innovations is more a social process of imitation than a mental process of analytical reasoning.  This means that the vast majority of lawyers (or law students or law professors) won’t change until they see others successfully change first.  Adoption decisions are more than an rational, explicitly stated risk calculations; they are also strongly influenced by the often unstated desire desire to fit in or, alternatively, the fear of being left behind.

The Evidence

Part of my confidence in the Rogers’ theory of diffusion is the breadth, quality, and volume of Rogers’ supporting data.   Rogers published the first edition of this book in 1962 and spend much of the next four decades updating subsequent editions with ever richer examples drawn from a diverse array of geographies, time periods, cultures, and fields of study (e.g., public health, technology, education, military, marketing, politics, etc.). Yet, the purpose of Legal Evolution is not to summarize Rogers’ seminal book, as it needs to be read by anyone needing a how-to manual for driving organizational or industry change.  In fact, I’ll mail a copy of Diffusion of Innovations (5th ed. 2003) to the first ten readers who express an interest.  Just email me your street address.

Although Diffusion of Innovations is very thorough and persuasive, my confidence in diffusion theory is also borne of personal experience.  For six years, I was part of a team that built and sold data analytics products and services to lawyers. This was my time at Lawyer Metrics (now owned by AccessLex Institute).  As I grappled with the lengthy sales cycle, I often compared notes with fellow legal start-up travelers.  In most cases, our experiences were eerily similar; and to the extent they were different, the differences could be explained through diffusion theory.  Yet, most significantly, the application of diffusion theory provided powerful guidance on where and how to allocate our limited bandwidth.

Over the coming months, I hope readers come to appreciate the power of diffusion theory and its application to law.  Those who fully grasp these lessons can do both good and well.

Related: What is Legal Evolution? (001)

What’s next? See Six Types of Law Firm Clients (005)

A lot. The trend is large and longstanding.  Over the last two decades, the number of lawyers working in corporations has more than tripled, growing from 34,750 in 1997 to 105,310 in 2016. The chart above shows the trendlines.

Most people working in the legal industry know that in-house legal departments have been growing, but has there been an accurate sense of the magnitude — 7.5x faster than law firms over the last 20 years?

It took a fair about of time to pull these data from the Bureau of Labor Statistics and put them into the right format to generate the above chart. Yet, the chart itself raises more questions than it answers.

  • Why are corporations in-sourcing a non-core function? During this same period, outsourcing of various business processes has been growing.  Why is legal treated differently?
  • How long into the future will this trend continue? What might curtail this trend?
  • What are the age demographics of in-house legal departments compared to law firms? Law firms are graying. Will in-house departments avoid this same problem, or will it hit over the next 5 to 15 years?

The orange “in-house line” is so far above the other two sectors that is obscures another unexpected finding.  Since the mid-2000s, government has been growing faster than law firms – what’s causing this rise?  Either the government’s been on stealth hiring binge, or law firm hiring has flattened out in a way that cannot be characterized as cyclical.

Subsequent posts will return to these questions.  Before doing that, however, I want to time build out a simple theoretical framework that we can apply to legal industry data. This framework in rooted in diffusion theory.

What’s next?  See What is the Rogers Diffusion Curve? (004)

Between 1971 and 2010, the average entering 1L class at an ABA-accredited law school was 246 students with a very narrow band of fluctuation. The high-water mark was 262 in 2010. Every year since 2012 has set a new historical low. As the chart above shows, the average has tumbled by a staggering 31%.

When I made these calculations, the decades-long stability of entering 1L class sizes grabbed my attention. Economic downturns, shifts in the legal landscape, and even the fallout of ’08 didn’t initially deter enrollment. Yet, what was changing in the background throughout this period was the total number of ABA-accredited law schools. Here is the data in ten-year increments:

  • 147 in 1971
  • 172 in 1981 (+24)
  • 176 in 1991 (+4)
  • 184 in 2001 (+8)
  • 201 in 2011. (+17)

The peak for ABA-accredited law schools was 204 in 2014, though mergers and closures have reduced the number back to 201 in 2016.

Imagine if a hotel, airline, or restaurant experienced a 31% decline in the number of paid customers.  The price competition for marketshare would be disastrous, leading to industry consolidation that would improve pricing power.  Higher education is different, however, in a way that complicates the analysis. Specifically:

  • The biggest cost-driver in higher ed is labor. Because of the extensive protections on professor tenure, most of these labor costs are fixed rather than variable costs.
  • Universities have little experience with shutdowns or reductions in force; further, such actions would likely create severe cultural turmoil.
  • Unlike in private industry, there is no well-established playbook for divesting, acquiring, and merging academic units across universities.

How does the overcapacity resolve itself?

This is conjecture on my part, but based on the analysis above, I think we will see a few more law school closures, but not nearly as many as the grim economics might suggest.  Why? Some law schools have responded to the applicant downturn by creating new non-JD programs. Law bears on virtually all realms of human activity – bringing about the opportunity to create one-year Masters degrees, which appear to have significant demand, particularly in large urban centers.  Other schools are specializing in online education. To the extent such programs are successful, they will be copied by other law schools in different regions.

Will the overcapacity be resolved by a boom in demand for legal services?

This is unlikely.  The sharp decline in law school applicants was due to extensive media and blogosphere coverage of the entry-level meltdown.  This commenced in 2010.   Markets are driven by information.  Over the last few years, the public information on the legal job market became much better.

Also, there is a strong argument to be made that the downturn in the entry level jobs is due to structural factors.  For example, we know from the data presented in Post 003 that for 20 years corporations have been moving lower-level work in-house. In most cases, the workforce has been law firm associates willing to step off partnership track. Profitability has remained high at law firms because the more complex work can’t be cost-effectively in-sourced. During the 2000s, corporate clients began exerting their market power by refusing to pay for junior associates. Not all clients applied pressure, but enough to create uncertainty and turmoil within law partnerships. The solution was to hire a lot fewer associates – something they could do because the mix of work had become more specialized and could be staffed by a mix of staff attorneys, of counsel, and non-equity partners. Because so many firms converged on this same solution, the BigLaw entry level labor market was cut in half.

If corporations are reluctant to buy associate time bundled together with skilled senior partners, the boom in demand for legal services will have to come from a different source.  I think such a demand exists, though legal education will have to retool to tap into it.  That is a topic for another day.

What’s next?  See How Much are Corporations In-Sourcing Legal Services (003)

Legal Evolution is two things.  First, it curates successful examples of innovation within the legal industry, often relying on a simple narrative format.  This is because examples and stories tend to be the most effective way to understand and communicate inherently complex material.

Second, Legal Evolution is an experiment in applied research.  Yes, this sounds hopelessly academic, so let me break it down.

An experiment

Legal Evolution is an experiment because I am trying to create a new medium for distributing serious research.  Although many law professors blog in addition to publishing articles in academic journals (I have long been in this group), for the near future and hopefully beyond, Legal Evolution will be my primary focus as a law professor at a Research I university.  When I submit my annual report to my dean at Maurer School of Law, I’ll be hanging my hat almost entirely on Legal Evolution.

In applied research

Legal Evolution focuses on applied research, which tends to exist in only specific units of a university. Consider the following definition from the Lawrence Berkeley Lab at UC Berkeley, a government-financed applied research lab:

Basic (aka fundamental or pure) research is driven by a scientist’s curiosity or interest in a scientific question. The main motivation is to expand man’s knowledge, not to create or invent something.

Applied research is designed to solve practical problems of the modern world, rather than to acquire knowledge for knowledge’s sake. One might say that the goal of the applied scientist is to improve the human condition.

(italics in original). Examples of applied research include rural sociology (increasing agricultural production), industrial/organizational psychology (improving worker productivity), and public health (reducing and preventing disease).

What’s the practical problem?

The problem of lagging legal productivity.  This is a serious problem because it means that solving legal problems is becoming, in relative sense, more expensive over time.  In the individual client market, more citizens go without access to legal services.  In the corporate market, clients cope with budget constraints by demanding fee discounts from law firms, which undercuts the incentive to create better systems and process.

Although lagging legal productivity has a large negative impact on both individual and corporate clients (the two-hemispheres of law practice), the negative effects extend to recent law grads.  As demand for legal services continues to stagnate, the remaining work goes disproportionately to older lawyers. This is because their training and experience makes them more productive, at least for doing bespoke work by the hour.  Law schools better connected with innovations that improve legal productivity will produce graduates with brighter employment prospects.  The current challenge for virtually every lawyer and professor is knowing where to start.

Can we accelerate the adoption of productivity-enhancing innovations?

Legal Evolution is grounded in diffusion theory. One of diffusion theory’s cornerstone principles is that innovations diffuse faster when potential adopters have clear examples of how the innovation is working for others, particularly those in their peer group.  Solutions are important because their existence enables legal industry stakeholders to make more significant investments of time and money.  In the legal field in particular, examples of already existing solutions serve as a necessary counterweight to lawyers’ natural skepticism.

The mission of Legal Evolution is not to create new solutions, but to find examples of what is working and share them with readers.  The core hypothesis I am trying to test is whether well-drawn, specific examples of successful innovations are useful to those in the legal ecosystem trying to develop and implement solutions to similar technical problems.  The only way to evaluate this hypothesis is to carefully listen to reader feedback.  Thus, your thoughts and comments are of great interest to me (editor’s email).  Welcome to Legal Evolution!

What’s next?  See A Measure of Overcapacity in Legal Education (002)