Sometimes a technical innovation languishes on the innovator’s shelf despite working perfectly and doing everything the innovator hoped. What’s missing is a business model that can coordinate a fair exchange of value. Continue Reading PartnerVine and the Last Miler’s Club (072)
I was very fortunate to be invited to the most recent Microsoft Trusted Advisor Forum, which took place on September 20 at Microsoft’s Redmond campus. The Forum featured 13 key Microsoft legal service providers (12 law firms + one of the Big Four) giving presentations on an innovation that “demonstrably improves legal service delivery to Microsoft.” Although ambitious and unprecedented, the Trusted Advisor Forum on Innovation is but one small moving part in a much larger and well-resourced strategy.
This strategy was announced last summer in a widely read essay by David Howard, CVP & Deputy GC at Microsoft. See “Microsoft’s New Strategic Partner Program,” LinkedIn, July 27, 2017. What caught people’s attention was Microsoft’s commitment “to move 90% of our work to AFAs within two years.” The mechanism for achieving this goal is the Strategic Partner Program, which asked 13 law firms to co-create solutions within the context of long-term business relationships. This collaboration theme was recently re-enforced at Microsoft’s Global Summit when General Counsel Dev Stahlkopf asked all of Microsoft’s outside counsel to “[p]artner with us to continuously improve and innovate.” Zach Abramowitz, “Why Microsoft is Hosting Their Law Firms in Redmond This Week and Why it Matters for Everyone Else?,” BigLaw Business, Sept. 18, 2018.
These are big ideas. Someone, however, has to execute.
This task has been given to Jason Barnwell, Microsoft’s Assistant GC for Legal Business, Operations and Strategy. To give the Strategic Partner Program continuity and weight, Barnwell and his team started running the Trusted Advisor Forums. Last fall the topic was Artificial Intelligence. This spring it was Competition and Data. Later this year will be Diversity & Inclusion. Sept. 20 focused on Innovation.
Both Jae Um and I were at the Sept 20th event. We felt it was sufficiently important for the broader legal industry that it warranted two detailed write-ups. Mine (068) applies the lens of diffusion theory to the SPP/Trusted Advisor Forum innovation, examining the obstacles to adoption and the likelihood that MIcrosoft, through its leadership and systems-level approach, will eventually be successful. (For a primer on diffusion theory, see Posts 004, 007, 008.) Jae’s post (069) goes deeper into the substance of the Innovation Forum. Both 068 and 069, however, discuss how and why MIcrosoft’s efforts matter for the broader legal industry.
To handicap the odds of Microsoft’s Strategic Partner Program (SPP) becoming a major success that influences other Fortune 100 legal departments and eventually the broader legal industry, it is worth focusing on three factors:
Factor #1 strongly favors Microsoft’s: Jason Barnwell is a 1 in 10,000 talent. No less remarkable, however, is that Barnwell has the full backing of senior leadership (Brad Smith, President & CLO; Dev Stahlkopf, CVP & GC; David Howard, CVP & Deputy GC) along with numerous Microsoft practice group leaders at the Deputy GC-level who told Barnwell, “I’m in.” Barnwell also has the bench strength of 13 legal professionals, including Rebecca Benavides (Dir. of Legal Business) and Tom Orrison (Dir. of Legal Ops). See Post 017 (innovation in organizations crucially depends upon the attitudes of leadership and the presence of “champions”).
Factor #2 cuts strongly in the opposite direction: The SPP is an innovation that Microsoft wants its key outside service providers to adopt (i.e., embrace, improve, own). Yet, using Rogers rate of adoption model (Post 008), the still-evolving SPP faces enormous challenges to adoption, particularly with regard to relative advantage and cultural compatibility (see full analysis below). It is all-too-easy to misunderstand or underestimate these challenges, particularly within the elite segment of the bar where Microsoft needs to operate.
Which brings me to the #3 factor: If Barnwell and his team can forge ahead for six to eight years, I would put the odds of success at 90%+. This is because the SPP/Trusted Advisor Forums reflect a multiple iteration/repeat player design that can reshape cultural norms and re-orient relative advantage toward the long-term. With some luck, the “Microsoft system” can do for legal departments what the Cravath system did for law firms 100 years earlier. This would be a much needed refresh for everyone.
In this post, I’ll delve deeper into the three factors listed above. But first, let’s review the set-up of the Microsoft’s Trusted Advisor program, as it provides specific context for understanding Microsoft’s core innovation, which is the SPP.
Trusted Advisor organizations were invited to make presentations on two topics:
Presenters were instructed to focus on “an innovation that demonstrably improves legal service delivery to Microsoft.” Because Barnwell knows his audience, these instructions were parsed in a detailed explainer sent out in advance. Organizations with past and future presentations (7 of 13) had 20 minutes to present, including a short Q&A. Organizations with only a future presentation (6 of 13) were allotted 15 minutes.
Sure, everyone is bound to be nervous presenting on innovation in front of Microsoft and their industry peers. But other aspects of the Forum further raise the stakes. Specifically, Trusted Advisor organizations were strongly encouraged to invite other in-house professionals. Thus, in the room were (to name but a few) Adobe, Amazon, American Airlines, Fedex, Glaxo-Smith-Kline, Intel, Liberty Mutual, Starbucks, T-Mobile, etc). According to Barnwell, Microsoft opened this particular Forum to other law firm clients because “we don’t want to be the only client asking you for this type of commitment.”
The Trusted Advisor Forum on Innovation was designed in collaboration with Casey Flaherty. During his opening remarks, Barnwell cited Flaherty’s 2016 ACC monograph “Unless You Ask,” as his primary blueprint. Flaherty was retained by Microsoft to help organize and run the Forum.
Regarding follow-up, which clearly bears Casey’s fingerprints, the last section of the explainer lays out the tentative plan:
The [Innovation] Forum is an experiment. The current thinking is we will reconvene in a year to report back and publicly commit to a new round of innovations. But we will see how this goes.
Our commitment to continuous improvement is not an experiment [emphasis added]. These types of projects will become part of our annual feedback cycle and will be on the agenda for my site visits. In addition, I recommend you start, if you haven’t already, situating these projects in a larger strategic plan with a target operating model and a digital transformation roadmap. You do not have to share your entire vision at the Forum. I will ask about it when I come onsite.
Suffice it to say, Microsoft is trying something new.
The September 20th Trusted Advisors Forum took place in Building 92 on Microsoft’s Redmond Campus. Although not labelled as such, Building 92 appeared to be a conference center. Our room was on the second floor, roughly 100′ by 200′, with 30′ ceilings and two all-glass walls (front and side) overlooking a wooded landscape. The set-up was 15 round tables with plenty of room to spread out. I have been in a lot of law firms, but very few have a room that could hold 200 people so comfortably. Remarkably, Building 92 had a lot of other activity that day and could have easily handled three of four similar events. We were but one corner of one floor. This is how things roll at an $85 billion global software giant that employs 115,000 people.
I share this information to make a simple point: The person running an outside counsel initiative at Microsoft is bound to enjoy a lot of power and influence. But that does not make the person an exceptional leader. Jason Barnwell, however, combines the two attributes.
In his opening remarks, Barnwell explains that today participants are Microsoft’s “long-term partners” and that Microsoft intends to “invest in the relationship.” Barnwell reminds the audience, “We serve the same client, but all of us have to be committed to doing better. In this program, success is learning; failure is not trying.” Barnwell continues, “Those of us in CELA [Corporate External and Legal Affairs] are updating our culture to embrace a growth mindset that stresses a learn-it-all instead of a know-it-all approach. We expect to see this reflected by our Trusted Advisors.” Finally, Barnwell emphasizes his goal of creating a “psychologically safe place” for Forum members to share and collaborate.
How many lawyers do you know in positions of senior leadership who use the term “psychological safety” to describe the environment they aspire to create?
The term psychological safety has made one other appearance on Legal Evolution, in the context of effective change strategies. See Post 057 (citing research from Google showing that psychological safety is the key attribute of high-performing teams). Professor Amy Edmundson at Harvard Business School defines the term as a “shared belief held by members of a team that the team is safe for interpersonal risk-taking. … [and] a sense of confidence that the team will not embarrass, reject or punish someone for speaking up.” Edmundson, “Psychological Safety and Learning Behavior in Work Teams”, 44 Admin. Sci. Quarterly 350-383 (Dec. 1999).
Barnwell’s background sheds some light on his unconventional style. Barnwell is originally from South Carolina before heading to MIT to obtain a degree in Mechanical Engineering. During his last semester and the summer after graduation, Barnwell worked as a Developer/Technology Specialist for the Harvard School of Design. In 2000, Barnwell headed to California, where he worked as a software engineer for four years. In the fall of 2007, he enrolled at USC Law.
The key point point here is that long before he entered the legal field, Barnwell was thoroughly socialized into a systems method of thinking. In a sidebar conversation, Barnwell told me that he knew within the first 30 days of his associate position at Heller Ehrman that the firm was awash in work that could easily be automated. At his next firm, Barnwell observed a strong focus on profits with little attention paid to how the work was performed.
Thereafter, Barnwell concluded that law firms would not be a good long-term fit. Thus, he resolved to spend another year in private practice to learn how to be an MVL — “minimum viable lawyer.” In the fall of 2010, Barnwell joined Microsoft. Since then, he has been promoted from attorney, to senior attorney in a variety of roles, to assistant general counsel. See Barnwell’s LinkedIn page.
Among in-house peers, Barnwell fits the classic innovator profile–i.e., intellectually venturesome with an interest in new ideas that lead the innovator out of conventional peer networks into more far-flung social and professional circles. See Post 007 (defining adopter types from Everett Rogers, Diffusion of Innovations). Within lawyer circles, Barnwell describes himself as “a nerd” and an “odd duck.” I was recently added to an external email list where Jason passes along new sources of learning relevant to the workplace. Here is a sampling from that list:
If Jason Barnwell was still working in a law firm, these intellectual pursuits would be a distraction from ambitious billable and origination targets. Perhaps that’s a clue to the root cause of law firms’ innovation woes. Regardless, Barnwell is continuously adding to his toolbox so he can drive better results in his own area of influence.
In Diffusion of Innovations, Everett Rogers describes how the creative insights of the innovator often flow from their status as a “stranger,” a concept originally developed by the German sociologist Georg Simmel. See “The Stranger” (1908). Rogers notes that a stranger “has a unique view of the system in which he or she is a member” and “can more easily deviate from the norms of the system by being the first to adopt new ideas.” Diffusion of Innovations at 42-43.
Among elite lawyers, Barnwell is a stranger: he is a scientist and software engineer who can’t be co-opted into believing that law is special or different. Yet, he has remarkable EQ and political instincts on when to push forward and when to back off. This is what makes Barnwell a 1 in 10,000 talent. Now he’s in a position of significant influence and authority at Microsoft.
Even with Barnwell’s unique talent, perspective and credibility backed by the clout of Microsoft, the ambitious goals of the Strategic Partner Program — 90% AFAs by 2020; continuous improvement from all partner firms — are far from guaranteed. This is because of the difficulty of the underlying problem, which is a legal culture that resists learning. To be clear, this is my assessment, not Barnwell’s or Microsoft’s. More on the legal culture problem in Section 3 below. First, let’s look at the innovation that Barnwell is trying to get law firms to adopt and how it fares in Rogers rate of adoption model.
Drawing upon the ideas of Casey Flaherty, Barnwell is building the SPP to include a “structured dialogue” process that emphasizes continuous improvement for the benefit of Microsoft. The theory is very simple. Smart people from the buy and sell side come together on an annual or bi-annual basis to discuss what is working well and what could be improved. Based on that conversation, goals are set with very simple metrics for ascertaining progress. If the structured dialogue is faithfully followed, the participants are put onto the path of high-value innovations. This is the Flaherty-Barnwell thesis, which I strongly endorse.
Since Barnwell is at the beginning of this process, the Sept. 20th past and future innovation presentations are grist for structured dialogue. Further, all the Trusted Advisor organizations got to see each others’ presentations. Lawyers are highly competitive. Thus, independent of any dialogue between the Trusted Advisors and Barnwell and his team, participating organizations are going to up their game. Of course, that is the key to all of this — multiple iterations that build on one another.
Regarding the quality of ideas and evidence of demonstrable improvement, critiques of specific firms would be completely counter to Barnwell’s laudable and wholly correct mandate of psychological safety. Suffice it to say, presentations in this first Iteration fit onto a bell curve with only two to three in the A range. Here are my takeaways.
Expect next year’s presentations to have a lot more A’s.
Let’s assume that to be successful in Microsoft’s goal of continuous improvement, Barnwell needs Trusted Advisor organizations and some key Microsoft in-house lawyers to “adopt” his iterative structured dialogue process. Rogers rate of adoption model from Post 008 provides the key criteria, with “Perceived Attributes of Innovation” accounting for most the variance.
Applying these criteria to the innovation, the first two are strong negatives; the second three are all strong positives.
Relative Advantage (-). The larger the relative advantage, the faster the rate of adoption. In this case, if Microsoft is your client and asks you participate in a Trusted Advisor Forum, you are very likely to accept. However, what’s the value? In the short- to medium-term, it’s preserving the relationship with Microsoft; I doubt any relationship partner sold participation to firm management by promising a significant volume of additional work. Part of the legal culture problem is an inability to see the long-term, which includes Microsoft as an institutional client of the firm that reduces dependence on partners with portable clients. The relative advantage is negative to neutral in the early stages but positive for those focused on the long run.
Compatibility (-). The more compatible an innovation is with the social system’s existing cultural norms, the faster the rate of adoption. Granted, this sounds ludicrous, but a large number of lawyers are extraordinarily resistant to candid conversations about performance. They are (1) afraid of the emotional blowback of giving it; and (2) terrified at the prospect of receiving feedback that is not in the “A” range. The pervasiveness of this problem within elite professional services was the impetus for Professor Chris Agryis’s article, “Teaching Smart People How to Learn,” Harv. Bus. Rev. (May-June 1991), which is now an HBR classic. Agryis discusses the “brittle” personalities of elite professionals who have never experienced failure. The result is an intellectual defensiveness and a propensity to blame others. Of course, none of this unpleasantness is necessary if the hard conversations can be avoided in the first place. Compatibility is a strong negative that Barnwell is countering with a precommitment strategy. It also explains Barnwell’s emphasis on psychological safety.
Complexity (+). The simpler and less technical an innovation, the faster the rate of adoption. A structured dialogue process is drop-dead simple even if there is emotional resistance to participation. {Lack of] Complexity is a strong positive here.
Trialability (+). Innovations that can be tested through trials are more likely to be adopted. As noted in the explainer, the Innovation Forum is “an experiment” and that Barnwell wants to “see how it goes.” Iterative approach = trialability. It’s also a “little bets” approach. See Peter Sims, Little Bets: How Breakthrough Ideas Emerge from Small Discoveries (2011). Another strong positive.
Observability (+). The more observable an innovation by other members of social system, the more likely adoption. For example, taller and better corn in Rogers’ original research made the benefits of hybrid seeds highly observable to other farmers. See Post 008. Likewise, the Forum format dramatically increases observability (and also reshapes culture, albeit slowly) — all positive.
The combination of low relative advantage and low compatibility is what I refer to as the legal culture problem. And it affects all firms in the AmLaw 200 on a continuum that ranges from “challenging” to “extremely severe.” But for the SPP’s multiple iteration/repeat player design that will, hopefully, extend for a period for years, I would be writing off this whole initiative. The legal culture problem runs that deep.
For the purposes of this last section, I’m going to refer to the multiple iteration/repeat player design as the “Microsoft system.” This is useful for two reasons. First, if Barnwell and his team are permitted to stay the course, the SPP/Trusted Advisor Forums will evolve into a system. Second, the emphasis on “systems” is appropriate because virtually all elite U.S. lawyers now operate in the late stages of the Cravath system, though few appreciate what that means.
The Cravath system was developed in response to an acute shortage of sophisticated business lawyers during the rapid growth of financial and industrial enterprises in the early 20th century. See Henderson, “Three Generations of U.S. Lawyers: Generalists, Specialists, Project Managers,” 70 Maryland L. Rev. 373 (2011). The core of the system was a partner-associate training model that aligned incentives so that young lawyers got excellent training, clients got excellent service, and partners enjoyed security, profits, and prestige. Further, it was scalable, meaning that it could keep pace with the relentless increase in client demand without compromising quality. Indeed, the purpose of the system was to build “a better lawyer faster.” All of the system’s key moving parts are laid out in remarkable detail in the first 12 pages of the second volume of the Cravath Swaine & Moore firm history. See Robert T. Swaine, The Cravath Firm and Its Predecessors, 1819-1948 Vol. II (1948).
The results of the Cravath system were so powerful that its principles were adopted by every major U.S. law firm. Yet, how may BigLaw partners today know what those principles are? The legal culture problem is, in essence, the problem of ahistorical partners. Each successive group of lawyers has paid less and less heed to the system’s operating principles until little more then an emphasis on elite credentials remains. Yet, because of the system’s tremendous forward momentum, decades later partners are still collecting its late-stage financial rewards. This is very powerful operant conditioning, re-enforcing some very misguided ideas about how value is created.
Because so many in-house lawyers also came of age at late-stage Cravath system firms, they too fail to appreciate the value of systems-level thinking. Casey Flaherty’s “Lawyer Theory of Value” describes the absurd result — just clear the room and let a few well-credentialed lawyers do what they think is best. See Post 040 (laughing and crying with Casey). Thus, as an industry, we are at a place where lawyers–both in-house and in law firms–have to rediscover the power of systems thinking so we can, once again, as we first did over 100 years ago, coordinate our behavior in service of what the client truly needs. If we do it right, as a second-order effect, lawyers who follow the resulting system will enjoy another several decades of financial prosperity.
The Microsoft system has the potential to make this happen because the multiple iteration/repeat player design can slowly change the culture and reorient incentives and payoffs (i.e., relative advantage) toward the long-term. If it’s not long-term, then it’s not a system. Further, Microsoft’s odds of success are made higher because (a) David Howard, the original architect of the SPP and a person who controls a huge external legal budget, saw the wisdom of promising a stream of high-value work to partner firms who operated in good faith; and (b) Barnwell and his team are fostering a “psychological safe” environment — to break down resistance, the many lawyers involved need assurances they won’t lose what they have, which is primarily a sense professional accomplishment and status.
Microsoft’s biggest execution risk is an underestimation by senior leadership regarding the nature of the resistance they will eventually encounter. The SPP/Trusted Advisor Forums, and the Microsoft system it will create, is at best a “slow” innovation. See Post 011 (slow versus fast innovations). In the short- to medium-term, the only reward for participating (and investing time and firm resources) is to keep the Microsoft work you already have. This puts relationship partners in a vulnerable position vis-a-vis the short-term financial goals of their own firms.
Think I am being too cynical? It is noteworthy that Microsoft asked 13 Strategic Partners to participate in the Forum on Innovation. Nine accepted, four declined. Thus, Barnwell and his team filled the four open spots with service providers who “saw value” in the exercise. That is how CMS, Eversheds, Reed Smith, and EY got into the mix. And this is just the beginning. Eventually, as real change begins, there will be whisper campaigns of naysayers (both line lawyers at Microsoft and partners at law firms) who are going to complain that the SPP’s implementation is “impractical” and should not apply to their workstream. This is what “non-adoption” of the SPP looks like.
Here is my message (of encouragement) to Microsoft’s leadership: When things get hard, don’t mistake the hardships for a flaw in the underlying strategy. This is what the naysayers want you to believe. They lack your long-term perspective; they would be most comfortable being left alone. Success requires that you face them down rather than grant their exceptions. Cf. Post 047 (discussing failure of major in-house change effort at Fortune 100 company because leadership lacked resolve). As Jae Um has correctly pointed out many, many times, see, e.g., Posts 051, 052, 062, 063, 066, and with due credit to her former boss, Josh Kubicki, innovation in the legal vertical is just lots of hard work over a very long period of time. Your multiple iteration/repeat player design is the right way to conquer this problem; but it won’t make it easy or comfortable. Thus, stay the course until the end. Pay the price. The resulting Microsoft system will be worth it.
What’s next? See Huge, If True: How Microsoft’s Big Ideas Could Transform Legal Buy (069)
The core insight embedded in Rogers Diffusion Curve is that the adoption of new ideas occurs in a specific order through a social system comprised of five distinct segments. See Post 004 (introducing diffusion curve); Post 007 (explaining adopter types). Rogers’ research eventually found its way to Silicon Valley and got relabeled the Technology Adoption Life Cycle. See Posts 024–026. Along the way, technology marketer and consultant Geoffrey Moore added a key modification: a material gap, or “chasm”, between early adopters and the early majority. If a company can “cross the chasm”, commercial success becomes inevitable, as sales then occur largely through a social process of one peer imitating another.
To boil it down, Rogers proves out the science, while Moore provides the playbook. This one-two punch dramatically increases the odds of successful innovation adoption. But let’s keep it real: This is a lot more work–and deeper thinking–than law firms are used to.
One of Moore’s most useful adaptations to Diffusion Theory is the use of buyer personas to correspond with each adopter type. Moore’s book Crossing the Chasm is peppered with many detailed narratives about the trials and tribulations new product teams encounter in their efforts to sell to each persona/adopter type. The persona approach is a profoundly powerful way to design a product or service offering that the target end-user finds irresistible.
Below is a summary of how to apply Moore’s buyer personas to the legal market.
In his discussions, Moore provides a practical description of a functional job each adopter type tends to perform in the diffusion process. This post draws heavily on Chapters 2 and 3 of Crossing the Chasm, but with particular emphasis on Early Adopters and the Early Majority.
Innovators / “Techies”Techies often embrace the nuts and bolts of how stuff actually works. Over time, Techies tend to amass a wealth of technical knowledge through self-initiated and self-sustained study.
In its earliest days, an innovation needs social proof to validate not only its novelty but its objective superiority. Moore describes Techies as “the gatekeepers for any new technology… the ones everyone else deems competent to do the early evaluation” (p. 39).
Of all five adopter types, Techies have perhaps the most straightforward and unambiguous job: to curate and assess new technologies or methodologies and endorse those with true technical superiority over currently available alternatives.
Early Adopters / “Visionaries”Visionaries have both the imagination to see the world as it could be rather than as it is and the ambition to try to make those possibilities the new reality. Curious and ambitious, they gravitate toward high-impact, high-visibility roles within organizations. Along the way, Visionaries often gain access to significant discretionary budgets earmarked loosely for “strategic initiatives.”
The innovation function of the Visionary is easily described but exceedingly difficult to perform. Visionaries match emerging technologies or new ideas with systemic opportunities to drastically reshape existing markets. In other words, they identify business opportunities for a strategic leap forward. This requires not only an already rare combination of innate traits (curiosity, risk tolerance, openness to new ideas) but also an asset acquired over some years of experience: deep domain expertise in a specific industry.
In the parlance of renowned venture capitalist Marc Andreesen, the most ambitious and canny Visionaries find and bet on ideas that will be “huge, if true.” Their work looks and feels nebulous because it is.
Moore’s critical insight here is that Visionaries balance risk against reward: they must perceive reasonable potential for significant breakthroughs to justify the risks attendant in sponsoring new ideas. To the uninitiated, Visionaries are regularly seen signing irresponsibly large checks to sponsor the development of murky endeavors that are often nothing more than a doodle on a whiteboard. The gift of vision enables this group to see the possibility of what Moore calls “order-of-magnitude” returns in the competitive positioning of their business (p. 44).
Given the stakes, Visionaries present as the least price-sensitive adopter type, and money is usually not the type of capital that is top of mind for them. Rather, they tend to hold their reputations and political capital at a higher premium. As a buyer group for new products or services, Visionaries like to structure deals into pilot projects, replete with milestones and other signifiers of measurable progress. The perception of smooth progress toward tangible “wins” is critical for Visionaries to maintain not only their social status but also their professional standing.
At first blush, Techies and Visionaries tend to look and sound quite different, and the collision of their two worlds often take casual observers by surprise. Many Techies are self-proclaimed nerds who dig deep into their chosen area of interest. Visionaries tend to be well-connected individuals who travel far and wide, always in search of a new idea that will spark their next “initiative.”
But the natural affinity between these two types is quite easy to understand when viewed through the lens of shared values. Both groups seek new things, though for purposes that are quite different in both behavior and motivation.
Techies and Visionaries each provide an invaluable service by performing key jobs that advance the goals of the other. Techies willingly volunteer their time, effort, and expertise to curate and test new offerings, but they often lack the social and professional standing to make things happen. Visionaries are big thinkers who share the Techies’ future-orientation, but with the upwardly mobile executive’s knack for imposing their goals onto the agendas and budgets of a well-resourced organization.
Thus, Techies and Visionaries tend to form symbiotic relationships that provide mutual benefit and fulfillment. Perhaps because of this unusual affinity, innovations that target Techies and Visionaries in the correct sequence are able to build impressive traction in early markets.
When Bill first introduced the five adopter types, he had this advice to offer: “If you want your innovation to be adopted, don’t waste time trying to convert the early majority, late majority, or laggards. You only have one audience that matters – early adopters.” Post 007.
This is excellent advice. The work of taking innovations off the paper, out of the lab and into the real world requires the successful penetration of early markets. In these early days, Visionaries are crucial to the innovation effort because they perform critical jobs for which they are uniquely equipped.
But why do so many innovation initiatives stall in the chasm, even with the support of the Early Adopter?
This is a critical question for our industry. See Post 051 (positing that the true bottleneck in legal innovation is a commercialization gap). The latest Altman Weil survey of law firm leaders reports that 38.3% of firms are actively engaged in creating special projects to test innovative ideas or methods – down from 50.4% in 2017. While the decline is concentrated in smaller firms, the dip in experimentation suggests that the chasm threatens to dampen the overall pace of innovation in legal markets.
If you hope to scale innovation beyond experiments in the lab, understanding the psychographic (the “why”) and functional (the “how”) dynamics around the chasm is a must. An examination of the often fraught relationship between the Early Adopters and the Early Majority who bookend the chasm is particularly instructive.
Simply put, the chasm exists because the buying criteria and performance expectations of these two groups are so dramatically different. These very differences form the crux of why Early Adopters make poor reference clients for the Early Majority.
The perpetual tension between Visionary Early Adopters and the Pragmatist Early Majority stems from many dispositional differences, but there is one factor that we must always keep in mind. Despite the best of intentions and the best of efforts, the Visionaries’ bets do not always pay off. The hoped-for “order of magnitude” returns fail to materialize, and the new idea, product or service is found insufficient to catapult the innovation sponsor ahead of the competition.
In these unfortunate instances, it is often a Pragmatist, not the Visionary, who sounds a quiet death knell for the innovation experiment.
When David Cambria, the Director of Global Legal Operations at ADM, and Jeff Carr, the General Counsel of Univar, talk of “massive passive resistance,” or MPR, they are describing the attitudes of mainstream markets.
No single person or segment among the Early Majority, Late Majority, or Laggards holds nearly as much influence or prestige as the Techies or Visionaries who comprise the early markets. All the same, the mainstream markets derive massive power from massive numbers – and their passivity actually makes them more intractable. They are hard to understand because they are not as vocal or as distinctive as the early markets, and markets that are not well understood are hard to penetrate. Unfortunately, the failure to understand 85% of the target audience usually portends a slow but certain death for any new process, product or service.
Techies and Visionaries are united in their continual quest for new things, but mainstream markets are equally unified in the opposite direction. The vast majority of B2B buyers do not care for novelty. Rather, mainstream markets generally seek proven, complete solutions to known problems. Lack of clarity on either side of the problem-solution equation usually translates to substantial costs to educate the market. Within each organization, change agents also must contend with the costly battle against legacy infrastructure and cultural antibodies reinforcing the status quo.
Pragmatists tend to gravitate toward roles of responsibility and stewardship in sizable corporations and in professional communities. Hence, Pragmatists are often the de facto keepers of the core company budget as well as industry standards and best practices.
According to Moore, the “Fortune 2000 IT community, as a group, is led by people who are largely pragmatist in orientation” (p 55). We can easily envision how this type would dominate positions of authority across legal functions of the same companies, and the description fits reasonably well for practice group or industry group leadership roles across NLJ 500 law firms.
As a buyer group, Pragmatists are practical, stringent and value-conscious for entirely rational and comprehensible reasons. Early markets opt into their innovation roles, but Pragmatists have their responsibilities thrust upon them. Pragmatists are the ones usually held internally accountable for building, integrating, testing, debugging, and maintaining a new reality but at realistic levels of cost and effort – all while supporting their entire organization as it is nudged and prodded through all the unpleasantness of learning a new way to work.
For the would-be entrepreneur or intrapreneur, the skeptical demands of Pragmatists throw cold water on all the dreams nurtured by early market success. For that reason alone, an “extended exercise in commercial empathy” for this group’s point of view can feel very taxing. We often find it easier to vilify Pragmatists as unimaginative, plodding, and ornery – for the simple reason that they stand towering like an impassable mountain range between us and all our innovation dreams.
(For an illuminating glimpse at the world through the viewpoint of a Pragmatist, set aside some time to at least skim through the narrative vignettes in “What is Code?” – an award-winning 38,000-word showpiece on Bloomberg Businessweek.)
Visionaries craft many scenarios about what the future might look like, but it is the Pragmatists who ultimately decide what the future actually will be. Pragmatists derive this considerable power not from glamorous positioning and self-promotion, but rather from the distinctly unglamorous work of safeguarding their organizations against catastrophic system failures and irresponsible budget leakages.
Along the way, Pragmatists provide an invaluable service not only to their own organizations but also to the innovation teams who listen with the intent to understand. Visionaries deal in the murky realm of intuition and hunches, but Pragmatists are the keepers of cold hard truth. And cold hard truth is what we need when we tackle one thorny question after another to validate the Visionary’s plausible theories:
Asking and answering these questions in an evidence-based manner demands extraordinary emotional discipline. The interest of early markets, no matter how exciting, is necessary but insufficient proof. The true test of market viability is forged through the exacting requirements of Pragmatists.
Prior to crossing the chasm, the Pragmatist’s buying requirements present material barriers to further diffusion:
However, the innovation teams able to meet these demands find themselves well positioned to capture market share quickly. And the innovations that survive these trials are often imbued with an invaluable attribute of mainstream success: scalability. Lastly, because Pragmatist are fiercely loyal once won, the innovation team can expect to enjoy a highly defensible competitive position.
The Late Majority and Laggards do not feature as prominently in our narrative. Legal innovation is not yet mature enough to grapple seriously with the market extension opportunities offered by these adopter types, who are generally resistant to trying new things.
Still, we append a few remarks. Despite the best efforts of innovation teams to convert each of the adopter types in the prescribed order, the messy and chaotic nature of legal markets all but guarantees that we will encounter all adopter types in our quest for market entry.
Late Majority / “Conservatives”Risk aversion, price sensitivity, and tendency to follow rather than lead are the identifying characteristics of Conservatives. Whereas Pragmatists seek demonstrable gain in a defensible cost-benefit analysis, Conservatives in legal ecosystems are more likely seek minimal pain in their individual buyer and user experiences. This has the benefit of forcing us to focus on convenience factors such as ease of purchase and use as well as performance reliability.
Conservative buyers reward innovation teams for attention to human factors, optimized product design, and streamlined sales operations. However, none of this matters without the requisite social proof and peer pressure from Pragmatists and other Conservatives. For this reason, premature focus on these factors generally bodes ill for innovation teams, particularly in B2B markets. Making something more usable before verifying that it is actually useful to a sufficient number of paying customers is usually an expensive exercise.
Laggards / “Skeptics” Skeptics are as likely as not to avoid adoption to the bitter end. As hostile as Skeptics may be to any innovation endeavor, engaging them in good faith whenever they are encountered can deliver at least one important benefit.
Skeptics tend to draw attention to specific gaps between product promises and actual performance. (This rarely feels beneficial or benign to innovation teams grappling with concept models and prototype.) Still, innovation teams who are open to engaging with this challenging segment gain precious opportunities to achieve greater user understanding, client empathy & client orientation. Particularly if the spotlighted performance gaps lead to specific insights about customer failures – e.g. critical breakdowns in business processes or the user journey – we can gain a much deeper understanding of the customer’s work context, business problems and use constraints.
All of this is much easier said than done. It is an inordinate amount of work and most of it cannot be done sitting at a desk. If we intend to put a dent in the universe, we cannot expect to coddle our creations in a pristine but sterile lab. Instead, we have to venture out into the messy and chaotic world that we hope to change.
Effectuating meaningful change is also hard because it demands, early and often, productive collisions with many people who will disagree with us. That work involves lots (and lots and lots) of dismissal, criticism and outright rejection.
To survive this bruising onslaught, innovators and change agents need to develop not only relevant expertise and skill sets but also habits of mind. Chief among these is a habit of thinking deeply and constructively about the viewpoint of the customer.
Much like a fledgling magician without an audience, an innovator without a customer is just another person with a quirky hobby.
What’s Next? See ULX Partners: UnitedLex develops solution to law firm innovation risk (053)
When lawyers come together to discuss the future — in law firms, law schools, bar associations, etc — the conversation inevitably turns to clients. Although this is a wonderful and redeeming impulse, it almost always results in confusing and unsatisfying dialogue that goes nowhere. Why does this happen? Because lawyers focus on their detailed knowledge of trees and lack awareness and humility regarding the full breadth of the forest.
The tool pictured above is a 2×2 matrix of the US legal market. Its purpose is to decode lawyer over-generalizations about clients.
The colored rectangular area reflects the universe of legal clients. Orange denotes one-to-one consultative legal services (aka traditional legal services); dark blue signals that at least some one-to-many legal solutions are taking hold. See Susskind, The End of Lawyers? (2010) (introducing one-to-one and one-to-many terminology). The light blue border represents clients who have innovation awareness — i.e., they know such innovations exist and are evaluating adoption. See Post 008 (discussing time gap between “knowledge awareness” and “adoption decision”). I have done my best to make each area unit roughly equivalent in dollars and adopter-type percentage.
In the above graphic, the vast majority of the US legal market is orange. This means most legal problems get solved by clients consulting with lawyers and lawyers fashioning a custom solution. This is the methodology we teach in law school. It is also the paradigm for Model Rules of Professional Conduct.
Regardless of the current breakdown, the dark blue is destined to grow and the orange is destined to shrink. There is nothing controversial about this statement. See Post 001 (discussing legal productivity problem for individual and organizational clients).
What’s uncertain, however, is the pace of change. If you’re running a law school or law firm, or investing in NewLaw or legaltech, your success or failure depends upon your timing. This is pure business risk, which drives lawyers nuts. Fortunately, diffusion theory provides some insight.
More than 50% of the dark blue is clustered in the top-left of the graphic (the personal services portion of market). Also, there is a vertical line that delineate Type 1-3 clients from Types 4-6. Clients to the left of the line (individuals, business owners, and companies with a solo GC) have relatively simple adoption decisions — one person decides based upon personal factors. See Post 008 (discussing how rate of adoption varies by decision type).
For Type 1 and 2 clients, the most prominent example of a one-to-many solution is LegalZoom. Many customers became aware of LegalZoom through mass advertising on NPR, commercials during Shark Tank and Law & Order, or internet banner ads. In fact, since January, I have come across 33 different LegalZoom banner ads (Google has me pegged). Lawyers and law professors may snicker at the lack of perfection in a LegalZoom form, but there is zero doubt this company understands lifetime customer value better than anyone else in the legal market. LegalZoom’s influence is growing like an oak.
The solo and small firm bar has other sources of one-to-many solutions, including sophisticated document management and automation systems. In most cases, the goal is to enable high-volume practice. Indeed, legaltech started over 30 years ago when solo and small firm lawyers sought out better ways to solve the legal problems of ordinary people.
Side note: Although legaltech has been a tremendous help to the clients of solo and small firms, the biggest bottleneck to access to justice is a labor-intensive adversarial system. See, e.g., Post 042 (cost of litigation outpacing amounts in controversy); Post 037 (PeopleLaw sector is unraveling). We need a redesign of how we resolve disputes.
Finally, why is there no dark blue underneath Type 3 clients (i.e., companies with one in-house lawyer)? Type 3 clients generally have problems too complex for a kiosk service like LegalZoom, yet their budgets are relatively small and their numbers too few to create a scalable market. As a result, Type 3 clients are destined to wait the longest for one-to-many solutions.
On the right side of the graphic is a second dark blue cluster. This is mostly Type 5 and 6 clients investing in legal operations. If you attended the 2018 CLOC Institute in Las Vegas last month, you witnessed a stunning number of companies offering one-to-many legal solutions. The conference had nearly 2,300 attendees, with more than 2/3 drawn from the vendor side.
Remarkably, despite this impressive showing, we remain in the early days of legal department innovation. During the opening session, CLOC’s CEO Connie Brenton acknowledged that 1/3 of the Fortune 500 was present, leaving 2/3 as future members. Further, a substantial subset of corporate legal department attendees were there to learn how to do the basics of data, process, and technology. A handful of companies have emerged as legal ops innovators, such as Cisco, Adobe, HP, NetApp, Google, ADM, and DCX, with substantial horsepower coming from leading NewLaw vendors like Elevate and UnitedLex. We are barely scratching the surface of future change. The potential is staggering.
That said, Type 4-6 clients are heavily constrained by the adoption decision process. Unlike Type 1-3 clients, where one person makes the buy decision, legal departments have to be much more deliberate. In theory, the general counsel presides over the budget and has the authority to spend it. Yet, GCs have many items on their plate. Therefore, decisions regarding legal department systems are often delegated to a lieutenant. Because systems are not part of a lawyer’s formal training, the lieutenant has to climb a learning curve. Once an adoption decision is made, successful implementation will likely require major investments in change management. Cf. Post 008 (discussing prevalence of “massive passive resistant (MPR)” in corporate legal departments); Post 047 (emphasizing need for strong leadership to successfully implement law firm scorecards). This can strain the relationship between the deputy and GC.
It is indisputably true that there is growing pressure on legal departments to do more with less. This is why CLOC membership has doubled year-over-year since 2015. Yet, because of decision-making and implementation challenges, the pace of transformative change remains uncertain.
Let’s imagine we attend a law school alumni event and the dean asks for advice on how to prepare students for the future practice of law. The graphic below reflects some of the perspectives in the room. All of them are based on experiences with clients.
Lawyer A has a very optimistic story to tell, as he has implemented sophisticated workflow, project management, and document automation solutions to more efficiently and profitably serve his PeopleLaw clientele. This describes the practice of my former student, Jordan Couch, who practices at Palace Law in the Seattle-Tacoma metro area. Go Jordan!
Lawyer B serves an older and more affluent PeopleLaw-small business clientele. She plays attention to legaltech developments but, as yet, does not feel a need to substantially change her practice.
Lawyer C is older than A and B and practices in the corporate middle market. He has little idea what Jordan is talking about and assures the dean and the faculty that law remains a noble profession.
Several lawyers from Law Firm D are at the gathering, including a young partner enthused about her use of AI to better serve an innovative and cost-sensitive client. “Through tech, we’ll spend less time on scut work and more time practicing at the top of our license.” An older partner from Law Firm D thinks this is errant nonsense. His clients are overwhelmingly late majority. He knows nothing about diffusion theory and seldom reads books. Finally, Law Firm D’s beleaguered managing partner is also an alum. He is struggling to navigate the disparate views of his partners. He tells the dean to prepare students “for a lifetime of change,” though he provides no specifics.
Finally, the richest lawyers in attendance work at Law Firm E, a white shoe NYC firm focused on financial services. None of the lawyers from Law Firm E have ever heard of CLOC. Some junior associates, however, are intrigued by the idea of automating all work that keeps them at the office past 2 am.
Law faculty attending the alumni event have a wonderful opportunity to hear what they want to hear. That is unfortunate.
When it comes to dark blue one-to-many versus orange one-to-one, legal education needs to see the forest from the trees. This means embracing the concept of T-shaped legal professions. See Post 043 (discussing the Institute for the Future of Law Practice). When the content and quality of one’s legal education enables a law grad to pack dramatically more value into an hour of work, everyone wins — clients, law schools, alumni, the organized bar, and broader society. Our job is to survey, evaluate, recommend, and adapt, not to wait around for the guidance of lawyers immersed in practice.
I hope my decoding tool helps the cause.
What’s next? See Legal Evolution graphics, Year 1 (049)
When David Cambria sat down with Eric Elfman to discuss his willingness to try Onit software, he stated that if ADM in-house lawyers were required to engage “in a single unnatural act,” the implementation would fail.
Cambria elaborates, “Why are we all so comfortable with Word, Excel, and Outlook? Because these tools don’t have an opinion about how we do our work. Enterprise software, however, always has an opinion.”
Hardened by 25 years of work experience in consulting and legal operations, David communicated his need for workflow tools that did not require his lawyers to change. Further, he needed significant productivity gains and a steady stream of clean, reliable data to better manage the department. A high bar for success. Yet, according to David, Onit managed to deliver.
Cambria, Global Director of Legal Operations at ADM, recounts this story during Week 6 of “How Innovation Diffuses in the Legal Industry.” Eric Elfman, Founder & CEO of Onit, was also present, giving his own entertaining version of a project that went on to win a 2017 ACC Value Challenge Award.
By inviting Cambria and Elfman to class, I hoped students would get a glimpse into the type of buyer-supplier relationship that enables a legaltech company to successfully “cross the chasm.” See Posts 024–026 (discussing chasm framework, its connection to diffusion theory, and its applicability to 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. For Week 5 (law firm examples of intrapreneurship), see Post 039.
I knew I hit pay dirt when Elfman came to class with a dog-eared copy of Crossing the Chasm. Naturally, I had to ask, “Have you ever crossed the chasm?” With an enormous grin, Eric replies, “Twice.”
The first time was with Datacert, an e-billing company Eric founded in 1998 with $1,000 of his own money. The timing and concept were right, as Elfman quickly landed five Fortune 500 clients, making it relatively easy to attract investor money to build out the product and scale. When Eric left the Datacert in 2008, it was valued at $60 million. In 2014, Wolters Kluwer acquired Datacert for $290 million, merging it with TyMetrix to create what is now known as Wolters Kluwer ELM Solutions. (The acronym “ELM” stands for enterprise legal management.)
The second crossing was with Onit, a business process automation company Elfman founded in 2010. This time, Eric put $1 million of his own money followed by four rounds of outside investment (a mix of debt and equity) totaling $16.4 million. Eric stated that the company crossed the chasm approximately a year ago when operating income could more than cover ongoing R&D and sales efforts. “That is not to say we won’t raise more money,” added Elfman. “Simplicity is extremely expensive to create. You also need to have high quality products when customers want to buy them.”
Onit’s core product is configurable software that can be deployed relatively cheaply and pointed at a wide range of legal department needs. Established applications include legal spend management, matter management, contract management, legal holds, legal service requests, NDAs, and virtually any type of work flow involving knowledge workers.
Onits’ major competitors are enterprise software providers that serve corporate legal departments. However, most competitor offerings are built around a single problem. This means that legal departments tend to have several enterprise systems that can’t talk to each other very well. As discussed in more detail below, legal departments are perennially underwhelmed with their enterprise software incumbents (my observation, not Elfman’s).
Onit currently has 105 employees in the US, UK and India, and $10 million in annual revenue. According to Elfman, for the last three years, the company has been growing at a 50% annual rate.
As I listen to Cambria and Elfman share their experiences, I am surprised by how well the narrative fits the crossing-the-chasm framework.
To refresh readers’ understanding, a company starts life with a generic product that likely impresses technology enthusiasts but lacks the features needed for broad mainstream adoption. Thus, to cross the chasm and achieve commercial success, a company must (a) target a niche market that could benefit from the innovation, (b) identify its biggest pain points, and (c) work backwards to build a “whole product solution” that becomes the “the only reasonable buying proposition” for the target market customer. Moore, Crossing the Chasm (1st ed. 1991) at p. 110; see also Post 024 (summarizing basic framework).
This is Moore’s “big fish, small pond” strategy, which is designed to create focus on the narrow set of clients and conserve the bandwidth of key personnel. See Post 025. If executed properly, the post-chasm company has successful commercial relationships with “pragmatist” mainstream customers. This sets off a word-of-mouth campaign that dramatically reduces the cost of sales. Further, once inside the mainstream market, the company is well-positioned to develop and sell future products and services.
In short, crossing the chasm is a one-time event that changes everything for the better. See graphic below:
Well, what is Onit’s target niche market (or small pond)? Here I get an important lesson in framing.
Virtually all legaltech companies target a discrete problem or complex task that exists within a legal department. These problems or tasks include e-billing, matter management, document management, e-discovery, contract analytics, etc. When evaluating this market structure, the natural capitalist impulse is to integrate these disparate systems into a single enterprise solution, thus achieving economies of scope and scale. Indeed, this is the logic behind many legaltech acquisitions, including the Datacert-Tymetrix tie-up. Framed in this way (which is the way most legal insiders see legaltech), the small pond is one or two significant problems or tasks inside a legal department.
But that is not Onit’s strategy. Onit is a business process automation company where legal departments are viewed as a small but influential beachhead that can provide access to rest of the corporation. Thus, the addressable market is not all corporate legal departments (which might be $3-5 billion), but corporate knowledge workers struggling to collaborate effectively within and across business units (probably 100x bigger). Framed in this manner, the small pond is legal department operations.
Few tech entrepreneurs would be anxious to have legal as their initial target market. The field is highly technical; the clientele are demanding; and the financial upside is limited. But Elfman sees things differently. “The lawyers are the laggards. They are the Department of No. If we can win them over, the rest of the corporation is a lot easier.”
I am inclined to take Elfman seriously because he and his team are obsessively focused on delivering a whole product solution. To fully grasp what this means, we need to understand Onit as compared to its primary competition.
In Crossing the Chasm, Geoffrey Moore makes the point that prospective clients are unwilling to strain their attention span to hear your pitch. Thus, a product needs to be positioned against what is familiar and established, thus enabling target clients to quickly categorize your product. Yet, to generate curiosity and interest, the product also needs to be different in a way that delivers a substantial benefit. See pp. 159-61.
As previously noted, Onit’s primary competitors are enterprise software companies that offer solutions to one or more legal department needs, such as e-billing, matter management, contract automation, or data analytics. In my travels to various industry events involving legal technology, I often hear the refrain, “Everybody hates their e-billing vendor.” The same tends to be true for document and matter management. To date, no company has emerged as the obvious first choice.
Most of these companies got their foothold many years ago when legal departments were growing rapidly and general counsel and their lieutenants felt vulnerable regarding the lack of basic systems and controls. For example, without enormous manual effort, the department could not answer basic questions related to outside counsel spending; or the department couldn’t generate a useful status report on pending litigation; or lawyers struggled to locate prior work product. In each case, there was an enterprise software solution or platform designed to make that problem go away.
Indeed, Elfman tells the story of how he got the idea for Datacert. After completing his MBA at Rice in 1995, he went to work for a litigation consulting firm that specialized in forensic accounting. While working on an engagement for Exxon, Eric asked the head of litigation about the size of his total annual spend. The AGC responded, “I’m not sure. Somewhere between $200 and $400 million.”
Elfman describes this exchange as “the moment that changed my life.” The business opportunity was large and obvious: use technology to apply basic accounting discipline to corporate legal spending.
Datacert and Elfman were extremely successful making sales to a lot of large corporations. Eventually, Datacert would land 130 companies in the Fortune 500, including #1, #2, #3, and #5. Yet, Datacert also became part of the large cadre of enterprise software companies that legal departments complain about (this observation is based on my own industry knowledge, not any comments made by Elfman regarding his former company).
As I listen to David Cambria and Eric Elfman discuss their collaboration, a deeper understanding of the problem comes into focus.
As David points out, when enterprise software is pointed at a specific problem, it develops a strong opinion about how the work should be done. Invariably, that opinion adds steps to the workflow, often without delivering any immediate or tangible returns to the worker trying to do their job. Naturally, people being people, they find ways of minimizing their interaction with the system. Thus, the resulting incomplete and uneven usage undermines the value of the enterprise solution. It also limits — possibly to zero — the amount of usable data the system produces.
In theory, management can fix this problem by mandating usage. They can fire people. They can reduce or withhold bonuses. Political capital, however, is limited. Few bosses want the troops grumbling about how a six-figure software mistake is hindering their ability to do their jobs. So the natural equilibrium becomes enterprise software that is half used. This is usually a modest improvement over the prior state of affairs, but well short of expectations when the licensing agreement was signed.
This recurring cycle explains why David Cambria has such disdain for business solutions that require unnatural acts. Likewise, this is why Eric Elfman was ready to leave Datacert after ten years at CEO. This was a game he could not win.
Eric Elfman left Datacert in 2008. Two years later, he started Onit with Eric Smith, Datacert’s longtime CTO. Yet it wasn’t until 2011 that Elfman and Smith came up with the core idea for Onit, which is “collaborative process automation for knowledge workers.”
Not very intuitive, right?
To Geoffrey Moore’s point, it is very difficult to understand an innovation without one or two familiar reference points. This is particularly true with something as abstract as software. Thus, the graphic below proved to be enormously useful to the class.
On the left side (in green) is enterprise software, which attempts to solve problems through top-down controls. Although these solutions tend to be complex (requiring IT support) and expensive (big up-front fees and implementation), they hold out the promise of permanently eradicating a serious problem. The implicit assumption is that workers will use the system as designed — an assumption that, experience shows, is often unjustified and unrealistic.
On the right side (in orange) are Enterprise 2.0 tools (like Slack, Zoom, or Yammer). Individual users and work teams like these tools because they increase the velocity of employee communication. Corporations are happy to support Enterprise 2.0 tools because they are cheap and low risk. But they also don’t produce any structured data that senior managers need to assess and improve organizational performance.
Despite billions of dollars spent on enterprise software and the hype and popularity of Enterprise 2.0, Elfman observes that “virtually all knowledge work and processes are executed outside of these systems.” Instead, in most organizations, workers try to do everything with familiar Microsoft tools:
Virtually all legal operations professionals will acknowledge that these tools are breaking down as solutions. They are just not fit for purpose.
Onit (in blue) is trying to fill in the middle ground between Enterprise (green) and Enterprise 2.0 (orange). The key innovation of Onit is that it enables a business process owner to work backwards from how people work (people-centric) rather than backwards from an acute organizational pain point (problem-centric) and thereafter expecting workers to get onboard.
When Cambria signed on with Onit, he had a vision to “bring the work to the people.” Where are the people in ADM’s legal department? Probably somewhere near a device where they read their email.
Onit is behind a wide range of automated workflows at ADM, including: (1) matter intake and routing, (2) early case assessments, (3) liability reserves, (4) invoice review and approvals, (5) settlement authority requests, (6) recording of matter disposition, and (7) on-demand NDAs. Yet, for most ADM lawyers, Onit is barely visible: it’s all point-and-click tasks and hyperlinks embedded inside emails — highly natural acts for lawyers. Cf. Post 040 (per “lawyer theory of value,” lawyers have a strong preference to be left alone to do legal work).
Cambria or a member of his staff are usually the “business process owner” for each of these processes. Onit is simple and flexible enough for them to do a fair amount of programming on their own — no need to involve corporate or department IT. This is ideal because the legal ops team is close enough to the work to gauge what the workforce is willing to accept. And If they are wrong, adjustments can be made cheaply and quickly.
One way that Cambria drives the broader agenda of the department is to include “nudges” in the Onit workflow. A nudge makes it modestly more difficult for lawyers to override an established playbook solution. For example, if an ADM in-house lawyer wants to retain a law firm that is not on ADM’s preferred panel list (ADM winnowed 700 law firms down to a preferred provider list of 20, see “How ADM Cut Its Outside Counsel Rosters By 680 Law Firms,” Law360, June 8, 2016), a text box appears that requires a written explanation. Because this choice requires additional work and invites scrutiny from the boss, it is chosen less often. Explains Cambria, “I’m always mixing the peas in with the mashed potatoes.”
Although Onit is largely invisible to a substantial portion of the ADM legal department, the Onit applications demo-ed in class — i.e., the backend where David and his staff configure workflows and dashboards — is surprising clean and simple.
David shows us the main dashboard he uses monitor the legal department (16 tiles of information). He also shows one of the dashboards he built for Cam Findlay, ADM’s general counsel, which provides real-time information likely of interest and value to the C-suite. Some of the tiles use Tableau to display the information graphically (other data visualization programs can be used). All of these graphics are generated from data captured by Onit workflow systems. The data are high quality because Cambria has ruthlessly reduced the number of unnatural acts required by his lawyers.
Eric Elfman readily admits that Onit targeted Cambria as an early adopter and opinion leader. Cf. Post 020 (discussing the crucial role of opinion leaders in accelerating innovation adoption). Eric comments, “David got a whole lot of software for very little money. But we wanted him as a reference client. And frankly, it’s been worth it.”
Cambria was drawn to Onit because it offered him the possibility of improving the performance of ADM’s legal department without requiring this lawyers to learn new technology or do data entry. This is the novel perspective of a true “visionary” customer as defined in Crossing the Chasm.
These are interesting anecdotes. However, if we want deep learning from this case study, it is important to tie what we see back to the empirically validated principles of diffusion theory.
As discussed in foundational posts 008 and 011, innovation adoption — whether it happens at all, and if so, at what rate — is primarily a function of five innovation attributes. See graphic to right.
In addition, software for managing complexity requires us to evaluate these attributes from two perspectives:
Arguably, legal departments have historically made the mistake of focusing too much on (1) and underestimating (2). This explains their perennial disappointment with enterprise software.
The table below scores Onit from both perspectives using the simple scoring system developed in Post 011 (fast versus slow innovations):
| Factor affecting adoption rate | Manager | Worker | Adoption Analysis |
| Relative advantage | 2 | 3 | Managers get complete, high quality data, albeit after a learning curve. Workers are not asked to perform unnatural acts; minimal change management. |
| Compatibility | -1 | 3 | Managers are business process owners and have to learn cloud software related to workflow; new but surmountable. Workers get to stay within email and Internet browsers; basically this is change that feels like the status quo. |
| Lack of Complexity | -1 | 3 | Managers have to climb a learning curve, but its mostly cloud-based drag-and-drop tools. IT support is minimal. Workers carry on business as usual. |
| Trialability | 2 | 2 | Managers can get started at a low cost (e.g., just one Onit application) and build it out as needed. Worker feedback enables quick and inexpensive changes in process. |
| Observability | 2 | -2 | Managers can see the high quality data pile up. For workers, there is a limited ability to observe fellow knowledge workers being more productive. This factor is hard to change. It is also why we laugh at Dilbert cartoons. |
| Totals | +4 | +9 |
The key insight of this analysis is that Onit is likely to enjoy rapid adoption with workers, largely because it places so few demands on them. Although managers don’t have it so good — they actually have to learn a new technology — it’s likely worth it. As the ADM example shows, worker adoption occurs in a low friction way; also, senior personnel in the legal department can finally see, measure, and manage essential business processes. From a big picture perspective, this is a potential home run.
During class, Eric Elfman observed that technology start-ups are essentially “a series of experiments until something works or you run out of money.” According to Cambria, Onit works well. That is very good news for Elfman and Onit.
What’s next? See Legal Services and the Consumer Price Index (042)
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.
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.
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:
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.
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.
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:
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.
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.
What’s next? See “The Lawyer Theory of Value” by Casey Flaherty (040)
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)
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 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.
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.
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.
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.
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.
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.
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:
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.
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.
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.”
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:
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)
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.
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.
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.
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:
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.
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.
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.
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.”
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.
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.
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)
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.
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”).
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.
As I reflect on Week 2, three themes stand out.
Week 3 of How Innovation Diffuses in the Legal Industry features three highly accomplished Thomson Reuter professionals:
I’ll do my best to pass along what we learn.
What’s next? See The 2017 Forum on Legal Evolution (033)