The graphic above reflects three different types of innovation “outcomes”:
- Initiation of an innovation adoption process that results in an organization making a decision to adopt an innovation. See Post 015
- Implementation of the adoption decision, which entails planning, change management, and redefining/restructuring and clarifying the innovation in the field so that it delivers its intended benefits. See Post 015
- Adoption Success, which presumes success in both initiation and implementation.
This is Part III of a three-part series on innovation in organizations. In Parts I and II (Posts 015 and 016), we discussed how multivariate regression models are built around an “outcome” we care about, such as organizational innovation. These models give us insight on how to influence the likelihood of the outcome. In turn, these insights become of the basis more effective strategies and interventions.
The graphic above, however, reveals a difficult organizational challenge. Centralized management decision-making impacts the three innovation outcomes differently. During the initiation phase, centralization has a strong negative correlation with the outcome (Panel 1). During implementation, the relationship is moderately positive (Panel 2). The two opposing effects are then netted out in Panel 3. The result is a statistically weak and moderately negative relationship between centralization and overall adoption success.
So what does this mean? If we want more innovation in our organizations, we need to forgo one-size-fits-all approaches to management in favor of a staged approach.
Post 017 is part of Legal Evolution’s foundational series on diffusion theory. Readers seeking to influence innovation within the legal industry will be more successful if they obtain and apply this background knowledge. Care has been taken to make this information non-technical and accessible.
The staged approach is necessary because several factors in Rogers organizational innovativeness model, introduced in Part I and reproduced below, have this peculiar flipping effect between initiation and implementation: (i) Centralization, (ii) Complexity, and (iii) Formalization. This is one of the primary reasons that Rogers model has relatively low predictive power. See Part I (Post 015) (“The predictive power of Rogers’ organizational innovativeness model is much lower than the Post 008 rate of adoption model.”).
Yet, we can adjust to these limitations through the application of our reasoning ability. See Part II (016) (noting that models are just guideposts for strategic thinking).
Consistent with the staged strategy discussed above, this Part III analysis assumes that organizational innovation requires successful initiation (agenda setting and matching) and successful implementation (redesigning/restructuring, clarifying, and routinizing). See Figure in Part I (post 015). This approach results in clear prescriptive guidance on how to increase successful innovation adoption in legal organizations. To the extent possible, this analysis uses specific legal industry examples.
Using the Rogers Organizational Innovativeness Model
Rogers models focus on applied research. This means we mine empirical models for usable insights while taking careful note of their constraints and limitations. Thereafter, we use the resulting superior knowledge as part of a reasoning process to solve practical problems. See Post 001 (explaining difference between applied and academic research).
Below is the superior knowledge provided by Rogers’ organizational innovativeness model.
I. Individual (Leader) Characteristics — Champions
The first category of variables that influences organizational innovativeness is the presence or absence of innovation champions. An innovation champion is “a charismatic individual who throws his or her weight behind an innovation, thus overcoming indifference or resistance that the idea might provoke in the organization.” Diffusion of Innovations 414 (5th ed. 2003).
The champion could be a leader in formal position of authority (president, vice-president, manager, etc), but not always. As Rogers notes, “The general picture of an innovation champion emerges not as a particularly powerful individual in the organization, but rather as someone particularly adept at handling people” (p. 415). Roger cites research showing the effective champions (1) tend to occupy a “linking” position in their organization, (2) possess analytical and intuitive skills in understanding various individuals’ aspirations, and (3) demonstrate well-honed interpersonal skills in negotiating with others.
It is easy to imagine how a smart, well-connected person with high EQ could be very effective in rallying enthusiasm during initiation and managing conflict and mediating solutions during implementation. Although the presence of such champions does not guarantee organizational innovativeness, Rogers suggests that their absence likely forecloses it, particularly in cases involving non-incremental change. “The new idea either finds a champion or it dies” (p. 414, quoting Donald Schon, “Champions for Radical New Inventions,” 41 Harv Bus Rev 77, 84 (1963)).
II. Internal Characteristics of Organizational Structure
Various internal characteristics of organizational structure comprise the second category of variables that affect organizational innovativeness.
1. Centralization (-)
Centralization is “the degree to which power and control in a system are concentrated in the hands of relatively few individuals” (p. 412). As noted in Parts I and II, higher levels of centralization tend to have a negative impact on initiation. Yet, if centralized management can nonetheless manage to adopt an innovation, centralized decision-making can aid its implementation. The overall net effect, however, is negative. This is because senior organizational leaders tend to be too far removed from operational-level problems to identify relevant and workable innovations.
In my work with law firms, I have been surprised to find several examples of law firms that flourish economically because leaders have adopted a strategy of “letting partners do what they want.” In most cases, the resulting innovations take the form of specialized practices where partners command premium rates for providing fast, high-quality solutions that solve difficult client problems. The entrepreneurism consists of playing close attention to how substantive legal issues are impacting clients’ business needs and being the first to create a novel legal solution. Although this decentralized approach can result in a sizable collection of lucrative niche practices, it likely undercuts potentially important firm-wide innovations such as project management and process improvement.
To cite another legal example, the decentralization of faculty governance in legal education results in many symposia to generate new ideas. However, we are completely lacking in effective central mechanisms for coordinating implementation. Hence our reputation for being stuck in the past.
2. Complexity (+)
Complexity is “the degree to which an organization’s members possess a relatively high degree of knowledge and expertise, usually measured by the members’ range of occupational specialities and degree of professionalism (expressed by formal training)” (p. 412). Rogers notes that a highly educated workforce is more likely to grasp the value of innovations. However, the higher levels of complexity make it more difficult to reach consensus on implementation. Thus, the net effect of complexity on organizational innovativeness is positive but not particularly strong.
Below is a graphic that shows the complexity relationship by phase.
In law firms and legal departments, there is a strong movement to hire allied professionals trained in a wide range of useful disciplines. This mixing of professional perspectives is bound to raise the quality of innovative thinking. Translating these new ideas into effective action will be the core challenge of the next generation of legal professionals. See Post 005 (discussing growing size and complexity of corporate legal departments and the rapid growth of CLOC). To cope with the Panel 2 complexity challenge, the legal industry is undoubtedly headed into an era of standard-setting and standardization. This is going to produce a cultural sea change within the organized legal profession.
3. Formalization (-)
Formalization is “the degree to which an organization emphasizes its members’ following rules and procedures” (p. 412). This internal organizational attribute has an impact that is very similar to centralization — strongly hindering initiation, aiding implementation, and overall having a net negative impact on successful adoption.
In the legal industry, we see the highest levels of formalization among the managed service providers. In this context, new entrants come on the scene with a core competence in designing and following process. The high level of formalization results in legal work with fewer errors, lower cost, and faster delivery time. Yet, the emphasis on process also enables more predictable schedules and greater work-life balance. This is a valuable differentiator to attract and retain talent. See Post 010 (“In addition to a professional wage, a collegial work environment, and freedom from business development pressures, lawyers in the managed service sector can refuse work outside the bounds of a 40-hour workweek.”).
4. Interconnectedness (+)
Innerconnectedness is “the degree to which the units in a social system are linked by interpersonal networks” (p. 412). The more interconnected the interpersonal networks, the greater the organizational innovativeness. This is because interpersonal networks tend to be very influential channels for sharing information, as trust and credibility levels are high. An organization can broaden and deepen these networks through the architecture of its office space and investing in regular inter-office meetings.
Interconnectedness is probably an attribute that legal service organizations tend to undervalue, wanting to avoid the lost time and expense of bringing professionals together for learning and socializing. Yet, I was recently surprised to learn that one of the major benefits of Milbank@Harvard, an intensive annual business training program for Milbank associates that lasts for several years, is that associates in the U.S., Europe, and Asia offices get to know one another in ways the spur trust, collaboration, and innovation. Ironically, these benefits were not part of the original business case for the program. They are just a welcomed second-order effect. For additional information, see “An Update on Milbank’s Big Bet,” LWB, Nov. 13, 2013.
5. Organizational slack (+)
Organizational slack “is the degree to which uncommitted resources are available to an organization” (p. 412). The greater the organizational slack, the higher the level of organizational innovativeness, “especially for innovations that are higher in cost” (Id.). Rogers speculates that larger organizations may be more innovative because the aggregate levels of downtime are bound to be greater. To use a sports metaphor, more shots usually result in more baskets.
Companies like 3M, Google, and HP have all adopted innovation strategies based on unstructured free time for knowledge workers. However, in most of the legal world, 100% utilization is the perennial holy grail. Exceptions are hard to find.
That said, the law firm Bryan Cave is an interesting accidental example. In the late 1990s, John Alber, the firm’s longtime innovation partner, returned to the firm after the sale of his logistics company. After fixing the firm’s failing IT system, Alber assisted on a client request for an expert system on international trade regulations (albeit no one called it that at the time). Although Alber had no formal staff, he found someone in the IT department with free time to help. The client was very happy with the resulting technology-based solution, thus starting a John Alber/Bryan Cave winning streak that lasted 17 years and resulted in numerous industry awards for innovation. The IT staffer with free time was Chris Emerson, who went on to get an MBA. Emerson now runs Bryan Cave’s renowned Practice Economics Group (or PEG).
Another law firm example (from India, not the US) is Nistith Desai & Associates (NDA), a firm with numerous FT Innovative Lawyer awards in the Asia-Pacific bracket. See long list . Founded in 1989, the 200+ lawyer firm is based on the principle of continuous learning. Every lawyer, including the firm’s founder, is expected to be involved in the firm’s daily hour-long educational programming, both as a student and content provider. NDA essentially mandates slack time in service of creative solutions. While virtually all law firms are reactive to client problems, NDA’s model is based on the proactive anticipate / prepare / deliver model show below. Not surprisingly, NDA uses value-based billing.
In late 2017, NDA will unveil a new R&D facility on a four-acre, state-of-the-art campus located on the outskirts of Mumbai. The new facility is referred to as the Blue Sky Thinking Center. The founder of the firm, Nistith Desai, claims to have built NDA based on a composite of the very best professional services firms, including Wachtell Lipton. For an interesting discussion of the firm’s origins and operating principles, see Nistith Desai, “Management by Trust in a Democratic Enterprise: A Law Firm Shapes Organizational Behavior to Create Competitive Advantage,” Global Bus & Org Excellence (Sept/Oct 2009).
6. Size (+)
Part II of this series (Post 016) focused on the relationship between an organization’s size and organizational innovativeness. Roger viewed size as mostly a proxy or surrogate for other important factors, such as overall resources, complexity, and organizational slack.
Although increased size means additional layers of bureaucracy and higher communication overhead, the benefits can often outweigh the costs. The highly innovative Corporate Legal Operations Consortium (CLOC) was certainly enabled by the size and scale of modern legal departments. See Post 005 (observing that many legal departments have become “the equivalent of a specialized law firm embedded inside a large corporation”). Likewise, Part II (016) presented compelling evidence that larger firms are ahead on AI and other practice management innovations. This is almost certainly the result of more resources.
To drive home this point, imagine a firm allocating 2% of revenues to invest in people, process, technology, and data. In a firm with $1.7 billion in revenues (the average of AmLaw 1-20), that amounts to $34 million. In a firm of $100 million (the average of AmLaw 181-200), 2% equals $2 million. Whatever the benefits of being smaller and more nimble, smaller firms are not well-positioned to attract and retain a critical mass of specialized talent. See, e.g., Update from Baker & McKenzie’s Chief Strategy Officer in Germany (during a day of onboarding, welcoming a “diverse group of lawyers, paralegals, business professionals, economists, data analysts, data visualizers, digital marketing experts”).
Yet, in my experience, size very much interacts with firm scope. Specifically, when a firm narrows its areas of substantive practice, the innovation quotient can skyrocket despite not having AmLaw 1-20 revenues. Littler Mendelson (labor & employment), Fragomen (immigration), and Chapman & Cutler (financial services) all fit this profile. Higher levels of innovation are enabled by focus and partner alignment — the firm rises and falls by its dominance in a single practice area. Cf. “Fragomen to Launch Unique Tech Development Center in Pittsburgh,” Leg Intelligencer, July 3, 2017 (suggesting that all companies, including law firms, are destined “to become a tech company in some capacity”).
III. External Characteristics of Organization — System Openness (+)
This category of variables is very simple conceptually: Does the organization proactively open itself to new ideas that could solve or mitigate important strategic problems? Compared to other industries, legal service organizations score low on this dimension.
Roger writes, “[m]ost organizations engage in an opportunistic surveillance by scanning the environment for new ideas that might benefit the organization” (p. 422). When it’s working well, “Answers often precede questions” (Id.) What Rogers is getting at is awareness-knowledge, defined as “information that an innovation exists” (p. 173). Awareness-knowledge is obviously impeded by closed systems. Lawyers are disadvantaged here on several fronts:
- Ban on outside investment. The Rule 5.4 prohibition on non-lawyer investment means that lawyers cannot co-venture with other professionals, thus cutting lawyers off from valuable perspectives and learning.
- Culture of immediate productivity. The legal industry, particularly in the US, is strongly oriented toward production. As a result, eclectic reading, conference travel, and sustained high-level training and programming is often viewed as extravagant, as budget targets are high and the time is non-billable. Unfortunately, this ethos carries over to many legal departments. In-house counsel are largely firefighters. All too often, they lack the time, resources, and mindset to prevent fires.
- Lawyer-centricity. All too frequently, lawyers refuse to accord legitimacy to the views of people who don’t possess a JD (and hence are “non-lawyers”). This is a recurring theme among allied professionals who work in the legal industry. Pros: high pay. Cons: routinely ignored or dismissed by lawyers.
If a legal organization wants to be more innovative, it can change some of these factors through enlightened leadership. In the long run, lower levels of innovations are ruinous to entire organizations and industries. A fiduciary cannot responsibly ignore these issues.
Finally, whatever I’ve just written about law firms and legal departments (the topic is organizations) applies to legal education. To this day, I am struck by the lack of academic participation in organizations and events on the front lines of change. E.g., CLOC, ILTA, LegalWeek. The economic rules of modern practice are poised to get rewritten. Once this happens, a lot of cheese is going to get moved.
Relative Importance of Rogers Organizational Innovativeness Model
Assuming you’re an innovator or early adopter who wants to use Rogers’ models to improve your organization, the following question is relevant: “What is the relative importance of the organizational innovativeness model (analyzed above) compared to the rate of adoption model in Post 008 [see thumbnail to right]?”
We don’t have systematic empirical data to answer this question, but we do have one article worthy of mention. In a study of 25 hospitals that were adopting 12 new technologies in a midwestern city, the dependent variable (outcome) was a nine-point scale ranging from “staff being awareness of an innovation (1 point) through adopting and using the innovation regularly (8 points) to expanding and upgrading the new technology (9 points)” (p. 414). In effect, the scale is measuring the progression through the entire innovation adoption process, see Figure in Part I (post 015), from the early stages of initiation to complete implementation success. This is an ideal dependent variable.
The study authors found:
- 40% of the variance explained by the perceived attributes of the innovations, with observability, low risk, and low complexity being key.
- 11% of the variance explained by organizational innovativeness factors, with CEOs as innovation champions and larger hospital with more aggressive marketing strategies being the most influential attributes.
(p. 412, citing Meyer & Goes, “Organizational Assimilation of Innovations: A Multi-Level Contextual Analysis,” 31 Acad of Mgmt J 897-923 (1988)).
What’s my advice? In both models, systematically explore cost-effective ways to influence every variable in the direction that will make success more likely. This is how applied research works.
What’s next? See Legal Operations Skills During Your 1L Summer (018)