If a successful large law firm faced an Innovator’s Dilemma, what would it look like?

On the one hand, the firm has a wonderful set of endowments: (1) longstanding and lucrative relationships with industry-leading clients; (2) a business that requires very little operating capital yet generates significant cash and profits; and (3) an established brand that makes it the safe choice against upstart new entrants.  On the other hand, when the traditional service offerings hit a plateau that is likely permanent, the firm struggles to use its superior endowments to reinvent itself in a way that locks in another generation of prosperity. The graphic above depicts the problem.

Many law firm leaders understand the innovator’s dilemma and worry about the timing and execution of reinvention. Thus, at numerous firms, there are internal innovators, or “intrapreneurs,” who are running carefully vetted projects designed to deliver tangible benefits to their firms. In its idealized form, this strategy raises awareness through small wins, which, in turn, create buy-in and momentum for more ambitious change.

We were fortunate to have three law firm intrapreneurs as guest lecturers during Week 5 of “How Innovation Diffuses in the Legal Industry“:


For a summary of Week 2 guest lectures (Pangea3, Practical Law Company, Hotshot), see Post 032. For week 3 (consultative sales at Thomson Reuters), see Post 034. For Week 4 (a deep dive into Axiom), see Post 036.


To set reader expectations, there was a lot to cover in this class. With three great guests, we ran out of time to probe each story with equal depth.  Also, for the purposes of publication, I need to disentangle the principles and lessons of intrapreneurship from the organizations where our guests have worked. The risk is that a discussion of context will be construed as criticism, and criticism was far from the spirit of our discussion.

To resolve this tension, I use the two problem statements below to meld together common themes. After that are specific highlights of each speaker’s remarks.

Problem statement from within the law firm

When we apply innovator’s dilemma and intrapreneurship concepts to law firms, the underlying subtext is that highly educated and successful partners are, as a group, ill-equipped to adapt to a changing legal market.  Assuming this problem statement is true — and I believe it is — why would it be true?

The problem is certainly not lack of creativity.  Within their substantive specialties, lawyers routinely come up with ingenious solutions.  Rather, the challenge is a confluence of experience, perspective, and incentives that create a powerful mental frame that is very difficult for long-time insiders to overcome.

Specifically, for several generations, lawyers in corporate law firms have carried on their craft within a simple business model that required very little time or attention to maintain. In most cases, if lawyers just focused intensively on their clients’ problems, the economic results got progressively better. This was (and is) powerful operant conditioning. As a result, for many law firm partners, the macro-trends of the legal industry are abstractions that carry very little weight.  The only market that matters is the tiny slice each particular partner serves.

Unfortunately, in very few instances are clients speaking with one voice.  In fact, voices vary by adopter type. See Post 013 (providing examples of two major corporate clients expressing completely opposite views on the need for change). Innovator and early adopter clients are drawn to new ways of legal problem-solving, though they’re in the minority.  Similarly, some early majority clients are pushed toward innovation because they can no longer afford solutions provided by traditional law firms, see Posts 032 and 036 (2008 recession led to surge in adoption for Pangea3 and Axiom).  But a sizable portion of the legal market is content with brand firms billing by the hour. If “my clients” feel differently next year or the year after, we can deal with it then.  This narrow client-centric approach is strongly reinforced by most law firm compensation systems.

The above description explains the paradox of the highly successful law firm unable to play its superior hand.  Thus, the innovator’s dilemma is a real strategy dilemma for virtually all large law firms.

Problem statement from the client side

Although clients don’t speak with one voice, the environment they are operating within is becoming more complex, global, and regulated.  This, in turn, is changing the structure of the corporate legal services market — i.e., the macro-level trends that many partners wave away as irrelevant to their practice.

Arguably, the biggest change is growth of corporate legal departments.  For at least the last 20 years, corporate clients have adapted by growing their in-house legal departments and insourcing more repetitive or lower-stakes work that formerly went to law firms. See Post 003 (showing 1997 to 2016 employment trends for lawyers working in government, in-house, and private law firms).

With more and more legal departments becoming the equivalent of large law firms embedded inside corporations, we’ve witnessed the rise of the legal operations movement (CLOC and ACC Legal Ops) and the rise of the “Type 6” client. See Post 005 (presenting a typology of law firm clients).

Legal operations as a profession and field is coming into being because many large corporate clients need more sophisticated methods and systems for managing legal cost and legal risk.  The ascendency of this role is strong evidence that the business-as-usual law firm billable hour model is on a slow but permanent decline, at least for operational “run-the-company” work that accounts for the majority of the corporate legal services market. See Post 034 (discussing trend through the lens of Axiom); Post 010 (discussing trend through the lens of the managed services industry).

The graphic below depicts the market transformation.

In general, legal complexity increases with economic growth.  For about 100 years, we’ve coped with this problem through division of labor and specialization.  This approach created the large law firm. In more recent decades, as the growth-complexity line has steepened, law firms reaped higher profits.

Yet, we have reached a point where division of labor and specialization are no longer a match for the geometric growth of legal complexity. Although clients and law firms experience this pressure as a cost problem, the root cause is lack of productivity gains.  See Post 001 (discussing systemic problems created by lagging legal productivity). To meet this productivity imperative, the legal industry is starting to migrate to new methods of legal problem-solving that are based on data, process, and technology. Indeed, these pressures are why NewLaw exists, financed in large part by venture capitalists and private equity.


NB: All the analysis and charts above frame a structural problem from the perspective of organizational clients. For this group of clients, the problem of lagging productivity is leading to market-based responses, albeit slowly. For individual clients in the PeopleLaw sector (roughly one-quarter of the legal market and shrinking), lagging legal productivity manifests itself through self-representation or people failing to seek any type of legal-based solution. See The Decline of the PeopleLaw Sector 037. In short, these are two distinct problem sets.


So the question is very simple: for large corporate clients, who is going to create the new paradigm? There are three contenders:

  • Legal departments through more legal operations and in-sourcing;
  • Law firms by skillfully playing their superior hand; or
  • NewLaw, which has data, process, and technology as its core competency but has the challenge of being new and unfamiliar.

The answer is likely to be some combination of all three. Yet, it is also likely that many law firms will fall victim to the innovator’s dilemma and be among the losers.

The challenge for law firms is that the business opportunities of a structural market shift require partners to make business judgments about macro-trends at the same time they are under pressure to acquire, bill, and collect hundreds of thousands of dollars or more in legal fees for the current fiscal year.  Unfortunately, this problem can’t be fixed by changing a comp system to reward a long-term focus, as those with a short-term focus are free to leave and take their clients with them.

Kubicki: Intrapreneurship inside a law firm

Among my three guest lecturers, Josh Kubicki has given the most thought to intrapreneurship as an applied discipline. See, e.g., Kubicki, The Intrapreneur’s Dilemma, Medium, Aug. 20, 2014.  During his guest lecture, Josh asked us to envision a simple corporate pyramid that consists of the CEO (at the top), the C-Suite (layer 2), vice-presidents (layer 3), directors (layer 4), managers (layer 5), and line workers (base of the pyramid). “Obviously, we know who’s in charge.”

“Law Firms,” noted Josh, “are much flatter.” He then picked up a grease marker to draw a stylized law firm org chart.

At the top of the pyramid, which may not be a pyramid at all, are partners who are also owners. Although partners are not the CEO, they do tend to act as CEOs of their own practice, particularly if they keep a lot of other lawyers busy.  However, increasing performance and enterprise value of the firm require collaboration across the partner / owner / CEO class.

To do this well, the law firm intrapreneur has to find ways to break down the partitions between partners — the blue lines above — without engendering fear or resistance.  Further, the intrapreneur has to do it with little or no formal authority.  “No matter what your title is, the intrapreneur is part of the professional staff paid for by revenue-generating lawyers.  So the only tool you have is your ability to make someone’s life better in a relatively simple and low-cost way.”

This reality is why Josh relies heavily on design thinking in all his change initiatives.  Josh drew the diagram below, which he called “the trifecta.”

Innovations start as an idea in an innovator’s head.  Once we move to implementation within an organization, however, we move into people’s daily experience — busy people whose job it is to serve others. Even if an innovation will, in theory, make the organization better off, implementation will fail if individual stakeholders have a negative experience that makes their job harder. Thus, successful innovation (Phase I Initiation + Phase II Implementation, see Post 015) is actually a series of properly designed sub-innovations.

A successful sub-innovation requires making the complex very simple, culturally compatible, and highly advantageous to the end-user, ideally with a very fast return-on-investment. Cf. Post 008 (presenting the key factors in Rogers rate of adoption model). If the coordinated sub-innovations all result in a good individual experience, the larger innovation has a chance of being successful. Seen through Josh’s eyes, the effectiveness of the law firm intraprenuer is less about individual brilliance than empathy, listening skills, patience, and budget, as doing this type of work “is very labor intensive.”

The intrapreneur’s intellectual gift is that, for a variety of reasons, they are not stuck inside the frame of the traditional model, often because of some prior life experience that gives them an outsider’s view. (For one of Kubicki’s transformative life experiences, which he discussed in class, read his Intrapreneur’s Dilemma.)  Yet, Josh was emphatic that humility is the single most important attribute for intrapreneur effectiveness. “If something works, congratulate the adopter for their insight and move on.”

Josh described some of the wins of his team but it would be counterproductive to publish them on the web, as Josh believes the credit goes to the entire Seyfarth Shaw organization.

Eric Wood: making partner as a technology innovator

One of the reasons I am carefully chronicling my class is that I want to create a contemporaneous record of how the legal profession navigated the shift from a world of lawyer specialization to one based on multidisciplinary collaboration.  I am confident that Eric Wood’s story is going to be replicated by hundreds of young lawyers who begin their careers at law firms. Yet, Eric was the first to blaze this trail.

Eric is the Practice Innovations and Technology Partner at Chapman and Cutler.  The key word here is partner.  Eric is a 2008 graduate of the University of Chicago Law School.  After a stint at Cleary Gottlieb in NYC doing capital markets work, Eric moved back to Chicago and joined Chapman as a banking and financial services associate.  However, several years ago, Eric quit doing client billable work and instead focused all of his attention on technology-based initiatives.  During this time, his formal title remained associate. And earlier this year, he was promoted to partner.

Practice Innovations and Technology Partner is a new role within a law firm. During his portion of the class, Eric described his work as primarily “R&D” that fell into three major buckets:

  1. Writing code to build legal expert systems and automate the drafting of documentation for a wide range of legal matters.  Often this includes the design of web interfaces so the systems are relatively intuitive for the lawyers, clients, and other personnel who use them.
  2. Designing new technology products and managing their development, release, and maintenance. Often this involves finding ways to scale innovations across multiple practice groups, including via the development of new staffing models.
  3. Other knowledge management and technology projects, such as building transactional metadata databases and data visualizations, evaluating vendor products, and researching technological developments that might affect transactional practice (e.g., blockchains and crypto currencies).

Eric has no formal training in a technical field.  His undergraduate training is in political science and environmental studies.  Instead, he attributes the initial development of his technical abilities in computer coding and database structures to a desire to impress his friends with fantasy basketball data visualizations. That hobby required a lot of scraping of data from websites followed by computational analysis.

Yet, Eric’s work in the legal field enabled him to see cross-over applications. Prior to law school, as an AmeriCorps volunteer with Wyoming Legal Services, he helped build web content to reach the agency’s far-flung clientele. “We had to scale seven lawyers for the entire state, and it was obvious that only technology could do that.”  Likewise, many late nights as a NYC transactional associate gave Eric many ideas for how to automate unpleasant, time-consuming grunt work.

In 2013, as Eric continued to improve his technical skills, he decided it was time to find a outlet in the legaltech world.  However, during this time period, the firm’s Chief Executive Partner, Tim Mohan, began bringing in outside speakers to explain how the traditional practice of law was on the brink of a major shift.  So Eric requested a meeting with Mohan to explain some of this ideas.

Mohan immediately embraced what he heard and Eric stopped doing billable. Now do the math — taking Eric off the billable track is roughly a million-dollar decision ($500/hour x 2,000 per year).  Yet, what is the price of failing to reinvent?

Relatively quickly, the decision proved to be a wise one.  For example, one of Eric’s projects was the automation of closing document sets for finance transactions.  The market no longer pays full price for the organization, indexing, and tabbing of the full deal documentation, yet this work still needs to be done and delivered to the client in a polished, professional, and timely manner.  “What used to take weeks now takes a minute.”  At roughly $500 in staff time (with wide variations based on the size and complexity of the deal) x 3,000 closings per year, this single project is saving the firm roughly $1.5 million in labor that can be allocated to other value-add projects. And that is just one example.

With the encouragement of the firm’s leadership, Eric regularly gives internal demos that have generated significant curiosity and broad buy-in among partners.  Eric notes that these internal sales were often predicated on the quality advantages of technology — of increasing transparency of changes to complex forms and reducing opportunities for error. Yet, the economics are also very attractive.  Chapman and Cutler is a highly specialized financial services firms that does approximately 40% of its work on a fixed-fee basis.  In this context, technology and process enable the firm to continue to charge less than many rival firms while protecting or improving its margins. This is exactly how innovation is supposed to function.

In addition to Eric, other transactional lawyers at Chapman have begun to invest in technical skills, with several automating significant portions of their practice. Part of this transition is made possible by an accounting system that treats “productive” hours related to firm innovation the same as client billable work. Eric gave the example of one  associate who has logged hundreds of productive hours over the past few years working on projects with Eric and his team. In short, Chapman is building more internal capacity.

This is a remarkable story. But can it be replicated by other other law firms?

I think the answer is “not easily.”  First, a firm needs someone like Eric Wood who possesses both deep legal domain knowledge and strong technical skills. Second, the stars have to align so that a leader like Tim Mohan can enable such a person to focus full-time on innovation and execution. In competitive markets, half-time efforts seldom win.  Third, it undoubtedly helped that Chapman and Cutler is a “small” large firm (~230 lawyers) that is focused on a single industry. This makes it culturally and logistically easier to implement change.

Beckett’s business mindset

As noted in Legal Evolution’s foundational posts, innovation is strongly influenced by connections between different social systems. Being on the edge of two or three systems is more valuable than being in the center of one. This is because multiple perspectives enable a person to transcend the dominant local frame and see problems with fresh eyes.

In addition to knowledge of law, all of our guest lecturers possessed a second or third frame for viewing the world. However, the most pronounced example was Jim Beckett, who acquired his legal frame after working five years in sales and distribution in the food industry, helping to grow market share for companies like Frito-Lay and Haagen Dazs.  During this time, Jim was following the advice of his father, who was impressed with Jim’s people skills and aptitude for business. Ironically, Jim’s father was a lawyer, working in-house at KFC.

Then, several years into Jim’s business career, his father had second thoughts.  “Jim,” his father said, “Law doesn’t have enough people who truly understand how businesses work.  If you get a law degree, you’ll go a long way.”  So, as an older student, Jim returned to Indiana University to go to law school.

Jim shared that law school was very difficult for him because the level of abstraction was so far removed from the practical problem-solving he was used to. It wasn’t until he was a law firm associate that we was able to meld the two perspectives.

The business frame, however, remained the dominant perspective.  For example, Jim discussed how he got his first in-house job at Brown & Williamson (a large tobacco company that later become part of RJ Reynolds). “I was the only lawyer they interviewed who could discuss the business issues that were at the core of the company’s legal work.” Further, rather than pursue upward mobility in the legal department, Jim asked to move to the business side, eventually running an RJ Reynolds operating unit in Puerto Rico.

Jim’s multiple perspectives in law and business was one of the reasons that John Crockett, chairman of Frost Brown Todd, recruited Jim to return to Louisville to run business development for the firm. Roughly 10 years earlier, Jim and John had worked together at the firm as billing lawyers. Jim was hired despite his warning that long-term success was going to require significant change, which would make some of Jim’s efforts controversial.

While the firm implemented many client-centric initiatives, Jim eventually became convinced that he could do more good by helping clients focus their purchasing power. Thus, in the summer of 2016, Jim left Frost Brown Todd to become the CEO of Qualmet, a technology company that provides legal departments with a scorecarding methodology that collects, organizes, analyzes, and shares feedback with their outside service providers.

During his lecture, Jim spoke with passion about what happens when lawyers get in full alignment with clients. “All lawyers want to do a great job. Unfortunately, very few are getting the information they need to take their practice to the next level.”  Jim believes that structured metrics and dialogue will enable clients and law firms to smoothly transition into the world of data, process, and technology.  Jim see this as not as a question of “how”, but “when.” Today’s CEOs expect their GCs, CLOs and in-house teams to drive business value that aligns with their respective company goals and objectives. Jim wants to bridge the “value” gap and sees 360 performance management as a critical piece to accelerate alignment. “Value creation is no commodity,” Jim observed, “So all stakeholders will benefit when performance is properly measured.”

Qualmet’s scorecarding methodology is closely related to Dan Currell’s post on the necessity of active outside counsel management. Convergence alone can’t deliver the desired results. See Post 031.  Thus, scorecarding will be the topic of a future post.

On Wednesday, November 29 from 6 to 8 pm at Northwestern Law, student teams in my “How Innovation Diffuses in the Legal Industry” give their capstone presentations. Topics include Everett Rogers’ rate of adoption model (see Post 008), the role of change agents (see Post 020), and crossing the chasm (see Posts 024, 025, 026).

If you want to attend and learn, please email me. We have a small class in a big room, and interest from mid-career professionals will energize these terrific students.

What’s next? See Can Intrapreneurship Solve the Innovator’s Dilemma? Law Firm Examples (039)

The graphic above tells a simple, painful, and important story about the U.S. legal profession that we can’t afford to ignore.  The graphic compares the receipts of U.S. law firms in 2007 and 2012 based on “class of customer” data from the Economic Census, the U.S. Census Bureau’s official five-year measure of American business.  Although total law firm receipts increased from $225 billion to $246 billion, receipts from individuals declined by almost $7 billion. That’s a staggering sum.

Ordinarily, with such a large and sudden drop (10.2%), I worry about data quality.  Yet, these data appear to be continuations of trend lines that are several decades old.  Further, recent data published by Clio, the cloud-based practice management and time-keeping system used by a large number of solo and small firm lawyers, reveal that the economics of small firm practice are under severe stress.

As a society and a profession, we are heading to a place that none of us wants to go. Our biggest risk factor is failing to acknowledge the full magnitude of the problem.

The two hemispheres of practice

The structural significance of lawyers’ clientele — individuals versus organizations — was first noted by Jack Heinz and Edward Laumann in Chicago Lawyers: The Social Structure of the Bar (1982) (popularly known as Chicago Lawyers I).

Based on a randomized sample of 800 Chicago lawyers, Heinz and Laumann observed that lawyers tend to serve either individuals or organizations, but seldom both.  Further, type of client was strongly correlated with lawyer income, ethnicity, religious background, law school attended, home address, work address, and bar association membership.  “Only in the most formal senses, then, do the two types of lawyers constitute one profession” (p. 384).  This was the basis for their famous two-hemisphere theory of the legal profession. See also Deborah J. Merritt, Two Hemispheres, Law School Cafe, May 2, 2015.

Twenty years later, Heinz, Laumann and other researchers replicated the study based on a sample drawn in 1995.  See Heinz et al., Urban Lawyers: The New Structure of the Bar (2005) (Chicago Lawyers II).  One of their key findings was a dramatic surge of prosperity within the organizational sphere, with real incomes of large firm lawyers and in-house counsel nearly doubling.  Conversely, among solo practitioners, who disproportionately served individual clients, incomes fell from $99,159 (in 1995 dollars) to $55,000. By 1995, 32% of solo practitioners were working a second job compared to only 2% in 1975.

These are startling and sober statistics generated by careful social scientists. These findings are also 23 years old.

From stagnation to decline

The Chicago Lawyers I and II studies reveal stagnation taking hold within the PeopleLaw sector. Yet, more recently, we’ve moved beyond stagnation to a period of actual decline.  I do not use these words lightly. Yet this is the picture that emerges when the graphic above, which reflects U.S. Census Bureau data from 2007 and 2012, is combined with findings from Clio’s 2017 Legal Trends Report.

Clio is a cloud-based practice management and time-keeping system that has obtained enormous traction with solo and small firm lawyers. The 2017 Legal Trends Report is based on anonymized 2016 data from more than 60,000 U.S. timekeepers.

  • The total sample covers 1,026,000 matters, 10,981,000 hours, and $2.6 billion in billings.
  • Approximately 84% of matters are billed by the hour.
  • The average hourly rate for a lawyer is $260.
  • The average matter garnered slightly less than $2,500 in fees, with traffic offenses the lowest average (~$700) and personal injury the highest (~$3,300).

Yet, what is most striking about the Clio Report is that the average lawyer is billing only 2.3 hours per day.  Of that total, 82% is actually invoiced to the client; and only 86% of invoiced fees are collected. This translates into $422/day per lawyer ($260 x 2.6 x 82% x 86%), or $105,000 in gross receipts over a 50-week year. This is a sum that needs to cover office overhead, healthcare, retirement, malpractice insurance, marketing, and taxes, etc.  And note, these are averages, not the bottom decile or quartile. Further, these are lawyers at firms that have invested in practice management software.

Of the remaining 6 hours in the workday, lawyers are spending 48% of their time on administrative tasks (e.g., generating bills, configuring technology, client collections) and 33% on business development.  The report notes that lawyers spend roughly the same amount of time looking for legal work as they do performing legal work (p. 13).

The danger of not saying the obvious

In Post 006, I reported on statistics from The Landscape of Civil Litigation in State Courts report published by the National Center for State Courts (NCSC). The most startling statistic among many is that 76% of cases involve at least one party who is self-represented. The Report frankly states:

The picture of civil litigation that emerges from the Landscape dataset confirms the longstanding criticism that the civil justice system takes too long and costs too much.  As a result, many litigants with meritorious claims and defenses are effectively denied access to justice in state courts because it is not economically feasible to litigate those cases (p. v).

These are not the conclusions of a fringe group. The NCSC’s research agenda is set in collaboration with the Conference of Chief Justices and the Conference of State Court Administrators. This is the body formed at the urging of Chief Justice Warren Burger.

I’ll now state an obvious truth:  Our legal system as it pertains to ordinary people is unraveling.  Hundreds of millions of people can’t afford to hire a lawyer to solve their legal problems. As a result, they go it alone or give up altogether.  In turn, as the PeopleLaw sector shrinks, a large number of lawyers are under tremendous economic stress.  No amount of tinkering at the edges is going to fix or reverse these trends. Instead, we need a series of fundamental redesigns.

This needs to be said clearly and emphatically. This is because the collective and societal solution to the declining PeopleLaw sector is not for lawyers and legal education to pivot toward corporate clients who can still pay the freight, though this is undoubtedly the direction of drift if we fail to forcefully acknowledge the woeful imbalance of our current legal system.

Redesign or failure

As a law professor, I support innovations that make legal problem-solving more cost-effective.  Indeed, that is the purpose of Legal Evolution. See Post 001 (discussing the problem and consequences of lagging legal productivity).  In the segment of the bar that serves corporations, there is tremendous momentum building to make this happen, primarily because corporations feel an urgency to find cost-effective ways to manage the relentless rising tide of legal complexity.  This is what is driving the legal operations movement. Yet, I’m confidence that very few lawyers want to live in a society where corporate efficiency has become our primary goal. There has to be something more.

As Gillian Hadfield wrote in her recent book, Rules for a Flat World (2017), “People who feel as though the rules don’t care about them don’t care about the rules” (p. 79). The withering of the PeopleLaw sector is moving us closer to a place we don’t want to go.  We have entered a period where we are either going to redesign our legal institutions or they will fail. It’s time for lawyers and legal educators to find creative ways to restore the balance. Step one is acknowledging the magnitude of the problem.

What’s next?  See Student Capstone Presentations: Visitors Welcome (038)

In writing up the week 4 summary of “How Innovation Diffusions in the Legal Industry,” I discovered that it is near impossible to write about Axiom without referencing a larger change narrative.

Founded in late 1999, Axiom was likely the legal industry’s first venture-backed start-up.  Now, 18 years later, with over 2,000 employees in 17 offices in the US, Canada, Europe, and Asia, nearly 50% of the Fortune 100 as clients, and $300 million+ in annual revenue with continued double-digit growth, Axiom has become the leading exemplar of the NewLaw sector.  Indeed, in the graphic above, which is used by Axiom professionals to explain the evolving legal market, the orange in the bar on the right is what makes the “New Model” new.

Yet, here is the rub: 18 years is a long time for something to be new. And that says more about the legal industry “social system,” see Post 004 (innovation diffuses through a social system), than it does about Axiom. It also makes Axiom a great diffusion theory case study.


For summary of Week 2 guest lectures (Pangea 3, Practical Law Company, Hotshot), see Post 032. For week 3 (consultative sales at Thomson Reuters), see Post 034.

Tom Finke’s story

For the week 4 guest lecture, we were very fortunate to have Tom Finke, Axiom’s Managing Director of West Region Operations.  Tom has a JD/MBA from Northwestern, where he teaches a course called “The Evolving Role of the Law Department in the Modern Corporation and Legal Industry.”  Prior to joining Axiom in 2008, Tom spent five years as an associate at Sidley Austin LLP before switching into a series of business roles in the online media space.

Note: this is really a story about how Tom developed a very novel mindset and perspective — a combination of strategy, sales, operations, and law — and how this rare mix of talents is used by a shop like Axiom.  For those interested in having challenging work they believe in, this is not a trivial narrative.

Used cars

Tom Finke is very funny and self-deprecating, attributing much of his career to lucky breaks, starting with a summer stint as a 17-year old used car salesman in Phoenix, Arizona.  Since Tom knew very little about cars, he had to fall back on simple questions like, “what are you looking for?” After that, his only tool was listening.  Eventually he realizes that if you’re sincerely trying to be helpful, a reasonable number of customers will talk themselves into a sale.  Indeed, there are few better ways to qualify a customer than their willingness to walk around a car lot in 110 degree heat.  You just need to walk with them.

Tom’s first big break in law comes with his job at Sidley.  He interviews in the fall of his 1L year. Fortunately, the partner he interviews with loves the used car stories, and Tom gets an offer — before 1L grades come out and anyone from Sidley can review his less-than-Sidley first-semester transcript. Another break was getting into the MBA program at Kellogg, as Tom applied as the law school and Kellogg were expanding the joint program.  As the years unfolded, the training and connections of the dual degree enabled Tom to credibly wear both a business and legal hat.

“It’s hard to escape law”

After five years as an associate at Sidley, Tom decides to transition to a business role.  After a year of searching for high quality opportunities, he discovers that “it’s hard to escape law,” as the corporate world has a limited appetite for experienced lawyers working in business roles.  By then, it’s 1998 and internet is exploding as a new business platform with companies like Yahoo, AOL, and Excite.  The tight labor market creates an openness to less conventional sources of talent, and Tom finds an opportunity with an online classified ads company called Classified Ventures, a joint venture of major U.S. newspaper companies.  He joins as Director of Business Development, not as a lawyer. Later, he becomes president of a separate business unit focused on online auctions.

Repeating advice he received as a young lawyer, Tom tells the class that the early part of your legal career is about “brand building.”  Credentials and reliably good work are what matter for developing a reputation at the firm and with clients.  Yet, when Tom leaves Sidley, a firm client pulls him aside and says, “Now that you are in the business world, it’s all about track record.” In other worlds, to steadily advance, Tom has to put up outstanding numbers over a period of years.

After serving as CEO of an online business that fell victim to the Internet crash, Tom takes a job at the Tribune Company right before 9/11.  Despite the business upheavals of the early 2000s, the Tribune continues to do well as a newspaper publisher and broadcast conglomerate.  Moreover, Tom’s unit, Tribune Interactive, enjoys explosive growth that eventually reaches more than 30% year-over-year. With the passage of time, however, the decline of print journalism accelerates. These challenges coincide with a plan to turn the publicly held Tribune Company into one of the world’s largest ESOPs.  That transaction ultimately puts a crushing debt burden on the company’s balance sheet.

As the entire economy drifts into a tailspin in the fall of 2008, Tom sees the writing on the wall and contacts one of his best friends from Kellogg, who is running the Chicago office of McKinsey & Company. The colleague passes along a tip that a company called Axiom was looking for someone to start their Chicago office.  Tom applies and in December of that year gets the job. A week later, the Tribune Company files for bankruptcy.

The early days of Axiom Chicago

When Finke joins the Chicago office of Axiom in December 2008, the office had two full-time employees — one attorney along with a junior analyst — and roughly $10,000 in booked revenues.  His second day is the office holiday party, which includes 15 attorneys on Axiom’s “wait list” — i.e., approved for assignment to Axiom clients but without a current match.  Ironically, the sole actively engaged Axiom attorney is working onsite in Des Plaines (a suburb of Chicago) and hence couldn’t attend.

Despite the stark imbalance between qualified attorneys and paid client work, Tom remembers going home that night and telling his spouse, “I think this company has a chance.”  Why? Because he is blown away with the quality of lawyers/people that Axiom has managed to recruit.

Tom comments, “I was very lucky to start in 2008, as general counsel were looking for something different.  Because of the financial crisis, they had budgetary pressures and no ability to hire additional in-house attorneys.” Relatively quickly, the office added three powerhouse Chicago clients: Accenture, Baxter, and Wrigley.  “Because our attorneys did a great job for them, they allowed us to use their name as a reference client.  I often joke that I said the names of those clients more often than my children’s names in 2009 and 2010, but it might be true.”

Obviously, this is a key diffusion theory point, as these clients were viewed by in-house peers in Chicago as early adopter/opinion leaders, see Post 020, signaling that Axiom is a credible supplier of high-quality legal talent.

Tom is very direct on this point. “When you have no brand of your own [like Axiom in Chicago in 2008,] you have to leverage off of someone else’s.”  In diffusion theory, this connects to the “cultural compatibility” factor for innovation adoption.  See Post 008 (discussing key factors related to rate of adoption). Axiom attorneys had the same educational credentials and work experience as a law firm associate, yet they were 40-50% less expensive and had in-house experience. By the end of 2010, sales for the office exceed Tom’s long-term projections by several million dollars. Indeed, Axiom total revenues as a company went from $25 million in 2007, to $50 million in 2008, to more than $300 million in 2017.

Axiom’s evolving business model

As we make our way through life, most of us want to conserve our mental energy by putting things into familiar boxes. Because Axiom doesn’t neatly fit within any established box, accurate categorization has long been a challenge for the company, albeit the effect is often an underestimation of the company’s capabilities, growth, and client base.

Since its founding, Axiom has curated a highly credentialed and experienced legal workforce that can be used to cost-effectively manage peaks, surges, or temporary gaps in corporate legal departments. This is the Axiom’s secondment (or talent platform) model. It continues to generate significant revenues and growth.  However, since just after the financial crisis of 2008, Axiom has been building out large teams of lawyers and other professionals in several “centers of excellence.”  For this workforce, which focuses on large-scale specialized projects and managed service engagements, the value-add for clients comes in the form technology, process, and data analytics that drive up quality, predictability and transparency of the delivery of legal services while driving down per-unit cost.

Depending upon the engagement, the talent platform and service delivery models can be paired together.

An example: The Kraft/Mondelez spinoff

To illustrate how the key pieces of the business work together, Tom picks up a grease marker and begins diagramming a corporate transaction.

A publicly held company — in this case, Kraft Foods, Inc. —  wants to spin off approximately 1/3 of its business into a new publicly-traded entity that focused on the North American grocery store business.  But here’s the problem — to enable this transaction, Kraft Foods has thousands of contracts with customers and suppliers that need to be identified, organized, and evaluated so the in-house lawyers can develop a game plan for assignment, termination, buyouts, and renegotiations, etc.  Kraft identifies 40,000 documents that are potentially relevant to the transaction. For cost reasons, having a large law firm manually review and abstract the contracts is off-the-table.

Looking for a solution, the Kraft legal department contacts Finke at the Chicago office of Axiom. By 2011 (the year the transaction got underway), Axiom had developed expertise in process-driven document review for litigation.  Drawing upon the resources and capabilities of its service delivery center in Chicago, Axiom retooled its Relativity platform so it could efficiently and reliably identify and eliminate duplications and other extraneous documents. After the service delivery unit does its portion, the 40,000 documents yields 10,000 contracts. Then, leveraging process and project management skills, attorneys in the delivery center review the 10,000 contracts to determine the impact of the spin-off.  The final step in the project is to obtain consent from counterparties and re-negotiate many other counterparty contracts, which is legal work  completed over a period of months by more than 10 Axiom lawyers from the talent platform.

The combination of Axiom’s talent and service delivery platforms was a significant enabler of the Kraft/Mondelez spinoff and subsequently became the basis for Axiom receiving a 2013 ACC Challenge Award. It is worth noting that Kraft’s strategic counsel for the transaction was Cravath Swaine & Moore.

Where things are going

The Kraft/Mondelez transaction was a major milestone in Axiom’s history, as it marked the beginning of a new line of business to enable major corporate transactions. This new area of emphasis in 2012/2013 substantially coincided with a decision to get out of the litigation document review business, which Axiom’s leadership concluded would need a massive investment in technology to remain competitive.

During class, Tom shows a slide that summarizes of Axiom’s recent deal work:

  • 80+ corporate transactions completed over the last two years
  • Specific examples of M&A support, spinoffs & divestitures, reorganizations, and joint ventures for an impressive list of corporate clients
  • $400 billion in transaction value over the past four years
  • 500+ Axiom contract specialists and M&A lawyers

Axiom is also growing, likely at the expense of other service providers, particularly law firms.

With this information in mind, it is worth putting side-by-side Axiom’s evolving legal service delivery model with the Post 013 evolving litigation model created by Alan Bryan, Walmart’s head of legal ops and outside counsel management. [click on graphic below to enlarge.]

It is obvious that both graphics are signaling the identical future — one where law firms are called upon for strategic and exceptional events and the balance of the run-the-company work is split between in-house departments and outside service providers based upon efficiency and value.

A changing talent market

According to Finke, the evolution of the legal market over the last decade has created significant industry-level pressures on talent.  Since 2008, major law firms have hired significantly fewer entry-level associates, which in turn impacts Axiom’s traditional talent pipeline.  Although Axiom’s flexible work model and blue-chip client base remain highly attractive for many law school graduates, higher student debt-loads affect the timing of when lawyers can make the jump.

Tom notes that over the last decade, in-house lawyers have become “the owners of core operating functions” and that “BigLaw is competing for marketshare with their clients’ legal departments and losing.”  Cf. Post 003 (showing rapid increase in in-house lawyering over last 20 years). At present, over 70% of the lawyers on Axiom’s talent platform have in-house experience, which clients generally find more valuable than law firm-only experience, at least for work that supports a company’s business units. Thus, in recent years, consolidated legal departments following a corporate merger have become an important source of talent for Axiom. Yet the market overall is tightening for the right kind of experienced lawyers.

The key takeaway is that the traditional law firm apprentice model is breaking down. The incoming numbers are lower; and from the client perspective, the law firm skill set has become less valuable.  Ultimately, these economic realities impact law school applications and enrollment, particularly as student debt loads remain at historical highs.  Tom noted this was a industry-level problem with no easy or risk-free solution.

An focus on technology

Recent additions to Axiom’s leadership arguably signal the company is positioning itself for a future where technology will be a major differentiator.   In the fall of 2016, Axiom’s co-founder and CEO Mark Harris recruited Elena Donio, former CEO of software giant Concur, to replace him.  Furthermore, Axiom recently hired a chief technology officer, Doug Hebenthal, who formerly served as Director of Engineering at Amazon and held numerous technical positions at Microsoft.

Referring to Hebenthal, Finke observed, “If someone had told me in 2008 that Axiom would one day hire a CTO of that caliber, I doubt I would have believed them.  But our business has evolved in response to a changing market. And tech-enabled delivery of legal services is clearly where things are headed.”

Diffusion theory takeaways

The methodology of the class is take in take a deep dive into examples of legal industry innovations — always a combination of people and organizations — and to examine relative successes and failures through the lens of diffusion theory.  In most cases, we are referencing Everett Rogers’ rate of adoption model, which was covered in foundational post 008 and summarized in the figure below [click on to enlarge].

Within this model, the “Perceived Attributes of the Innovation” category tends to be the most important.  Without a sufficient quantum of these factors, the social system adoption process will not get triggered.

Applying the rate of adoption model to Axiom’s 18-year track record of growth, the combination of three factors appears to be key:

  • Relative advantage: 50%+ cost savings over law firms.
  • Cultural compatibility: work done by attorneys with BigLaw training and in-house experience.
  • Trialability: giving Axiom small, low-risk projects until the client obtains confidence in the lawyers’ ability.

The 50% cost saving by itself would have been insufficient for Axiom’s adoption. Further, the financial austerity created by the 2008 financial crisis was a key factor in changing the relative advantage calculus. 50% saving post-2008 was a lot more valuable than 50% pre-2008. Cf. Post 032 (David Perla also acknowledging that the financial crisis was a major accelerant for Pangea3).

Likewise, Axiom invests heavily in “Efforts of Changes Agents” by fielding a large team of consultative salespeople.

In the fall of 2016, I had the opportunity to participate in a meeting of Axiom’s Western Region sales team. Basically, to handle sales in the Midwest (Chicago, Minneapolis, Detroit, St. Louis, and Ohio), Axiom employed 15 full-time sales professionals.  Of the group, the vast majority were MBAs; only two had law degrees, and only one had practiced law.  I asked why Axiom had built out the sales team in this way.  Tom acknowledged the advantage of the JD credential.  Yet, experience revealed that it was easier to get an MBA to acculturate into the legal world (such a Rebecca Thorkildsen from Week 3) than to get a lawyer to (a) feel comfortable providing pure business advice and know-how to prospective clients, and (b) deal with the frequent rejection that comes with a sales role at a company seeking to disrupt the industry.

By necessity, law is ceding ground to various allied professionals. Because this brings new perspectives, this bodes well for future innovation.

What’s next? See The Decline of the PeopleLaw Sector (037)


On the occasion of his Lifetime Achievement Award, Legal Evolution is pleased to republish Mark Chandler’s 2007 speech, “The State of Technology in the Law.” This speech arguably marks the beginning of the current era of law practice in which large corporate clients assert more power and authority within the relationship.

At the time, the Chicago IP Litigation blog commented, “Anyone involved in the private practice of law should take the time to read it. … I can assure you your clients are reading it.”  Likewise, the prominent law firm economics blogger, Bruce MacEwen, wrote, “I’m quite confident I’ve never used the phrase ‘must-read’ on ‘Adam Smith, Esq.,’ but this is my first nominee.” The headline for the WSJ Law Blog read, “Law Firms: ‘The Last Vestige of the Medieval Guild System.” 


Mark Chandler:

I hope to offer a somewhat informative perspective on the effect that changes in technology will have on the practice of law.

I offer you three questions for our discussion today.

  • First, how is technology driving change in knowledge-based industries?
  • Second, what are the key areas of vulnerability in the legal services business to these technological changes?
  • And third, what will it take to succeed in this changed environment?

Now as you can imagine, I have my own ideas on these questions. I don’t pretend to be unbiased.  Where you sit does affect where you stand.  You may profoundly disagree with my conclusions about these three questions. But they are questions that need to be grappled with by anyone who is in the business of providing legal services.  Once again,

  • How is technology driving change in knowledge-based industries?
  • What are the key areas of vulnerability in the legal services business to these technological changes?
  • And finally, what will it take to succeed in this changed environment?

Let me tell you a bit about my company and why these questions are so interesting to me.  Cisco sells products and services which connect people around the world, from home networking products, such as the iPhone series, to the core routing and switching systems used by the world’s largest telecom companies.  We do so at an annual run rate of $32.8B, which would place us at about number 60 in the 2006 Fortune 500.  Our operating expenses are about 35% of revenue and falling. Our gross margin is close to 65%, and we bring nearly 22% of our revenue to the bottom line, before interest and taxes. Nothing that would make a large law firm envious, but we’re proud of it. We have $19.5B in cash, generate over $2B of cash flow from operations each quarter, and have bought back $37B of our company’s stock in the last 5 years. We have about 51,000 employees working in 80 countries.

I offer these data points from the perspective of a general counsel who is required to run his department just as other corporate departments are run.  This is more and more the case in American industry.  The legal department in Cisco is as metrics-driven as manufacturing, HR or sales. I have 4.7 employees in my department per billion of revenue, total legal spend is about .38 percent of company revenue, and non litigation spend about .16 percent.  I spend $34M internally, and about $75 million per year with outside counsel.  I know just where I stand on these metrics vs. my peers, because we share the data.  My numbers are pretty good, but I still don’t know how to be as efficient as Larry Tu at Dell.

The bottom line is that I’m driven by the same need for productivity and scale improvements as is the rest of the company.  It’s simple. As Cisco gets bigger, the share of our revenue devoted to legal expense needs to gets smaller.  Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me, or as we say in Silicon Valley, orthogonal to my concerns.  Think about it: not one of the CIOs of your firms expects to get a letter from Cisco explaining how much more our products will cost next year.  And not one of our suppliers comes to us to tell us how much their prices will go up next year.  Well, that’s not quite true.  The law firms try.  But from my perspective, I don’t care what billing rates are. I care about productivity and outputs.

Turning then to the first of the three questions, how is technology driving change in knowledge-based industries?

My core message is that access to information is being simplified.  The price of information is being driven toward its marginal cost of production.  Disintermediation is occurring at the fastest pace since Martin Luther proposed that a Catholic priest wasn’t a necessary part of a relationship with God. Traditional command and control organizations – think of the US Army and the record labels – find themselves outmaneuvered by small decentralized organizations who know how to build networks – think of Al Qaeda and the Iraqi insurgency, and Kazaa and eMule.

How many people here have read Tom Friedman’s The World is Flat?  Friedman is right.  Easier access to information, symbolized by the Internet, is revolutionizing the global economy.  I was at a community lecture a couple of years ago by Michael Spence, who won the 2001 Nobel in Economics.  He described the networking of computers as the most important development in economic history since the opening of trade routes from Europe to Asia in the late Middle Ages.  The reason: because where work gets done, and how it gets done, is being radically altered.

Those who thought they had a corner on information find that’s no longer the case. I was talking with a friend recently who is a senior technology officer at a large high tech company. She’s from India and was describing a problem a friend of hers in India was having — the friend’s son wanted very much to go to one of the IITs, or India Institute of Technology campuses.  They were so oversubscribed, with the emergence of 300 million middle-class Indians seeking advancement, that he was rejected.  The parents were complaining that because of that, their son was forced to go to Cornell.  Now everyone I tell that story to laughs at first.  But there’s a moral there – the corner on information, on knowledge, on the transmission of knowledge, that we think we have in this country, that we think we have in this profession, just isn’t there any more.

What’s happened in the recording industry provides a great example.  Tower Records’ liquidation is the end of an era.  iTunes, to say nothing of eMule and Kazaa, represent the beginning of a new one.  Recording industry revenues are down 25% in the last five years.  The ability for any centralized organization to dictate how information will be packaged and delivered is going to zero, as individuals take control of how information and knowledge is generated and offered.

With Trip Advisor and ePinions, what is the role of Fodor’s and Frommer’s? With Wikipedia, what is the role of Brittanica? With Amazon and reader reviews and blogs, what is the role of the bookstore? Did you know that the membership in the American Booksellers’ Association has declined from over 4,000 to about 1,800 in the last twelve years. There was no law of nature dictating that this would happen between 1994 and 2006.  It happened because of technology.  One bookseller said he knew it was over when he saw the mailman delivering packages from Amazon to the tenant upstairs.  With eBay and craigslist, what is the economic model for daily newspapers?  From printing boarding passes to tracking packages, to repairing complex software to deciding where to dine and stay and how to buy a plane ticket, tasks previously undertaken by human beings – and often highly trained human beings at that – are now accomplished through well designed expert systems.

I recommend you check out a fascinating new book called The Starfish and The Spider by Rod Beckstrom and Ori Brafman.  They very succinctly trace the power of decentralized, knowledge sharing technologies to undermine enterprises and industries which are based on a command and control approach to information. Simply stated, people around the world are building their own communities to connect with each other and share knowledge.

Political leaders recognize the fundamental nature of this transformation.  I saw in the paper two weeks ago that the acting President of Turkmenistan kicked off his election campaign with a call for greater Internet connectivity.  Put that in the time-warp category: how would you have reacted if twenty years ago someone told you the acting President of Turkmenistan kicked off his election campaign with a call for greater Internet connectivity? I was at a dinner several weeks ago with Alejandro Toledo, who until July of last year was President of Peru.  Toledo had grown up as one of 16 children in a destitute village in the Andes highlands.  Thanks to having met Peace Corps volunteers at the age of 14 he got a scholarship to the US.  He has two graduate degrees from Stanford, and is the first person of native American descent to lead his country. 46% of Peruvians live on less than $2 per day. Toledo is passionate about helping the poor in Peru.  He told me his first priority is education generally, and his second is getting the people of his country connected to the Internet.

So for question number 1 — how is technology driving change in knowledge-based industries? — my answer is that the networking of computers is transforming the nature of knowledge accumulation and distribution.

So let’s turn to question 2: what are the key areas of vulnerability in the legal services business to these technological changes?

At a famous presentation at Black and Decker, a consultant held up one of these, a drill, and asked the Black and Decker executives if this is what they sold. They all recognized the product and answered “yes”.  He then suggested to them, that from the customer’s point of view, what they are selling is this, a hole in a board.

From the law firm think perspective, “sales” too often means a one to one relationship with a lawyer who bills by the hour.  As a client, I can tell you what I want to buy is access to information, strategy, and negotiation, and, in the case of litigation, to courtroom skill as well.

There’s a fundamental misalignment at work here.  Law firms cannot afford to own the business risks of their clients, have a lot of employees to pay and also have to allocate the limited resources of extraordinary star partners.  On the other hand, clients want access to information and counseling and want to pay for value received. Put more bluntly, the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour.

The current system also misserves the lawyers themselves, particularly the associates, also known as the next generation of partners.

In most of my major law firms, I see more and more problems retaining associates.  I am inundated with resumes of top notch associates who don’t want to work in large law firms any more. The chairman of one firm told me that only people in their 50s and 60s are willing to put in long hours these days, that associates regularly turn down the chance to work on major deals if it interferes with social plans or a vacation.  He finds a lot of younger lawyers self-centered and self-indulgent. Since I’m 50, I wasn’t  personally insulted.  But this reminded me of something I read recently, a complaint that “affluent parents have become role models for luxury and licentiousness, and have moved far away from caring about whether their children develop habits of discipline and self-restraint.  As a result, young people are increasingly impudent and have a total disregard of the respect they owe to themselves and others.”  Pretty strong stuff. This was written by Tacitus in 75 AD.

Those who grew up with the Internet just view the world differently than you and I do.  I’d like to ask everyone to raise your left arms. Go ahead. Left arms up.  Now, everyone who is wearing a watch, put your arm down.  I will tell you, that if all of us were under 30, the results would be the reverse. People under 30 do not wear watches. They use their cellphones.  My college senior daughter wants a wristwatch to wearexclusively at job interviews, since she thinks she’s supposed to.  My friends, we are dinosaurs, we don’t get it.

The difference in outlook goes deeper than that of course.  Some of you may know Dick Gross, a mathematician who is Dean of Harvard College. I once heard him tell a group of parents that if they want to communicate with college-age kids, they better learn Instant Messaging.  He told of coming into his 16 year old son’s room while the son was doing homework, and finding five IM conversations going at once on the computer. He asked, “How can you get work done when you have five conversations going?” His son answered, “Dad, you don’t understand, this is how we communicate. For us, IM is like email was when you were a kid.”  I must ask, “If five conversations are open at once, how do you bill the time?”

This generation, brought up on Wikipedia and Kazaa, believes that information should be free.  Upending one’s life to support inefficient means of communication, driven by a billable hour system, to maintain a relatively slim chance of making partner, is antithetical with that upbringing.

But if the economic system of the firm is frustrating to associates and even some partners, I can tell you that from the standpoint of a metric driven general counsel, it is more than incomprehensible.  It looks like the last vestige of the medieval guild system to survive into the 21st century.

About a year ago, I testified before a House subcommittee regarding the Internet in China. It was a lengthy hearing, and it was grueling.  I was pleased with the results, largely because I’d spent two days beforehand being prepared by Ambassador Charlene Barshefsky at WilmerHale.  If you shouldn’t leave home without American Express, you shouldn’t go to the House without Charlene.  At the risk of mixing my credit card metaphors, her help was priceless.  The total bill for her services was about $10,000.  I have spent 300 times that amount to get mediocre assistance in patent disputes.

The legal industry has spent millions on IT, largely to speed access to information. Yet the only way I can get that information is through an individual billing me by the hour.  In many cases, my in-house team has more sophistication than the highly-paid associates who mine the knowledge management system to generate a memo.  I’m just not allowed to access the information without paying for someone’s time.

The systems exist today to change the delivery of legal information to clients.   But that change would challenge a model that today delivers high profits.  Every big company, including Cisco, is using those systems to make our support services more effective, and to drive down the costs of providing service. Law firms are not doing this as effectively to drive savings to the customer.  Clay Christensen of Harvard Business School has written, and I quote, “Large American law firms are just about the most profitable businesses in the world.   Speedier information-gathering capabilities allow large law firms to increase utilization of less experienced lawyers without passing cost savings on to their customers.”  So changing the service delivery model will be disruptive, and not just because associates are kept busy doing work that a machine might be able to do better.  Changing that model will also cut into the effectiveness of cross-selling.  From a client’s point of view, cross-selling is an effort of star partners to leverage the loyalty they have earned to drive hourly work to other parts of the firm.  Today, there is little incentive for law firms to apply risk-reward logic to the amount of legal services provided.  And General Counsel know that.

The growing scope of knowledge availability will endanger this system.

When technological change comes, it is easy to get left behind.  Richard Susskind, who’s a brilliant English commentator on the legal profession, and who gave me the Black and Decker example I offered earlier, observes that when law gets standardized, it can be outsourced, co-sourced, integrated,aggregated, syndicated and sharedOne-to-one consultative advice gives way to one-to-many information services. And the client becomes empowered.

My contention is that the very source of success for firms today – the ability to manage client access to information and require clients to use bespoke 1:1 systems – will be the source of failure in the future.

So my answer to question number two is that the greatest vulnerability of the legal industry today is a failure to make information more accessible to clients, to drive models based on value and efficiency.  The present system is leading to unhappy lawyers and unhappy clients. The center will not hold.

And that brings me to the third  question: What will it take to succeed in this changed environment?

Clay Christensen got it right when he said of our industry, “the forces that act upon service sector businesses are the same that act upon all companies.”  And he predicted that a new class of providers will “develop new delivery models that will be highly disruptive to established firms.”

My answer to this question is therefore simple: first, winners will be those who are able to standardize services to meet clients’ cost management and predictability needs where very good is good enough.  Second, those who can differentiate themselves by providing the top notch of customized services, where that is needed, will also win.  In some cases, one firm may be able to do both.  But my bet is that despite the consolidation trend we’re seeing today, top quality boutiques will thrive while the cost structures of larger centralized firms will put them at risk.

All around the periphery of the legal industry, standardization of information is happening.  Check out www.taxalmanac.org, which uses wiki to create sophisticated, easily-searchable on-line discussions, and ultimately counseling, by tax professionals on a variety of topics.  The legal work of generating residential leases and individual tax returns is now largely done by software.

Let me give you a few examples of the way this is now spreading to first tier corporate legal work.  Let’s start with patent prosecution.  At Intel, Bruce Sewell bundles patent disclosures and prosecution of the applications is awarded based on a reverse auction.  The most successful firm is in Australia.  At GE, Brackett Denniston has over 60 patent lawyers and agents, US trained and supervised, working to prosecute patents at GE’s Global Research Center in Bangalore.  At Cisco, we pay a fixed fee for patent prosecution, and advise our firms to find ways to lower costs, since the amount we will pay will go down by at least 5% each year. We also have a fixed fee arrangement to review unsolicited offers of licenses which seem to arrive quite regularly these days.  Bart Showalter, the partner at Baker Botts who leads that effort for us, said the fixed fee scared them at first, but over time they developed a systematic approach to the work, and as he put it, “the system made us more efficient.” To get the measurable results we need, we are driving the use of knowledge sharing technology throughout the process.

In the corporate secretarial arena, at Cisco we got tired of the choice between the overhead of dealing with a hodge-podge of local firms and high billable hour rates from so-called global firms.  So we are working with one firm on a solution. We’re aiming for a 20% cost reduction compared to our current global costs.  Now this firm doesn’t have a huge global network of offices – but are ready to revolutionize the way information is processed and shared.   Our goal will be accomplished by standardization of forms and open interfaces, making a smooth multi-vendor operation out of what had been a series of job shops.  And we want to help them to sell this approach to other companies and other law firms.

In contract processing, we have an online contract builder that allows our employees globally to build their own NDAs  and other contracts.  With electronic approval and digital signature, they can go from creation to execution to archiving.  Five years ago, Cisco had to build its own system. Today we’re buying off the shelf.  Within the next five years, a substantial proportion of the Fortune 500 will be doing the same.

Counseling will be the next frontier, as tools like taxalmanac spread to other legal areas, from sweepstakes rules to export regulations to human resources to securities law compliance. We’re working with eight other Fortune 500 companies, and a number of law firms, to create a site called Legal On Ramp.  Legal On Ramp will allow direct access to knowledge management systems of law firms. The site will organize information and allow collaboration using Wiki technology.  If you don’t know what a wiki is, I suggest you learn very quickly. Sites will be segmented by company to protect privilege.  It will also help drive follow-on questions to firms for fee generating work.  And you can bet securities work, especially ’34 Act and Section 16 compliance, will be one of the first targets for providing standardized information and shared experience.

Today, all of Cisco’s US corporate, securities and M&A work is done superbly by Fenwick and West operating on a fixed fee, based on an expected number of transactions, with fixed prices for extra transactions.  Gordy Davidson came to me recently and offered to keep the fixed fee the same next year, despite rising hourly billing rates.  He thought he was being generous, or at least practical.  I turned him down.  I told him I wanted a 10% cost reduction.  But my goal was not to reduce my costs while hurting Fenwick’s profitability.  I suggested he propose a service level agreement for me, his client, to fulfill.  The SLA will oblige Cisco to take on lowest -value-add tasks that were consuming 15% of Fenwick’s total lawyer costs, and that we can do ourselves with our administrative staff.  I told him I expected only a 10% fee reduction, however, and that he could keep the remaining 5%.  In this way, we become a better client, and we both win.

We are doing the same thing in litigation. We have a fixed fee with Morgan Lewis  for all of our US commercial litigation.  Not surprisingly this has made Cisco litigation avoidance a key goal of Morgan Lewis.   We’re driving down the time that human beings have to spend reviewing electronic documents.  We bid out discovery work based on cost per gigabyte.  In some cases we’ve outsourced document production to a different law firm than the firm that is providing counseling or other support.  But what we had to build ourselves five years ago is now becoming the norm.

Now as I said at the outset, you may disagree completely with my analysis, with my prescriptions, or both.  You might even think I’m just trying to sell more networking equipment.  But I ask each of you to grapple with the three questions I posed and come to your own conclusions.

How is technology driving change in knowledge-based industries?  What are the key areas of vulnerability in the legal services business to these technological changes?  And what will it take to succeed in the new environment?

The opportunity is there to recognize the business realities that will be driven by new technology. We can seize the chance to offer more value to clients. We can seize the opportunity for our own employees to be more engaged and productive.

Our mutual success depends on it.  I’m fortunate to have great counselors like Gordy, Charlene, and Bart.  They’ve helped ensure, through past practice and good preparation, that my company has no issues with its stock options, minimal comments on our 10-Ks, and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved.  I need those counselors to themselves have healthy businesses. Successful outside counsel is an integral part of Cisco’s success.

We should all be very proud of our profession.  We help drive compliance with the democratically-enacted laws of our country.  In the last five years, we’ve accomplished extraordinary things. Since the dark days of the Enron collapse and the advent of Sarbanes Oxley, we’ve restored credibility to the institutions that are the backbone and the motor of the greatest economy in the world.  We defend those who have done the indefensible, even when the government threatens us for those efforts. We work to preserve the rule of law.  In our daily work we do not fear, in fact it is our obligation, to speak truth to power.

We are in the midst of an economic  revolution that is the most important event in economic history since trade routes opened from Europe to Asia.  We must reach out and seize the golden ring that is just within our grasp.

Thank you for your attention today.


What’s next? See A Deep Dive Into Axiom (036)

Week 3 of my “How Innovation Diffuses in the Legal Industry” class focused on the crucial role of consultative sales and established distribution channels in the diffusion of innovation.  The success was entirely due to our guest lecturers from Thomson Reuters, pictured above.

The value of this class, however, will not make sense without first providing some real-world context. So let’s start there, circling back to diffusion theory and how Borstein, Thorkildsen, and Stroka are, in fact, “change agents” as defined in Post 020.


For the Week 2 wrap-up, see Post 032.


 February 2014: Meet-up of legal start-up entrepreneurs

At a meetup of legal start-up entrepreneurs convened in the shadow of ALM’s 2014 LegalTech show, David Perla, Josh Kubicki, and Rob Saccone dispensed advice to the standing-room only crowd.

One comment I never forgot came from David Perla [Week 2 guest lecturer], who scoffed at the notion that Thomson Reuters, Lexis, Wolters-Kluwer and other serial acquirers were not a significant part of the innovation ecosystem. Perla stated emphatically that some of the smartest business people in the legal industry worked inside Thomson Reuters. “They definitely have some brilliant people that understand how business works; how people make decisions; how to lever off brands and established customer bases to build up dominant businesses.”

Perla, who was long gone from Thomson Reuters by then, was warning the audience not to get arrogant, overestimating our own creativity and underestimating the acquirers’.  As the co-founder and active operator of a legal industry start-up, see Post 004, I had, by February 2014, consumed enough humble pie to not want any additional helpings.  I didn’t understand Perla’s observations at a deep level, but I stored them away in my mind for possible future use.

March 2016: Chicago Legal Innovation & Technology Meetup

Fast forward to the spring of 2016, where Dan Linna, Dan Katz and others are running another iteration of the Chicago Legal Innovation & Technology Meetup (this one in the shadow of the ABA TECHSHOW).  I’m on a panel with Joe Borstein, who is running sales for Thomson Reuters legal managed services unit (formerly known as Pangea3).  I remember saying to myself, “This Borstein has better intel on the legal start-up market than anyone I’ve ever met. And where in the world did he come up with these slides? They’re gold.”  In addition to being funny, Joe also had a knack for simplifying the complex. People liked listening to him.

July 2017: Chicago/Milwaukee Regional Meeting of CLOC

Fast forward again to July of 2017. I’m attending the Chicago/Milwaukee regional meeting of CLOC. Paul Stroka, Director of Legal Solutions at Thomson Reuters, was paying for lunch and arranged for some educational programming, including an overview of emerging legal technology from his colleague, Rebecca Thorkildsen.

Two things stuck in my mind from that meeting:

  1. Paul Stroka had a wonderful light touch, doing whatever he could to facilitate a higher-value meeting for CLOC members, never once engaging in anything that felt like a sale pitch.
  2. Paul’s colleague, Rebecca Thorkildsen, was the single most knowledgeable person on legal technology that I had ever met, providing useful framework after useful framework for understanding the bewildering arraying of technology that was now coming into the marketplace.

And then the lightbulb goes off — “This is what Perla was talking about. These are extremely knowledgeable professionals who are growing business units at Thomson Reuters.”  Thus, before the meeting ended, I asked Paul and Rebecca to come to my “How Innovation Diffuses in the Legal Industry” class at Northwestern Law in the fall, and, if possible, include Joe Borstein.

Consultative Sales — what it is and when and why it works

In the anecdotes shared above, the common theme is consultative sales.  Borstein, Stroka, and Thorkildsen are subject matter experts who are sincerely focused on listening, educating, building relationships, and problem solving.  This is a relatively expensive “long-game” approach. Yet, its underwriter is Thomson Reuters, a legal information giant that deeply understands the economics of sales and distribution through decades of selling books, practice guides, and online subscription services.

To boil it all down, consultative sales works best when (a) prospective clients are struggling to understand their own business challenges, often due to significant or rapid industry changes, and (b) your products provide the best solutions to a reasonable subset of those challenges.  Although your educational and problem solving efforts will sometimes point prospective clients toward another vendor, they are sure to come back to you when they need your specific product. Moreover, they will refer you and your product/service to their industry peers.

It should be obvious that this wonderful long-view approach is unavailable to fledgling legal start-ups who need sales and reference clients before they run out of cash.  In many respects, today’s legal industry is similar to the automotive industry circa 1905:  There are hundreds of small car builders who rightly believe that cars are the future — it’s just not going to be their car.  This is because the industry inevitably must consolidate into a smaller number of dominant companies that can simultaneously focus on both quality and cost while building a sales and distribution network that can handle the complexities of warranties, service, parts, and repairs, etc.

As Thomson Reuters knows as well as Ford or General Motors or Chrysler did back in the day, in addition to projecting stability to your client base because of your size and client base, there are tremendous economies of scale to selling.  That is why Thomson Reuters can afford to field an A-team of seasoned lawyers (Borstein and Stroka) and MBA consultants (Thorkildsen) to educate the market.

Example of educating the client

I specifically asked the Thomson Reuters crew to walk the class through materials they use when interacting with prospective clients.  Below are three key slides presented by Rebecca that beautifully illustrate the value and power of consultative sales, particularly in a crowded and confusing marketplace like legal circa 2017.  Note the three slides below have a contract/transaction focus. The next section touches on litigation.

Here’s the basic set-up: Imagine you are a legal operations professional working in the legal department of a large global company.  The goal of the company is to grow and prosper economically — and for 365 days a year, that requires the company to form and execute contracts.  Obviously, because of the scale of the business, those contracts become an enormous management challenge.

In 98% of all cases, the legal department lacks the time (and often business training) to understand their challenges within a broader system framework.  Note how Slide 1 divides the world into legal and business drivers (left side) and provides an lifecycle framework for overall contract management (right side).

The purpose of Slide 1 is to help the client identify, organize, and ultimately prioritize their internal pain points.  The legal professionals, after all, want to impose order on their massive workload and feel like they are delivering consistent value and quality to their business unit.  It is a good sign when a prospective client asks for your slide deck, as it means you’ve connected with a real problem.

Again, if you are a legal department operations professional, you are constantly being pitched by a bewildering array of technology vendors. Invariably they ask themselves, “What do all these company do?  And how do they relate to one another?”  Slide 2 places the vendors into categories based on functions and features.  With this one slide, you know where to focus your time.

What is remarkable about Slide 2 is that Thomson Reuters products are mixed in with competitors but not in a way that makes them identifiable.  Let the customer react and talk and, over time, a large number of good fits will be revealed.

Slide 3 uses a similar approach.  However, now it’s organized in a way that maps onto the department’s legal functions and workflow.

If Rebecca Thorkildsen spent an hour or two with you, sharing company materials and helping connect your problems to potential solutions, most professionals will reciprocate by buying from Thorkildsen’s company when the need and product(s) are a strong match.  Why? Because the problems never end and they want access to her expertise in the future. That’s the Thomson Reuters’ long game.

The careers of two ex-litigators tell an important story

While Thorkildsen has a tremendous command of legal technology, particularly in the contracting space, Joe Borstein and Paul Stroka shared some personal experiences from their time as lawyers that were (a) useful in understanding the arc of the broader legal market, and (b) the personality and mindset of someone who is likely to be good at consultative sales.

Borstein told the story of cutting his teeth as a litigation associate at a major law firm where he was put in charge of managing a team of several dozen professionals on a massive document review for a bet-the-company case.  Although the work was generating tens of millions of fees for the firm each year for several consecutive years, the process was highly inefficient and plagued with quality control issues. “From the inside, it was obvious that the system was broken.  Friends of mine at other firms were drafting business plans for new ventures. There was no way the status quo was going to last.”

Then came 2008, which had a massive effect on the client-law firm relationship.  If you recall from Post 032 (featuring Pangea3 co-founder David Perla), the financial crisis was Pangea3’s breakout moment. By the time Borstein joined in early 2011, the company had a marquee list of large corporate clients.  Although the entire sales team had, by then, written off law firm customers as a “hopeless cause,”  Borstein persuaded Perla to let him try.  “I was convinced there had to be people who had my experience — who were worried about quality, meeting deadlines, and damaging the firm’s reputation.  Further, it wasn’t the right kind of work for brilliant people from great law schools.”

Much to the surprise of his peers, Borstein’s approach ended up cracking the code for law firms.  “It’s still a tougher sale,” said Borstein, “but law firms are now an established part of our client base, and it’s growing.”

Like Borstein, Paul Stroka’s experience inside BigLaw made him skeptical of the business. “As an entry-level associate benefiting from the salary wars of the mid-2000s, I couldn’t understand why my salary kept going up even though I didn’t know anything useful yet.”  As he switched firms and focused on labor & employment litigation, he was troubled that success as a partner looked like having a base of clients who got sued a lot with cases that lasted a long time. “Litigation is usually a miserable experience for clients on both a cost and emotional level,” recalled Stroka. In his ninth year of practice, Stroka concluded that “I needed to be in a place where I was working to make some of those problems go away.”

At the time, Pangea3 didn’t have an open sales position. But Borstein was impressed by the persistence of a Chicago litigator who keep messaging him on LinkedIn and requesting a meeting.  Eventually Borstein flew Stroka to New York City to see if opportunity might be knocking. “It is very hard to find people who are good at this job,” said Borstein. “We make rain by listening to problems and finding good fits.  Paul has that very rare skill set.” Interestingly, Stroka commented that he has become a much better problem solver since joining Thomson Reuters, because that has become the primary focus of his job.

I pressed Borstein on the rainmaking point. He explained that outstanding BigLaw rainmakers use this same problem solving sales approach. However, they are constrained because the clients end up wanting them to also do the work. “In these big cases, the big-producing partners are pulling all-nighters with the associates. Law is the only business where the salesperson actually has to do the work. That is an enormous constraint of their model.”

An “ugly” but important slide

My original impressions of Borstein, Stroka, and Thorkildsen were strongly reinforced by their visit to my class. They have a tremendous grasp of the market, owing in part to their lengthy legal industry work experience, but more importantly because of the time they devote to visiting clients, reviewing data, reading industry press, and connecting with others in the industry.  This enables them to produce work product that dramatically simplifies a very complex and rapidly changing industry.

A good example is Slide 4 below, which Borstein described as “ugly but profound.”

Slide 4’s key takeaway is that the historical bi-lateral relationship between law firm and client is now being supplanted by a collaboration among multiple parties.  Obviously, Thomson Reuters has positioned itself as a technology and alternative legal service provider (ALSP), see Post 010 (discussing the rise of managed services), but that doesn’t make the graphic any less useful for understanding industry change. And note, Thomson Reuters senior leadership likely saw this more than a decade ago.

There are legions of high-IQ people in law, but the vast majority of them are very busy trying to hit this year’s revenue targets, leaving precious little white space for fact-gathering and reflection. This dynamic gives a company like Thomson Reuters an enormous advantage in seeing and understanding the big picture.

Borstein and Stroka commented that what has happened in the litigation realm over the last decade — with, for example, predictive coding, legal process outsourcing, and the rise of managed services — is about to happen in the transactional realm.  That’s too big a topic to cover here. If you want the same education, invite them in for talk.

Thorskildsen is a lawyer, right?

It’s time to wrap this post up and connect it to diffusion theory.

Rebecca Thorkildsen is often asked where she went to law school.  She replies, “I didn’t go to law school.  I have an MBA.” Fortunately, when that question gets asks, it is usually because Thorkildsen has impressed someone with her command of complex, law-related materials or her excellent, organized communication style.  During class, Borstein observed that it shouldn’t matter whether a professional working with lawyers has a law degree, “but often it still does.”

Thorkildsen explained that after graduating from business school in 1995, she joined Arthur Andersen as a consultant. “One of my first assignments was to help implement an email system inside a law firm. The next assignment was with a corporate legal department.  In the consulting world, that can quickly turn you into an industry specialist.”  Thorkildsen subsequently joined Baker Robbins, a technology consulting firm focused on legal clients, which became part of Thomson Reuters in 2000.

The connection to diffusion theory

As noted in foundational posts 020 (on change agents and opinion leaders) and 024 (crossing the chasm), consultative salespeople are often the key change agents within an industry.  In most cases, two personal attributes are threshold requirements for effectiveness: (a) cultural similarity with clients (referred to as homophily) and (b) credibility in the eyes of clients.  The observations and experience shared by the Thomson Reuters team certainly corroborate the theory.

Yet, this insight has deeper significance for the legal industry.  Specifically, it suggests that crucial non-legal innovations related to legal productivity, such as data, process, and technology, will tend to diffuse faster when the communication channels are lawyer-to-lawyer, even when the underlying content is entirely non-legal. Some might call this snobbery or prejudice, but according to diffusion theory, it’s just a recurring feature of any social system, including law.

Finally, below is a diagram from Post 020 that ticks off the factors that enable a change agent to be more effective at accelerating innovation adoption. Isn’t it obvious that the consultative salespeople at Thomson Reuter hit them all?

For additional analysis for these seven factors, see Post 020.

What’s next?  See Mark Chandler Speech from January 2007 (035)

Several years ago, I was part of an experiment to bring together legal industry innovators and early adopters.  To carry this off, Dan Katz, Bruce MacEwen and I pooled our rolodexes to identify folks we thought would be interested in the science of diffusion theory and its application to the legal industry.  The experiment/event was the called The Forum on Legal Evolution.  The name was very deliberate, as we were trying to break from the “disruptive” innovation rhetoric of the time, which we believed was neither accurate nor helpful. Continue Reading The 2017 Forum on Legal Evolution (033)

As the above syllabus excerpt suggests, there is now a law school course on how innovation diffuses in the legal industry.  This new ground is being tilled at Northwestern Pritzker School of Law, where I am visiting this fall.  It is one of the few courses at Northwestern Law that enrolls both JD and Masters of Science in Law (MSL) students.  This enrollment is ideal, as the diverse educational backgrounds and professional experiences of the MSL students are a terrific complement to the 2L and 3L students who have already internalized a surprisingly large amount of legal culture.

The class started last Monday (10/16) and runs for eight classes.  As diffusion theory is part of an applied research tradition, see Post 004, we spent exactly one class on the underlying theory and the legal industry before moving to examples.

The examples are supplied by legal innovator and early adopter guest lecturers.  For Week 2 (10/23), we had the pleasure of hosting David Perla, co-founder and former co-CEO of Pangea3, and Ian Nelson, who was part of the original US sales team of Practical Law Company (PLC) and more recently co-founder of Hotshot, a tremendously innovative e-learning company focused on legal professional development.

NewLaw and legaltech start-ups are now widely covered by the legal press. But that was hardly the case during the booming mid-2000s when all the focus was on soaring BigLaw profits and salaries.  I wanted to start our guest speaker series with David and Ian because during this hey day period, both quit top-of-the-food-chain jobs to pursue obscure and speculative business opportunities (David in 2004 and Ian in 2006).  At the time, the future we are now living in was far from obvious.  Yet, when their respective companies sold to Thomson Reuters a few years later at valuations and multiples on-par with highly successful Silicon Valley start-ups, it became clear that NewLaw and legaltech were sectors with enormous opportunity for the innovative and ambitious.

Perla’s story

Over the years, I have heard several renditions of Pangea3 founder stories.  But Monday’s edition provided a new twist, as David focused on the preeminent importance of professional relationships and how, in hindsight, the long game is the only game that really matters.

David went through a long litany of examples of how a decade’s worth of professional contacts accumulated since law school (by both he and Pangea3 co-founder Sanjay Kamlani) were crucial to opening doors or indirectly supporting the fledgling start-up.  From getting free access to 1,200 Indian lawyer resumes from Monster.com so the duo could stand-up a work team in India over the course of a few days (David had just quit the GC position at Monster to launch Pangea3); to several months of office space at Katten Muchin so Pangea3 could signal a midtown Manhattan address (David was a former Katten associate); to an initial investment by a prominent Indian-American lawyer who had credibility in both US and India venture capital and legal circles, thus greasing the skids for everything that followed (this came through Sanjay’s tenure at PWC and OfficeTiger, a first-generation business process outsourcer in India), each story illustrated the tremendous importance of relationships. Cf. Post 020 (discussing crucial role played by “weak-tie” relationships in the diffusion of innovation).

The most surprising and powerful story was David’s family connection to the head of litigation of a major global bank.  The family friend took David’s call, but said at the outset,  “I am happy to help you in any way I can through mentoring and coaching, etc., but I’m never going to send any documents to India.”  David replied, “I understand.  Is it okay if I check in with you every six months?” The head of litigation said “Sure.”  David foreshadowed that this connection would turn out to be key to the ultimate success of Pangea3.

In the meantime, David and his colleagues were trying to crack the code of the large global banks.  One of their prospective customers broke the disappointing news that “we innovate in our trading strategies, but not in operations or sourcing. For that stuff, we’re a second mover. So if you want us to hire you, go get [list of global banks] as one of your customers. Then we can talk.”

Fast forward a couple of years, the big break for Pangea3 was the turmoil in the financial services market in the fall of 2008 and the resulting global recession.  David fields a call from one of his board members, who buoys his spirits, “Doubledown on sales; recessions are good for outsourcing.”  Shortly thereafter, David takes a call from the family friend / head of litigation at the major global bank. “David, the General Counsel just informed us that our budget has been cut by 25%. I know I said never, but never just happened.  Can you be here this week for a meeting?”

That meeting resulted in Pangea3 landing its largest and highest-profile client, which in turn sped up the sales cycle for several other large banks waiting to go second. David acknowledged that he did not have the benefit of diffusion theory when he was building Pangea3.  Yet, on both the investor and customer side, he could see how certain key early adopters had the effect of making a wide array of disparate pieces fall into place.  David specifically referred to these people as “influencers.”  Cf. Post 020 (discussing how “opinion leaders” within a social system are “able to informally influence other individuals’ attitudes or overt behavior in a desired way with relative frequency”).

Nelson’s story

I first met Ian Nelson in the fall of 2008 at a legal innovation conference–in hindsight, the first of its kind–organized by USC law professor and economist Gillian Hadfield. By 2008, Ian had been working at PLC for two years, initially in content creation but then transitioning to a lead role in sales.  Although PLC had already become a dominant force in the UK, the US was a bigger market governed by different law.  Thus, for all practical purposes, Ian had joined a US-based start-up.

There are two reasons why the PLC model is highly relevant to anyone interested in legal innovation.  First, Thomson Reuters’ acquisition of PLC in 2013 remains the high-water mark for financial success among legal industry entrepreneurs.  See “Thomson Reuters buys Practical Law Company,” Telegraph, Jan. 23, 2013 (reporting the size of the deal between £200 and £300 million, all of it achieved without outside investment). Second, there remains a wide array of activities currently performed non-expertly by law firms and legal departments that could be turned into highly successful businesses by carefully applying the core logic of the PLC model. In fact, this logic is very much at work at Ian’s current company, Hotshot. Thus, let’s briefly review the PLC model.

Practical Law began life in 1990 as a trade journal focused on the UK legal market. Some of the most popular features were practice tips that pulled together and explained the technical aspects of new and emerging methods of finance.  This is not surprising because PLC’s two founders, Robert Dow and Chris Millerchip, began their careers as associates at Slaughter and May, a leading Magic Circle firm specializing in M&A and sophisticated corporate finance.  Quipped Millerchip, “We created the thing that we wanted when we were practicing.” Ross Todd, “Web Practice Tools for Transactional Lawyers,” Legaltech News, Jan. 23, 2009.

With the growth of the web, PLC’s offerings became simultaneously better and easy to access via an online subscription model.  Relatively quickly, firms were being placed in a competitive disadvantage if they lacked access to PLC work product, which included document templates, standard clauses, practice guides, and deal checklists. In theory, firms could create this content on their own.  Yet, the ability to scale across the entire corporate bar enabled PLC to deliver higher quality work product at a much lower per-unit cost. In effect, PLC had become a privately run shared service relied upon by the vast majority of top UK law firms. The economics of a shared services model make it virtually impossible to dislodge a well-run first mover — and PLC fit that description to a tee. Cf. Thiel, Zero to One 97-98 (2014) (“[M]oving first is a tactic, not a goal. …  It’s much better to be the last mover—that is, to make the last great development in a specific market”).

During his guest lecture, Ian recounted his early days as a NYC corporate associate when he first encountered some of the quality gaps later filled by PLC and now being targeted by Hotshot.  The first instance occurred within a few days of hiring when Ian was dispatched to a far-flung city for due diligence on a “reverse triangular merger.”  The supervising partner instructed Ian to review a large volume of contracts and flag anything that “looked weird.”

Despite his law review credentials, Ian had no idea what a reverse triangular merger was, much less the definition of weird. Thus, for the next 48 hours, Ian was thrown into a silent panic, fearing that his legal ineptitude would should be exposed to the world. Yet, what he soon discovered was that neither the partner (and apparently the client) cared about the inefficiency of the process, as Ian’s overinclusive approach to copying “weird” provisions for further study at the firm’s headquarters was all being billed by the hour. Had Ian had access to Hotshot, he would have had on-demand videos and practice guides enabling him to get the answers that the supervising partner lacked the time or interest to provide.

A second formative incident occurred a couple of years later when Ian headed to London to work on-site at a UK firm that was co-counsel on a major transaction. During a tour of the office, Ian was shown the cafeteria, the copy room, and the work area for the PSLs.  Ian asked, “What’s a PSL?”  He was flabbergasted to learn that in the UK it was common practice to have “Professional Support Lawyers” who were responsible for, among other things, organizing and cataloguing the firm’s work product so the very best precedent could be quickly located for use on future client matters.  Ian subsequently returned to the US and lobbied his firm for the creation of a similar role, as it would replace the then-common practice of firm-wide emails soliciting documents that could be used as a starting point for current client matters. Upon hearing these ideas, however, the partners shrugged with indifference.

Six years into corporate law practice, these were some of the formative experiences that caused Ian to respond to a job ad for PLC — experiences that really struck a chord with the students. At my request, Ian did a deep dive into Hotshot. However, Hotshot as a business and product offering warrants its own future post.

What diffusion theory insights did we learn?

As I reflect on Week 2, three themes stand out.

  1. There is no innovation without execution. It’s easy to discuss innovation as something conceptual, but until the early adopter end-user receives full value, innovators are just trafficking in ideas.  Although this terrain is covered in LE’s “Crossing the Chasm” and “Hype Cycle” series, see, e.g., Posts 024025, it was made more vivid by Perla’s description of solving funding and operational challenges while also hunting down the early adopter customers. Standing up a quality-first operation in India (the putative innovation) is extraordinarily complex, time consuming and costly. Although Pangea3 was able to hit its ambitious sales targets relatively early, the time span between a signed deal, doing the work, and getting paid — particularly when large corporate clients string out vendors for 45 to 90 days — resulted in a “near death” experience for Pangea3. Suffice it to say, there is enormous risk in translating an idea into an innovation that warrants diffusion. Innovator-leaders like David and Sanjay who can skillfully coordinate the technical talents of others are very rare and very valuable.
  2. There are usually several social systems that matter; not just one.  As I listened to David and Ian, it became obvious that several social systems were interacting with one another.  For example, David describes how inroads with the New York global banks had little to no impact with legal departments at large US tech companies.  In fact, it was an investment by famed Silicon Valley VC firm Sequoia Capital (on less favorable terms that other VC shops, though the discount was worth it) that opened doors with tech companies on the west coast and, in turn, reverberated throughout India, signaling to young Indian lawyers that Pangea3 was the firm to join.  In Ian’s case, the early adopters at Hotshot were all Silicon Valley-based law firms who saw real advantages to having better-trained associates who could actually understand and do the math in venture capital deals.  A credible roster of west coast-based AmLaw 200 firms were eventually enough to open doors on the east coast and in the midwest where the deal flow was more traditional M&A.  Cf. Post 004 (“Rogers’ core insight … is that the diffusion of innovation is a process that occurs through a social system“).
  3. Relative advantage, cultural compatibility, and trialability really matter.  Apparently, for a large global bank, the difference between “never” and “this week” is a 25% budget cut.  Thus, drawing upon the Post 008 rate of adoption model, Pangea3’s big break turned on a sudden shift in the “relative advantage” of legal process outsourcing. Likewise, regarding cultural compatibility, both David and Ian emphasized how their status as former BigLaw corporate lawyers, including knowledge of cultural norms related to speech, dress, and credentials, opened both minds and doors.  Finally, Ian gave examples of how trialability was key to making sales for PLC and Hotshot, while David discussed how small projects resulted in growing sales, including a mandate from a major client that Pangea3 would be used by all outside counsel for all large-scale document reviews.  Apparently, nothing is more convincing than tasting the soup.  If it tastes good, your early adopter customers will set off a chain reaction (within a firm or legal department, or among peer firms or legal departments) that will do the work of an army of salespeople. Cf. Post 025 (Geoffrey Moore noting that word-of-mouth marketing is essential to crossing the chasm).

Week 3 of How Innovation Diffuses in the Legal Industry features three highly accomplished Thomson Reuter professionals:

  • Joe Borstein, Global Director of TR’s Managed Legal Services (formerly Pangea3) and Innovation Columnist at Above the Law
  • Rebecca Thorkildsen, Global Director of Legal Solutions (a person with an amazingly broad and deep grasp of the rapidly expanding legal ecosystem)
  • Paul Stroka, Director of Legal Solutions (a very capable corporate lawyer who has a deep understanding of consultative sales — i.e., selling as a second-order effect of customer problem solving — which is the core skill of a change agent)

I’ll do my best to pass along what we learn.

What’s next?  See The 2017 Forum on Legal Evolution (033)

One of the biggest stories over the summer of 2017 was an open letter from 25 general counsel announcing that they are working together to test industry assumptions about the legal market. Although the composition of this group is very impressive, it is also not random. Each company is a member of AdvanceLaw, a network of buyers and suppliers of legal work that seek to drive value by sharing quality metrics and creating data-driven best practices.

Fortunately, Legal Evolution readers are about to get the benefit of some of AdvanceLaw’s insights. Over the next three days, AdvanceLaw Managing Director Dan Currell will post a three-part series on law firm convergence and preferred provider networks — basically, theory versus practice (029), how to build a panel that can deliver value (030), and the necessity of active client management (031).

Over the last 10 to 15 years, many large corporate clients have attempted to use convergence to rein in their legal costs, typically through a process that reduces the number of outside law firms, often from two or three hundred to twenty or fewer”preferred provider” law firms. Convergence is controversial because, among other things, it disrupts longstanding (and often comfortable) relationships between in-house lawyers and established law firms. Also, because the process is run by risk-averse corporate counsel who are winnowing firms for the first time, the results tend to favor the “safe” choice.

Notwithstanding these problems, we are going to see more — and better run — convergence in the future, as clients have a strong incentive to fix the underlying design and execution issues. The state-of-the-art is definitely going to improve.

Dan Currell is uniquely qualified to write on this topic.  Prior to joining AdvanceLaw, Currell spent more than a decade running the General Counsel Roundtable for the Corporate Executive Board (CEB). Between his time at CEB and AdvanceLaw, Dan has spent more time listening to challenges of senior in-house lawyers than virtually anyone in the legal industry.  Further, Dan and his colleagues at AdvanceLaw are now in a position to help shape the future.

I hope you enjoy these posts. WDH.

What’s next?  See Part I on Convergence: Why Theory Falls Short of Practice (029)

Among the many impressive finalists for this year’s ILTA Innovation Awards, the submission for the Telstra legal department stood out as a compelling change management story.  By enabling the right kind of collaboration among its lawyers, the Telstra change initiative reduced the internal workload on the 220-lawyer department by 40,000 hours. Further, by returning time to overburdened lawyers, the department created a culture that is much more supportive of change efforts.

Yet, what is most significant about this story is that virtually any legal organization could replicate this success by taking a few simple steps.

The business challenge facing the Telstra legal department

Telstra is an Australian telecom company that was formally a state-run utility.  Shortly after completing a phased privatization in the mid-2000s, the 2008 financial crisis forced the company into downsizing mode. 10% annual budget cuts were implemented for all parts of the business, including the legal department.

Like many successful change initiatives, this one began with false starts and disappointment.  As the cost-cutting pressures continued to mount, in 2013 the legal department created a long list of key pain points that needed to be addressed for the group to be successful. Recalls Mick Sheehy, Telstra’s General Counsel of Finance, Technology, Innovation & Strategy, “we thought the list was so important we made it everyone’s shared responsibility, including our senior legal leaders, which meant ultimately it became no one’s responsibility.”

A Process to Prioritize, Plan, Implement, and Repeat

With the department struggling to gain significant traction, in 2015 Sheehy attended a design thinking course at Harvard Law School.  Impressed with these ideas, Sheehy returned home and ran a design thinking workshop with a group of his own lawyers, receiving some expert facilitation from a team at Herbert Smith Freehills. Cf. Post 015 (noting key determinants of organizational innovativeness are leadership’s attitude to change and openness to external perspectives).

After once again creating a laundry list of the department’s biggest pain points, the group limited itself to the top four.  Thereafter, they used design thinking techniques to construct potential solutions for each problem and to implement them through an eight-week “sprint.” (Borrowing from the world of software development, a “sprint” is a discrete time period — usually two weeks to two months — where a team creates a working prototype or an updated version of a product. See Agile Glossary.)

Below is the simple process each Telstra work team used evaluate and improve each change initiative:

What makes the Telstra process different that other change initiatives is that it is iterative and enables the group to learn from implementation.  Thus, a decision to continue is also a decision with much better information and a higher likelihood of success.  Likewise, a decision to kill an initiative is less a failure than a prioritization of limited department resources to support the highest impact projects.

Notes Sheehy, “We ran the sprints and we came back to another workshop and we looked at what we achieved and were so enthused and excited that we decided to do the whole thing again. And we haven’t stopped. This is now an embedded process in Telstra legal and we recently ran our 8th Telstra innovation workshop.” Cf. Post 008 & Post 011 (noting simplicity and trialability as among the keys to successful adoption).

Telstra rotates lawyers through the innovation program, known internally as the Legal Innovation Forum, or LIF.  As of August 2017, 35 Telstra lawyers have participated in the program.

Results

Thus far, four “streams” have left the Forum, having achieved their core objectives.  Although Sheehy notes that none of them are particularly exciting on their own, “collectively they’re telling a great story.”  Here are the four streams.

  1. Self-Service NDAs (5,300 hours saved).   Most non-disclosure agreements are standard and low-risk.  By embedding the key decision points into an automated workflow, the number of lawyers hours per annum dropped from 6,425 to 1,125, resulting in an 82% time savings.
  2. Less Legal Report Generation (2,250 hours saved).  The equivalent of two lawyers were producing a weekly report for the CEO that he was not regularly reading. So the reports going to the CEO were cut by nearly 2/3, reducing the time commitment from 3,750 hours to 1,500, resulting in an 60% time savings.
  3. Fewer Internal Meetings (31,500 hours saved).  Throughout the legal department, the numbers of internal meetings was widely viewed as excessive. As part of a LIF initiative, internal meeting where categorized as either “decision making” or “information sharing” meeting. For decision making meetings, organizers were told to only invite people they needed and to make the decision points explicit in advance. For information sharing meeting, each attorney was limited to 2.5 hours per week. Across the 220-lawyer department, this resulted in a drop in internal meeting hours from 60,180 to 28,680 (52% reduction).
  4. Reduce Legal Review of Internal Communications (1,008 hours saved).  A careful triage of the type of internal communications subject to legal review revealed that a substantial volume of review was unnecessary.  Better workflow criteria resulted in reduction of attorney hours from 3,470 to 2,462 (29% time savings).

Telstra’s internal time saving target for these four initiatives was 27,000 hours per annum time.  Yet, they overshot the mark by achieving more than 40,000 hours.  This is the type of ROI available when lawyers use people, process, and technology to “do less law.” See Ron Friedmann, Do Less Law — A Taxonomy of Ideas, June 11, 2015.  It was also enough for Telstra to win the 2017 ITLA award for legal department innovation.

Lessons learned

As noted above, as of August 2017, Telstra had eight workshop/sprint iterations, which is the basis for an enormous amount of organizational learning. What are the key lessons?  Sheehy offers several:

  • Data.  “It’s critical to measure your baseline and know your starting point so you can tell a data driven story so people can understand all the effort you’re putting in is driving results.”  Cf. Post 008 (data makes innovation more observable and thus more likely to be adopted by others).
  • Not reinventing the wheel.  “The problems we’re solving are not unique to Telstra legal department and may be faced by other law firms and departments in the company. Having an outward focus rather than an inward focus is critical.” Cf. Post 017 (noting openness to external ideas and influence as key determinant of organizational innovativeness)
  • Not waiting for perfect; avoiding options paralysis. “We have a tendency to overthink problems when we sometimes just need to get started. Jeff Bezos had a great point when he said that if you’re waiting for more than 70% of the information to make a decision you’re probably waiting too long, and getting something wrong is less expensive than being slow.”
  • Communication.  “All of this has a degree of behavioral change and behavioral change is really hard. We had to focus on the communication. The reduction in meetings was difficult and to get people to think differently on that – a lot of it was down to communication.”

Below is the last graphic from Telstra’s ILTA presentation.  Note that in its original form it was a series of sticky notes generated by team members during the Forum debriefs. In other words, a simple low-tech process is the engine that is powering tremendous organizational efficiency and learning.   Per Sheehy and his Telstra colleagues, the blocks in red are particularly important.

A special thanks to Mick Sheehy and Ali Caldicott of Telstra for making the ILTA slides and presentation script available to me.