Continue Reading Huge, If True: How Microsoft’s Big Ideas Could Transform Legal Buy (069)
I was very fortunate to be invited to the most recent Microsoft Trusted Advisor Forum, which took place on September 20 on 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.
Innovation is a strange word. At least, it tends to affect people strangely, particularly in the legal industry.
Of late, eye-rolling 🙄 and face-palming 🤦🏻 are gaining traction as the response du jour. Despite the growing levels of skepticism in and around the echo chambers and the pockets of battle-weary veterans, the word “innovation” still has some ✨ magic and mystique. Clients declare publicly that they expect firms to do better, and firms give every assurance that they are trying. We are inundated daily with press releases: new startups, new initiatives, new partnerships. Eyes might roll, but the innovation award shows (there are so many 🏅🏆🥇 of them!) must go on.
All of that sound and fury doesn’t come for free. It takes a great deal of work, by real people in real businesses. This talent pool, which is limited, should not be taken for granted.
Part I (062) of this series delved into the price tag of legal innovation in the current state of play, borne by both investors and incumbents who fund innovation efforts. Part II (063) took a role-based view of legal markets and the various inefficiencies innovation teams’ access to buyers and users. Part III takes a closer look at the talent required to make innovation actually happen, as well as some of the structural barriers that legal innovation teams face in accessing that talent.
Over the past year, Legal Evolution has devoted many posts to specific examples of change agents and their efforts in various segments of the market. Today’s post takes a slightly different approach. The intent is not to place the spotlight on the individual people doing the pick-and-shovel, block-and-tackle work of legal innovation.
Rather, the aim is to take a structural and functional view of human capital by analyzing its various component parts: (a) the skills, knowledge and experiences that people need to perform at a high level as well as (b) the organizational capabilities, processes and systems required to acquire, develop and retain the right talent as well as deploy them in correctly configured teams to work on the right problems.
Given the extremely fragmented and messy structure of the industry, see Post 051 (key graphic), a navigable discussion on talent will require some table-setting and some structure to guide our thinking.
A good starting point for this discussion is to ask, what is the universe of specialized knowledge and skills required to make innovation actually happen? A quick detour to design thinking theory will be helpful here. Popularized by both IDEO and the Stanford d.school, the below visual encapsulates the mental model at the heart of design thinking — the overlap between desirability, feasibility, and viability.
When all cylinders are firing, innovation teams might hit the sweet spot for a game-changing idea, but such occurrences are rare. The more consistent value of design thinking discipline is that testing for the above three elements helps to de-risk innovation investments. For instance, ideas that fail to meet desirability standards can and should be eliminated immediately: if there is no clear pathway to enough customers paying customers who care, even the best idea will die on the vine.
Each element can be expressed as a set of questions to be researched, answered and validated.
Desirability is about ensuring that the innovation team is working on a solution with verifiable market demand. In that sense, desirability is all about understanding the intended customer (both buyers and users). A thorough effort to validate desirability helps innovation teams sidestep over-investment of finite resources into ideas that sound good but actually aren’t (e.g., a thousand hours spent on an app nobody wants).
In IDEO’s parlance, desirability asks whether the contemplated idea “makes sense to people and makes sense for people.” This framing is useful in a general sense, but for legal innovation team it is helpful add one more note: validation tests for desirability should always be pinned very tightly to a clearly defined market segment. In that sense, the desirability axis in design thinking maps very neatly to the problem-solution fit (PSF) framework from Lean Startup. See Post 063 (summarizing problem-solution and product-market fit tests requiring efficient access to users and buyers).
For startups burning down finite cash reserves, this focus is likely to be imposed on them. But for incumbents such as law firms, maintaining focus and clarity on the intended target market is critical: when incumbents pivot away from their established customer base to an unplanned effort to acquire new clients or enter a new market, they simultaneously lose a significant comparative advantage (superior access to buyers/users) and may face drastically different economics for both R&D and GTM (go-to-market).
Feasibility is about designing a realistic solution, one that the innovation team can reasonably expect to deliver that will work reliably in real-world conditions for actual users. This also requires continuing focus on customer understanding, but strategic feasibility assessments will consider user needs in tandem with the innovation team’s core capabilities.
Particularly within the high-tech sector, the feasibility axis tends to set ambitious and fast-moving targets for innovation teams. In effect, this establishes a very large solution space in which innovation teams can explore: in IDEO’s iteration, feasibility asks “what is functionally feasible in the foreseeable future?”
Although this broad standard makes sense for technology companies with the core capabilities to push existing tech beyond current limits, legal innovation teams need to exercise more discipline. This is because most legal service providers like law firms and law departments lack the investment appetite required to build and maintain full-stack technology teams internally (although there are always a few exceptions to every rule). Further, very few teams field the kind of best-in-class technical talent required to push the boundaries of existing technological feasibility. Instead, within the legal vertical, feasibility means stitching together existing technologies into fluid and cohesive solutions.
In addition to feasibility on the innovator’s side of the house, legal innovation teams should also take into consideration the total cost of consumption and execution risks for the customer, including the time, effort, and client-side resources required for implementation. Feasibility concerns feed directly into design choices: the key is to build something that will work in the real world. For that reason, ecosystem factors absolutely matter (like compatibility, interoperability, data/content availability). For example, how will the proposed solution interact with legacy infrastructure and the enterprise environment? Effective validation for feasibility helps innovation teams eliminate unrealistic pathways more quickly and to allocate finite resources to the most promising pathways to a workable solution.
Lastly, legal innovation teams — particularly those embedded within incumbent organizations — should assess feasibility within the context of the organization’s existing strengths, capabilities and assets. Inevitably, innovation and improvement efforts will end up stretching an organization’s operational strengths. However, if the contemplated solution offers very little opportunity to leverage the organization’s current assets and capabilities, it is usually a sign that the innovation team may have designed a very promising solution that would be better built and taken to market by someone else.
Viability is about ensuring that the innovation effort fits comfortably with the company’s broader competitive strategy. This requires that the team establish and maintain a very clear understanding of broader market conditions and the company’s current competitive position. The crux of the viability asks whether the proposed solution aligns with and advances the company’s business goals.
Validating for viability means testing for alignment: with concurrent strategic objectives, existing market-facing activities from branding to sales and service delivery, and forward-facing plans for how the company intends to compete and win in specific markets. IDEO’s articulation of the viability axis asks whether the contemplated innovation is “likely to become part of a sustainable business model.” Testing for viability highlights the non-negotiable need for executive sponsorship of innovation initiatives.
Without strong executive sponsorship, innovation teams often lack (a) line of sight into the high-level strategic thinking that guides the company’s decision-making and (b) direct and unfettered access to customers (both buyers and users), where existing relationships and channels are usually managed by teams much closer to existing P&L. Both factors appear to be more serious barriers for incumbent organizations, where innovation teams and Skunkworks initiatives must compete for resources with existing revenue streams (and much more influential political forces designed to protect the status quo).
However, even product teams in small and relatively young startups can suffer from lack of direct and clear leadership. Whenever the founder and/or chief executive steps away from direct oversight of product decisions, R&D teams can miss the mark in several ways. Ideas for new features and isolated product/service improvements don’t always generate sufficient business value for the company. Potential solutions that were viable for innovation team to prototype may carry hidden costs when inconsistent user skills are introduced, and attractive unit economics may not always scale due to customer-side variations.
Design thinking provides a tractable and accessible framework for the substantive thinking that should inform innovation investments, but we need to think more practically and tangibly about how these questions translate into concrete activities that drive results. There are many existing frameworks that preach one approach or another, but today’s discussion opts for an inventory of required activities and skills (what’s needed to get the job done) rather than a prescriptive methodology (how to get it done):
Fact-finding. Much of the design thinking framework above directly pushes for rigorous and wide-ranging efforts to validate desirability/feasibility hypotheses through fact-finding work. The primary purpose of market and user research in innovation activities is to facilitate insight generation; in turn, this enables evidence-based choices in very early decisions like market selection, opportunity spotting and assessments, and ideation/prototyping toward problem-solution fit.
Decision-making. In many cases, the core innovation team may not own decision rights over strategic factors like innovation investments, market selection, or product positioning and pricing. Even so, effective innovation efforts require that the best-informed individuals participate meaningfully in the decision-making process. For that reason, high-performing innovation teams will be proactive in articulating decision points and shaping clear options for executive decision-makers. This is critical to facilitate validation of the viability axis, and enabling competencies in specialized communication (e.g., documentation of findings and executive briefing) are nice-to-haves.
Execution. The concrete skills required for execution vary greatly across specific types of innovation plays. See Post 063 (categorizing 5 broad types of innovation plays in current legal market). For startups and new entrants, execution encompasses the build-out and deployment of entire business functions (e.g. marketing, sales, accounting) in the correct sequence to support rapid growth. Achieving product-market fit for a new offering usually demands experimentation with product/service definition as well as revenue model & pricing design; these jobs demand skills in strategic marketing and sales as well as some level of financial and business analysis. For incumbents seeking incremental gains in existing business lines or developing new services, general management and operational skills will be important as well as exceptional communication skills to (i) manage stakeholder engagement, (ii) drive cross-functional collaboration, (iii) navigate interdependencies that tend to crop up in highly matrixed organizations.
Regarding the current state of play, we can ask two broad questions that reveal a lot:
The answer to both questions circa 2018 is no. That is your competition: under-resourced and under-skilled. To rise above the competition, the following is a pretty solid talent checklist for your own innovation team:
Each of the above questions merit thoughtful consideration, but they usually get short shrift in most organizations (both in and outside of the legal industry).
Why? These are difficult questions that make most people feel…. 😟 uncomfortable. The primary source of discomfort, of course, is the sneaking suspicion 😒 that the answers will be bad. Completely rational fears 😨 follow: admitting that the current state and our rate of progress are both sub-optimal might make us look bad (e.g. ineffectual, unqualified, inadequate). The discomfort alone feels bad and demoralizing. All of this is a reasonable emotional response to a challenging situation.
What is more important is how we decide to act in response to that discomfort. Too often, organizations practice diligent avoidance of these fundamental questions. But confronting these anxieties is part and parcel of the organizational resilience required to push meaningful progress forward. The process of doing so demands tolerance of friction and a willingness to criticize each other, even at the expense of (temporarily) hurt feelings. This type of culture is difficult to build and maintain anywhere, but it is especially rare in the legal industry.
Within incumbent organizations, cultural norms as well as internal politics and individual incentives push change agents to choose an easier way out. That easier way, however, demands that we contribute to the hype machine, and in lieu of the emotional discomfort of candor, we take on the emotional labor of managing organizational fragility.
Often, we find valid reasons to put a positive spin on both the pace of change and the magnitude of impact wrought by incremental changes to the status quo. Positive reinforcement and collective affirmation have their place in leading organizational change, but consistent preference for good feelings over real results comes at the expense of honest assessments about where we stand and how far we have to go. The byproducts are law firm marketing overreach, underpinned by the lawyer theory of value and reinforced by the law department goat rodeo. (H/T to the great Casey Flaherty for his entire body of work dissecting the negative impacts and root causes of the current reality distortion field in legal innovation; these links represent only a tiny selection, but they are all highly relevant, endlessly educational and reliably amusing.)
Obviously, the high-level diagnostic is bad. Most legal innovation teams suffer from inefficient access to talent with the necessary skills, knowledge and experience, and most legal organizations struggle to attract, retain, develop and deploy innovation talent effectively. Structurally, there are at least three critical market-wide challenges that conspire to create significant inefficiencies in the talent market: (1) overall market scarcity; (2) rapid shift toward ineffective specialization; (3) insufficient focus on core industry-wide problems.
Simply put, legal innovation is suffering from a serious skill gap. As harsh as it sounds, high-caliber professionals with the necessary specialized business and technical skills are in short supply. The recent explosion in demand for innovation talent (e.g., the number of law firms and law departments jumping on the innovation bandwagon) exacerbates the scarcity problem. The resulting supply-demand imbalance is made even worse by the rapid proliferation of new and highly specialized roles in the legal vertical.
Generally speaking, specialization should be a positive development. Specialization is a common labor market response to rising complexity, and it often signals increasing sophistication. In some cases, these newly created roles represent broader participation of allied professionals and the introduction of more and different competencies into the legal vertical. But many signals suggest that the current trend toward specialization is not all to the good.
In an illustrative example, I share below a sample inventory of required skills to provide data-driven decision support for an Am Law 100 firm.
This skills inventory above features three distinct but closely related points of interest. The first is that this particular combination of skills are purpose-built for a very specific objective: the provision of strategic decision support and execution enablement to drive profitable growth in an Am Law 100 firm. The second is the sheer number and variety of skills required to accomplish that objective. The third is that not all of the listed skills are new, even to the legal vertical. (All three features are signals, albeit subtle ones, that most of us in legal are doing it wrong.)
I am often asked by law firm and law department leaders on how they should get started with data analytics, and I know that most of them are expecting a much simpler and shorter answer than I can give. My usual response is to respond with a question of my own: what are the three most important strategic objectives they seek to accomplish in the next two to four years? In most cases, this brings the conversation to a screeching halt. Sometimes it’s because the organization’s mid-term strategy hasn’t been clearly articulated, but almost everyone is surprised that this is relevant in any way to the original question about how to implement data analytics.
Without a clear strategy that is being followed with discipline, we are perennially distracted by shiny things. We gravitate toward whatever skill, role or technology is being touted as the new hotness and then search out use cases that are only vaguely relevant. This is almost always a recipe for disaster and a certain pathway toward ineffective specialization. Why? Because high-caliber talent in newly emerging domains like data analytics is expensive (as well they should be). The investment in that type of talent can only pay off when applied with laser sharp focus on a clearly articulated problem that matters.
In most cases, effective responses to complex problems require creative thinking about how to combine old and new competencies to improve holistic system performance of the organization. And yet most incumbent players add more complexity when establishing new roles. Excessive variation in titles and unnecessary separation of new teams from core business functions only serve to exacerbate diseconomies of scale by escalating coordination costs and imposing untenable communication overhead.
Environments that already tend toward the highly bureaucratic and matrixed only become worse. A second-order effect of this inefficient specialization is the hidden explosion in a different type of emotional labor required to navigate bad systems.
Consider a (very) partial list of recent developments in Big Law: pricing functions residing separately from service delivery teams or existing at odds with the core finance function; the ongoing fuzziness across marketing, communications/PR, business development and account management teams; knowledge management teams that reside in some no man’s land between the library, practice support teams, and the core IT function; “data science” teams straddling a gray area between practice-specific analytics and enhanced BI for the business side. It’s almost unsurprising that equity partners are known to sigh at the mounting overhead and ask in a bewildered tone what all of these people do all day. In turn, “all of these people” remain at risk for growing disillusionment and accumulating lawyer aversion.
The pull toward ineffective specialization applies fractally to the market as it does to individual organizations. Our industry is full of duplicated efforts by countless innovation teams in separate organizations that are too leanly staffed and under-resourced to accomplish their stated objectives on their own, leaving the industry stuck in a perpetual state of arrested development. In many cases, these teams fail to validate the desirability of their solutions and end up expending significant time and effort on the fringes: minor problems in non-core areas of the industry. This is a shame, because the industry suffers from a handful of fundamental problems that demand a coordinated and inter-organizational response.
The below graphic identifies three distinct dimensions (law, tech and business) from which legal innovation teams must draw talent, along with a conceptual and relative rating of current-state access for incumbents and new entrants. Whatever the situational context, innovation teams in the legal vertical are likely to require some mix of skills, knowledge and experience across these three dimensions. This construct helps break down some of the existing inefficiencies in the talent market and to envision some possible responses.
A careful examination reveals several clear takeaways:
Not every innovation effort or project will require best-in-class legal talent, but many will require some contribution from lawyers. Particularly in more ambitious innovation plays to shift traditional one-to-one service delivery models to a one-to-many solution approach, heavier touches from high-caliber practitioners will be critical. See Susskind, The End of Lawyers? (2010) (introducing one-to-one and one-to-many terminology). In any whole-product substitution or significant time/labor displacement plays, innovation teams will need to secure subject-matter expertise from experienced practitioners to fully understand customer needs and solution requirements. In effect, products and solutions for lawyers benefit from lawyer input, particularly in validation and design phases. That said, the build and go-to-market work will most likely require partnership with co-founders, advisors or strategic partners who bring necessary business and technical competencies to de-risk investment.
The uptick in talent mobility is likely to manifest as a continuation of the Big Law diaspora, but recent years have seen more diverse cross-pollination across market segments and individual roles.
The shortage of high-caliber business and technology talent is not likely to find a quick fix. The most critical drag here is the non-negotiable need for a threshold level of content understanding and domain knowledge: to drive meaningful advances in the way legal work is done, innovation teams must establish a baseline comprehension of the business context around that legal need.
The above-cited examples suggest emerging trends with the potential to improve matching efficiency between innovation talent and innovation needs. That said, the extent of the supply-demand gap demands an industry-wide response. There is a clear need to step up systemic investment in professional development for business and technology staff and to explore cross-organizational forums that can accelerate the pace of knowledge sharing and collaborative innovation.
Casey Flaherty often says good lawyers aren’t scarce, good systems are. Similarly, I don’t think that innovation talent is intrinsically scarce, but we definitely lack systems in the industry to identify and develop high-potential talent. And we certainly need better systems to match the talent that does exist with the right opportunities.
What’s next? See Our journey to Big (067)
Practicing lawyers have long complained about the content of legal education – too much theory, not enough practical skills. If you’re one of those lawyers, do you also believe in the power of markets to improve the value of goods and services? If so, what market signal are legal employers sending to legal education?
As someone who has studied this market for more than 15 years, here is my paraphrase: “We want to hire smart, hardworking, and diverse law graduates, ideally from highly ranked national law schools or those at the top of their class at regional law schools.”
This describes how the majority of law firms, federal judges, and prestigious public interest employers sort through resumes. This is an observation, not a judgment. Information costs are high. Even for pedigree skeptics — and there are quite a few in the legal profession — the road of least resistance is to favor candidates with strong academic markers.
This leaves legal education in a bind – if we build it, you won’t come. Instead, legal education expends enormous energy, and a lot of scholarship dollars, to move up in a rankings competition where quality is determined primarily by pre-law credentials. Indeed, over the last 20 years, there has been a consistent .90+ correlation between schools’ median LSAT scores and their U.S. News rank. This is an input-driven market that does not materially reward improvements in legal education. How do we fix that?
If you are legal employer, here is a simple, low-risk way to send a powerful signal to law schools: Hire an IFLP intern.
IFLP (pronounced “I-flip”) is the Institute for the Future of Law Practice, a nonprofit created by innovative legal departments, law firms, legal service companies and law schools seeking to build a better talent pipeline. IFLP’s core initiative is a 3-week skills boot camp for law students followed by internships (10-week) and field placements (7-months) with IFLP employers. In 2018, 40+ students from five law schools participated in the program. In 2019, we hope to expand to 90+ students from 15 law schools. See 2019 IFLP Curriculum and Internship Program. The long-term goal is to make future IFLP curriculum and internships available to all interested law schools and law students.
This will happen if legal employers send a clear market signal.
If your organization hires an IFLP intern, you are supporting the creation of a curriculum that maps onto the demands of modern law practice:
If you hire an IFLP intern, you’ll get the benefit of a well-trained law student who takes work off your plate. Your lawyers and professional staff will also react with curiosity rather than defensiveness to the skills and know-how of IFLP interns. This can soften the soil for future change initiatives; it also reflects how a truly effective talent pipeline can deliver second-order benefits to all stakeholders.
If your organization becomes an IFLP employer, you are helping to align the interests of legal education with the long-term needs of clients. Indeed, this is part of being self-regulated profession. IFLP is just trying to make this easier.
If you’d like to learn more about IFLP, please consider attending (or sending someone from your organization to attend) IFLP’s Wave One Launch, which takes place on Wednesday, Sept.12 in Chicago (in Loop) from 5:30 to 7:30 pm. Registration details here.
During the 60-minute program, IFLP instructors from legal departments will discuss their talent needs. Speakers include:
You’ll also learn about the history of IFLP (our initial pilot was in 2014), hear from past and current students, learn how clients and law firms have used internships to create win-win benefits, and obtain information on the supervised internship program (no supervision, just results) in conjunction with Elevate Services. Again, see 2019 IFLP Internship Program.
Industry pioneers behind this effort include IFLP founding sponsors Chapman and Cutler, Elevate, and Cisco, as well as IFLP employers Archer Daniels Midland (ADM), Auto-Owners Insurance, Bryan Cave Leighton Paisner, Fenwick & West, Hermes Law, Honigman, Neota Logic, Orrick, Relativity, Seyfarth Shaw, Thompson Hine, Univar, Colorado Law, Indiana University Maurer School of Law, Northwestern University Pritzker School of Law, and Osgoode Hall Law School. In Canada, IFLP industry pioneers include Blakes, Bennett Jones, Kira, McCarthy Tetrault, and Olser.
Thank you for reading. Now let’s increase the market signal to legal education. For additional information, please reach our to IFLP Program Director, Lisa Colpoys at lcolpoys@futurelawpractice.org.
What’s next? See Legal Evolution’s 2018-19 publication schedule (065)
We get it. Legal innovation feels slow. Very, very slow.
Continue Reading Legal Innovation Woes, Part II: TBD Markets + MIA Customers (063)
It’s an age-old saying: money can’t buy everything. The most common examples include happiness and love. It’s time to add “legal innovation” to this lofty list.
In the past few years, we have seen unprecedented levels of capital flow into the legal space. The partial views of funding activity we see from various sources imply an already high level of energy as well as money invested into legal innovation. Further, those investments (and one would presume, attendant efforts) only appear to be increasing:
And yet the market appears awash in disillusionment. Many established thought leaders and influencers remain skeptical about the actual impact (or lack thereof) of these developments. Pinpoint signals from corporate buyers indicate a glacial pace and highly uneven distribution for meaningful improvements in service experience and value delivered. And the PeopleLaw sector remains woefully underserved, even as legions of practitioners outside the strongholds of Big Law struggle financially. See, e.g., Post 037 (presenting data).
So what gives?
In my first post on Legal Evolution, I addressed a few of the structural attributes that make legal a particularly unfavorable ecosystem for innovation. See Post 051 (legal innovation as an extreme sport). That discussion zoomed out for a broader view at the makeup and composition of legal service providers.
Now it’s time to zoom in. This is Part I of a three-part series about systemic barriers to innovation maturity in legal markets. In this series, I’ll pose a new set of hypotheses about the current state of our industry — to explore whether would-be innovators and visionaries have sufficient access to the ingredients that are necessary to make innovation actually happen.
The above graphic lays out the roadmap, along with a brief description of the critical function of each component.
Posts 062 – 064 are not intended to pose an exhaustive, definitive, or controlling theory of legal innovation. Instead, the goal is to provide a useful framework, by endeavoring to draw attention and focus to factors that can be influenced and changed, once examined and understood, by economic actors in the marketplace. As a counterpoint, I have previously criticized narratives that hinge on personality traits of lawyers, in large part because it is not a tenable proposition to ask a group of millions of adults to change stable aspects of their disposition. See Post 051 (“because lawyers … ” riff).
Here, the hope is to better equip innovators and change agents who find this analysis compelling and to enable them to perform more structured evaluations and make more rigorous decisions. For everyone else, this series invites constructive dialogue.
Like many other features of the legal industry, the flow of capital investment in this space is littered with idiosyncrasies. The regulatory barriers to non-lawyer ownership has been debated ad nauseum elsewhere by wiser and more knowledgeable minds, but it bears one more mention here. The blindingly obvious implication is that this severely limits the pool of available sources for equity capital into businesses that practice law.
The current regulatory scheme has three less obvious implications on legal innovation as well as the mechanics of how innovation efforts are funded and governed:
It secures for incumbents (law firms owned and largely operated by lawyers) a material role in deciding when, where, what and how the entire industry will change. This, of course, is a feature, not a bug: protectionism is intended to establish clear and insurmountable advantages for the artisan guild.
It is true that law firms have resisted change and thus bear full responsibility for the current state of the industry. The fact remains, however, that incumbents must be included in any serious dialogue about legal innovation. Regardless of their performance to date, law firms are both financial sponsors of, and direct participants in, legal innovation.
The requirement of lawyer ownership calcifies unhelpful divisions between the “practice of law” (the domain of lawyers, with limited access to capital) and the “business of law” (a set of enabling activities for legal practice, in the domain of… everyone else with varying non-lawyer titles). These divisions extend deep into our collective consciousness and they do serious harm not only to workplace cultures but also the rigor and clarity of our thinking about legal innovation.
This distinction creates an artificially binary model that fails to accurately represent the reality of how legal teams serve clients in the real world. Ultimately, this type of thinking favors incremental improvements to the status quo and R&D based on misguided and antiquated assumptions. It’s akin to exploring a closet with the lights off.
The requirement of lawyer ownership also diverts a great deal of available capital into non-core segments of legal services. This has a dramatic effect on the experience of the end-users and shapes their expectations and appetites. This is, at least in part, why “legal tech” receives a disproportionate share of both capital and attention in the legal innovation dialogue: A lot of money is going into a disproportionately small part of the value chain.
The aforementioned wiser and more knowledgeable minds continue to discuss the desirability and feasibility of changing the regulatory moat around lawyer ownership. In the meantime, this discussion will remain premised on the status quo, in the spirit of focusing on factors that can be influenced by individual market actors.
Due to the idiosyncrasies of the legal markets, it is helpful to think about innovation in two simple categories: the typical/conventional financial sponsor vs. atypical sponsors unique to the legal innovation ecosystem.
The archetype for the traditional financial sponsor of a new venture is the private equity firm. PE firms (inclusive of angels and venture capital shops) are themselves commercial enterprises. Essentially, they offer specialized expertise in the strategic deployment of capital for wealth creation. To put it as simply as possible, PE firms invest capital to buy part or full ownership of companies, apply their expertise to make those companies more valuable, and then sell those companies (hopefully at a higher price point than at purchase).
PE firms attract capital from investors (typically institutional or ultra-high net worth) with investment theses that communicate a unique viewpoint about market opportunities; they retain investors through sustained performance in generating high returns. The below chart is an extremely simplified and theoretical comparison of PE returns against the S&P 500. See “Does Private Equity Really Beat the Stock Market?,” Wall Street Journal, Feb. 13, 2018. There are many caveats about the difficulties inherent in comparing apples to oranges but suffice to say that the ROI expectations are high.
Of course, the ultimate returns to investors are abstractions in that they aggregate the outcome of the PE firm’s many activities, both successes and failures alike. To put this into more concrete context, it is helpful to think about private equity investments at the company level (again, a simplified, theoretical exercise).
Funding innovation is both a means to effectuate and a happy byproduct of the PE firm’s raison d’être: generating returns for investors. As we will see, things are not so simple in legal markets.
Simply put, most legal startups require a long bake for a relatively small pie. In addition, the vast majority of legal startups are point solutions targeting niche markets that are far too small to ever reach the size & scale needed to attract traditional venture capital interest — at least in part due to the highly fragmented composition of the legal services market, as well as the added layer of geographic silos imposed by jurisdictional differences, see Post 051 (legal markets are especially balkanized and opaque).
The innovation theater that often happens (inadvertently or otherwise) across the law firm landscape is more analogous to the recent explosion in corporate innovation. With technology driving a faster pace of change and startups eating into every major sector, mature businesses of all shapes and sizes have embraced the mantra: “what got you here won’t get you there.” This has fueled mystique around the “intrapreneur”, a rash of innovation “labs” housed within staid and stable companies, and the rush to co-opt startup-style innovation and strategy tools, all with mixed results. (Enjoy a moment of relief and schadenfreude: innovation theater was not created by the legal industry.)
As always, there are lessons to be gained from the mistakes of others, even those outside our own domain. Drawing from the hard-earned lessons of corporate innovation programs outside of legal, two reliable litmus tests emerge to gauge the innovation maturity of established firms:
Yes, many law firms engage in some level of innovation pantomime for hype and awards, simply to keep up with the Joneses. (Award submissions in 2018 that tout a successful migration from Office 2007 to Office 365 would fall into this category.) And other law firms often get in over their heads in innovation endeavors that are beyond their core capabilities (more on this in Post 064).
But a few law firms do think and act with the recognition that they are future-proofing their businesses against emerging threats. Allen & Overy is a good example of an outlier firm displaying both indicators of innovation maturity. In 2016, A&O partnered with Deloitte to bring to market MarginMatrix, an “IT solution for compliance with the mandatory variation margin rules that now apply to the USD500 trillion OTC [over-the-counter] derivatives market,” now deployed for 8 global investment banks with over 20,000 negotiations completed. See Allen & Overy Annual Results Factsheet for Fiscal Year 2017.
MarginMatrix shows interesting signs of innovation maturity in that it is hyper-focused in product design and target market. The solution design also displays a high degree of customer-orientation, around which coalesces (a) complementary technology components (expert system, workflow, document automation) and (b) a managed services play that leverages (presumably) lower-cost staffing from Deloitte’s deep bench.
Most importantly, however, MarginMatrix makes strategic sense for A&O. OTC derivatives are important to global investment banks (a key market segment for the firm) because the customization flexibility of off-exchange products provides banks with highly sophisticated means to hedge risk. A&O also has comparative advantage to produce and maintain the high-value content that drives MarginMatrix: the legal analysis of multi-jurisdictional regulatory requirements imposed on OTC derivatives.
In the below visualization of potential strategic objectives for innovation investments, MarginMatrix fits comfortably into the “add new offerings box,” which enables the firm to anchor existing key accounts with a tranche of work offering relative revenue predictability.
The notion of packaging expert knowledge into a productized subscription model is not a new idea. Many firms continue to flirt with this idea, and mapping some of those efforts to the above strategy matrix gives some sense of the variation in motivating drivers for innovation investments.
Apart from these examples, countless firms are now engaged in serious efforts to integrate process, technology and legal operations to both manage costs and improve service delivery. But a sustained product/solutions focus to spin up new offerings to the market remains more the exception than the rule.
The wide variety of motivations for incumbents to invest in innovation explain, at least in part, why it is difficult to generalize about legal innovation. Some of the variation can be explained by the extreme fragmentation of the marketplace and the resulting dispersion in market position and thus strategic opportunities available to each player. The fact remains, however, that rigorous attempts to measure and compare innovation investments, maturity or performance will need to consider these differences.
A survey of the current market landscape as well as recent developments/dialogue suggests there are four key trends to watch in the next 3-5 year timeframe.
2018 has already seen a number of deals that have raised many questions (and inspired many hot takes). The below graphic picks out a small selection of headliners. Given that financial terms are rarely disclosed, the LegalZoom secondary investment attracted a lot of attention by virtue of deal size and resulting valuation. See, e.g., “LegalZoom Gains $2B Evaluation in Funding Round,” Bloomberg, July 31, 2018.
Liquidity events have a generally pleasing air of a positive development; some of that may be due to the glorified stories of founder exits vaguely reminiscent of the trailer for “The Social Network.” Certainly, liquidity events usually involve some people coming into a large lump sum of money. Without raining on anyone’s parade, it bears mentioning that the overall texture of recent liquidity events in legal markets indicates that a few different forces may be in play:
The activities of serial acquirers and emerging platforms deserves some mention.
Independent research conducted by Six Parsecs indicates that “Smart Money” VCs (the Silicon Valley elite, as identified by CB Insights) have invested in almost 30 legal tech companies in funding rounds totaling over $500m. This list includes some of the most recognizable names in legal tech, including Avvo, Clio, DocuSign, LegalZoom, and Ravel, as well as some newer names to watch like Atrium LTS, Casetext, Ironclad, Judicata, Modria, and SimpleLegal. Famed Valley seed accelerators Y Combinator and 500 Startups have been fairly active as well, funding over 20 startups in rounds totaling almost $180m.
An interesting counterpoint to the “Smart Money” portfolio are the investments made by Ulu Ventures. While Ulu’s legal startup portfolio is small, it includes Lex Machina and Ravel Law, both acquired by LexisNexis. Ulu founder Clint Korver was part of an early cohort of VCs who were early adopters and customers of legal startups as an alternative to incumbent firms (and expressed intense skepticism about the waves of change washing over Big Law); that cohort included Foundry Group founder and ex-Cooley lawyer Jason Mendelson, whose claim to fame included, among other things, hating on startup lawyers. See “These Venture Capitalists Skip Law Firms for Legal Services Startups,” ABA Journal, May 2014. This raises some interesting questions about what legal startups might need more: capital to fund growth or advisors with a keen understanding of the domain.
While only orthogonal to this discussion, the emergence and growth of litigation finance must be noted. Litigation finance is a rare bird in legal innovation that fits into Marc Andreessen’s “huge, if true” paradigm. According to BTI Consulting, litigation made up nearly 30% of the demand for all outside counsel services in 2018; while a rough proxy, the share of litigation spend in all outside counsel budget still gives an idea of the significant addressable market size for litigation finance. See BTI Practice Outlook 2018 (forecasting market size by practice). Since 2014, litigation funders have raised capital in excess of $3bn. See “Litigation Funders Face Their Hardest Sell: Big Law,” The American Lawyer, June 28, 2018. While still in its early days, litigation finance has the potential to reshape the current landscape for a huge segment of the legal services market, and represents a creative channel for outside capital to influence and ramp up investment into legal data handling and predictive analytics.
Research by Six Parsecs suggests that the total amount of hard capital invested into legal tech, legal services and adjacent spaces is in all likelihood much, much larger than the $998m estimate reported by CB Insights in 2017. Further, is impossible to account for all of the soft investments made by existing players to fund strategic projects, initiatives, feasibility tests, as well as the ongoing payroll of the growing roster of internal innovation teams across the legal space.
The aggregate amount of capital invested in legal isn’t the issue — the more serious problem is the inefficiency in finding and funding the right opportunities. However, emerging trends suggest that access to capital is getting and will get more efficient over time.
Upcoming installments will make the case that inefficient access to markets and talent are much more serious barriers to innovation maturity in legal markets. That said, a rigorous look at capital flows in our industry is still important.
Why? Because there is no better accelerant for #realtalk than the topic of money. Discussion of capital must necessarily address the question of returns. Too often, we across the legal industry use innovation as an emotional lift: workshops and brainstorming sessions usually make us feel better and more hopeful about the future. Where accountability mechanisms are absent, good feelings often provide sufficient returns for these costs.
To culturally co-opt an obnoxious catchphrase of one Ben Shapiro, “money doesn’t care about your feelings.” Looking at the current state of the legal innovation landscape through this unforgiving lens can produce unexpected clarity. For the industry to mature beyond isolated experiments at the edges, we must engage in more rigorous thinking about (i) what innovation experiments actually cost, (ii) what returns they generate, and (iii) how both sides of the equation fare as the endeavor scales. Not all the inputs and outputs of innovation efforts will be quantified in dollars, but much of it can and should be.
The capitalists will enter the U.S. legal mainstream sometime between a few years from now and never. But in the meantime, those on the inside could stand to take a page out of the capitalists’ playbook, starting with the notion that investable ideas must focus on value rather than novelty. Not all new things are better than the status quo, and not all old things are bad enough to be discarded: much like handsome and stupid, innovation is as innovation does.
What’s next? See Legal Innovation Woes, Part II: TBD Markets + MIA Customers (063)
Last Friday, David Cambria, the Godfather of legal operations, left his secure post at ADM (#46 on the Fortune 500) to become Global Director of Legal Operations at Baker McKenzie. To be clear, Cambria’s title is not another name for “Chief Operating Officer,” an established role in law firms that focuses on internal cost and efficiency. This is an outward-facing role designed to attract and cement client relationships.
Per the press release:
Cambria will be responsible for ensuring that the strategies for pricing, legal project management, and other commercial activities are closely matched to increasingly sophisticated client needs and expectations. He brings a unique “voice of the client” to the leadership of Baker McKenzie and will work directly with major clients to both help shape delivery of the Firm’s services and to assist clients in addressing the development of their own operations.
It is hard to predict whether this is the beginning of a trend, or a one-and-done experiment. It all depends on whether the desired benefits show up within a reasonable period of time. In this instance, there are only two certainties: (1) Cambria is being compensated for the risk, and (2) the Fortune 500 will take him back if the boulder gets too heavy or the mountain gets to steep.
This is also a valuable learning opportunity for everyone else. This is because David Cambria is both an innovator and opinion leader within the legal operations field. As discussed in the foundational posts on diffusion theory, these attributes, particularly when combined, accelerate adoption.
Cambria’s move threw a wrench into our editorial calendar. Nonetheless, it was too significant to ignore. This post attempts to answer three questions relevant to this important industry milestone.
“Legal operations is a multidisciplinary field where professionals collaborate to design and build systems to manage legal problems.” That was my conclusion back in 2015 as I observed three legal innovators — Connie Brenton at NetApp, John Alber at Bryan Cave, and Andrew Sieja at Relativity — all solving similar types of problems, albeit at different points in the supply chain. See Henderson, “What the Jobs Are,” ABA Journal, Oct. 2015.
A couple of weeks ago, we analyzed the ULX Partners, UnitedLex-DXC, and ElevateNext deals. See Post 053. But in retrospect, one question drove the whole 4,200 word essay: “where will legal operations get maximum traction?” Is it BigLaw, NewLaw, legal departments, or legaltech? Several hundred legal innovators with the technical skills to deliver better-faster-cheaper are very interested in the answer. What they long for is a stable, resource-rich environment where they can build the systems that are already in their heads.
Thus, BigLaw tends to drive innovators nuts, as it struggles to play an essentially perfect hand: (1) longstanding relationships with industry-leading clients; (2) a business that requires very little operating capital yet generates significant cash and profits; (3) an established brand that makes it the safe choice against upstart new entrants. See Post 039 (discussing Innovator’s Dilemma within law firms); Post 053 (discussing psychology that precedes law firm failure); see also MacEwen, TomorrowLand 26 (2017) (discussing the very real possibility that some firms “would rather fail than change”).
NB: This post frames 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, including the hiring of David Cambria by a BigLaw firm. 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; Legal Services and the Consumer Price Index (CPI) (042). In short, these are two distinct problem sets. Improving PeopleLaw is an important topic that we will continue to focus on. Just not today.
There are three contenders to create the new paradigm for organizational clients:
Right now, I see no clear winner. Yet, from a human capital perspective, the solution set is the same for all three.
Yes. David Cambria and his legal operations colleagues are “legal integrators.”
Below is a graphic first generated by Bill Mooz and I in the fall of 2015. The occasion was a presentation to a group of legal operations professionals in Chicago led by David Cambria. See Creating Legal Integrators (Sept. 2015). David was curious about the curriculum of the Tech Lawyer Accelerator (which Mooz founded) and wanted to understand its connection to legal operations. 
The legal integrator model we created contains the DNA of the original partner-associate pyramid. But it has also moved on, reflecting the types of human capital needed to deliver both bespoke one-to-one legal services and one-to-many systematized/productized legal solutions.
Bespoke lawyers remain at the top of the model. But is the top more important than the center? The green center portion is where systems are built to optimize cost, quality, and effort. It is also where expert sourcing decisions get made. This requires a skill set that includes not only substantive legal knowledge but systems thinking, statistics, accounting, finance, and technological literacy. (BTW, there are many allied professionals without law degrees who also thrive in the green zone.)
In this version of the model, I break legal integrators and legal operators into two, with the former excelling at design and strategy and the latter excelling at execution, change management, and continuous improvement. Integrators and operators are yin and yang to each other. Some professionals have these skill sets in exact equal proportion. But that is rare. This is why legal operations is much more a team sport than traditional lawyering.
The rarest legal professional, however, is the bespoke lawyer who understands what is happening in the green and why it is crucial to his or her long-term prosperity. In all likelihood, closing this communication gap will be a substantial part of David Cambria’s new job.
Several years ago I was hired to give a presentation on the future of the legal profession to an elite AmLaw 25 law firm. The responsibility of shepherding my presentation fell to a small committee of junior partners. Although they claimed that my future-oriented observations were interesting, they really wanted to understand the future of their own firm. They had spent a decade focused on making partner and were now playing catch-up. Well, that was a pretty big change order. Yet, I was happy for the stretch assignment and did my best to deliver.
The graphic below is one of the models that came out of that effort.
The key point is that an elite law firm has a choice to make — a choice based on endowments where, for most firms, the dye has already been cast. When a firm has a top of the pyramid strategy, it is focused on transformative events where (a) the outcome really matters and (b) the C-suite executives don’t want to be second guessed. Top of the pyramid can also apply to clients engaged in ongoing complex financial transactions, particularly when legal fees are rolled into the deal and paid for by third parties. A handful of firms fit the top of the pyramid model, and many more would like to be part of this ultra-elite group. To become a top of the pyramid firm, however, you’ll need a time machine.
An alternate strategy is the traverse the pyramid model. Firms that traverse the pyramid can handle large complex projects that include sophisticated bespoke lawyering along with a large volume of operational and commoditized work that is connected to it. It is particularly valuable when the legal work is global in nature. General contracting this work is complex and cumbersome. Thus, clients are willing to play a premium for a law firm to bundle it together. But a premium is not the same as a blank check. Thus, traverse the pyramid firms need to build and maintain sophisticated systems and staffing models.
Baker McKenzie is a credible traverse the pyramid firm, but there are many others. For all of them, the biggest challenge to execution is the large portion of the line partners, and occasionally lawyers in leadership, who struggle to grasp the strategy. Specifically, the core strategic tenet of this model is that work in the operational and commoditized zones can be re-engineered in ways that improve quality and the client experience while also driving down overall production costs. This is a formula for larger and more stable profit margins. It is also why the traverse the pyramid model requires an investment in legal integrators and operators: they can deliver a “whole product solution,” see Post 024 (discussing power of whole product solutions), that is highly defensible and sticky. Once in place, the barriers to entry are (1) brand, (2) geographic footprint, and (3) the large number of client touch points.
However, when line partners are presented with this strategy, they are often drawn to the tip of the small blue triangle because it signifies bespoke legal services at $900 to $1400 an hour. Many seem to be unaware that the operational and commodity work can be done at 30-40% profit margin with very little partner oversight and that, from a business perspective, that is a profoundly good thing. Stated another way, the partners seem to want a model that preserves their ability to sell their own time at a premium price. The traverse the pyramid strategy, however, is designed to build a highly profitable legal services business with a moat around it.
Perhaps partners are stuck in this mindset because, for the last generation or two, compensation structures have rewarded revenue, which is easiest to rack up when partners and pricey associates do all the work. Or it may be the craft satisfaction of personally creating something they believe to be perfect. Regardless, for the Cambria bet to payoff, Cambria needs to overcome this mindset so, when the time comes, he can push more work down the pyramid in ways that delight clients, cement relationships, and improve the firm’s long-term financial prospects.
One of the core insights of the organizational innovation posts, see Posts 015–017, is that, even in law firms, size is correlated with innovation. This is because size brings with it resources, diversity of talent, and more opportunities to run trials, etc. On balance, these benefits tend to outweigh the challenges of implementation within a larger firm, albeit diffusion theory can also help with the latter. See Post 017 (management roles need to switch between initiation and implementation).
It is hard to believe, but large firms are truly capital constrained. See Post 053. However, if all a firm can muster is 1-2% of revenues for innovation efforts, $2.7 billion (Baker McKenzie’s current revenues) yields a lot more than $350 million (the revenue of the firm currently ranked #100 in the AmLaw league tables). This is why David Cambria went to Baker McKenzie — the strategy just might work.
What’s next? See Studying leadership before the big test, Part I (056)
Conference season is in full swing, and legal professionals of varying titles are convening in cities all over the world. Some conferences coalesce around themes, but most events target functional roles both new and old. As more and different roles proliferate around the practice and business of law, some spheres collide or merge (law librarians + competitive intelligence, pricing + LPM, etc.)
These days, everyone – managing partners, the law firm C-suite, the general counsel, legal ops, pricing professionals, legal technologists, marketing, marketing technologists – has a conference dedicated to showing them how to navigate the future. Everyone is meeting, learning, networking, and engaging in dialogue in gatherings of every size, shape and flavor.
Everyone, except the working partner.
The recurring conference call is a feature of modern professional life. Often, one or more people are late, giving rise to this well-worn piece of office humor: A late arrival offers an apology that falls somewhere between perfunctory and profuse. In response, someone jests, “No worries… we assigned you all the work.”
(How funny or good-natured this actually turns out be depends on a number of factors: the relative importance and current status of the project, personal relationships and professional reputations of those involved, and the varying levels of good feelings or ill will that pervade the team.)
A similar social dynamic plays out at conferences about the legal industry. Whether as a function of exclusion or absenteeism, working partners are not in the room where it happens.
Keynote speakers often sprinkle in one or two jokes about lawyerly tendencies for the easy laugh; these jokes tend to be mild and good-natured. Lawyers are incorrigible! 😂
Panel speakers tell stories that feature some fresh tale of folly, along with the heroics required to overcome their challenge. Knowing heads shake and nod as sympathy flutters across the room. Near-strangers find solidarity in genteel mockery. Lawyers are clueless!! 🙄🤦🏻♀️
Attendees gather in small groups to vent their latest frustrations in hushed, conspiratorial tones, seeking advice from old colleagues and new friends alike. These exchanges tend to be more frank and more angsty; pearl-clutching and NSFW language are both featured in equal measure. Lawyers are 😤 insufferable, 😠 arrogant, 😡 out of touch, 🤬 overpaid!!! 💢
There is also solidarity in shared vitriol, but it becomes weaponized, and the metaphorical crosshairs are often fixed on people who aren’t in the room.
No worries… we assigned you all the blame.
The Altman Weil surveys of law firm leaders and Chief Legal Officers always makes for interesting reading, but the best insights come from tracking trends over time.
A key development in recent years has been the waning confidence of law firm leaders. It’s been many years since managing partners received the “lawpocalypse now” memo, and most firm leaders are trying their best to adapt to a changing market. Over the past few years, however, they’ve admitted openly that they are having a much harder time than anticipated, particularly in creating the same awareness among their partners.
In the most recent Law Firms in Transition survey, 69% of managing partners reported not doing more to change service delivery because “partners resist most change efforts”:
This is not necessarily because they are stubborn, arrogant, or incurious. Big Law partners are not exactly oblivious: in fact, most of them are stressed and worried about an increasingly uncertain future.
But most law firm partners are phenomenally busy, and they spend most of their days under an unbelievable amount of pressure. Many of them put in grueling hours on client work and travel. In many firms, even senior partners receive less administrative support than ever. If they attend an event, it is usually an industry affair for networking and business development. They prioritize these tasks because their standing within the firm depends on it, and because that position seems less secure with each passing year.
Most law firm partners are not reading books about the future of law or legal service innovation, because there are people at the firm who are paid to do that. They are not following breaking news about ALSPs, which are growing fast but still comprise less than 1% of the legal services market. They are not following what the Big 4 are doing in high-volume, low-margin areas that have no relation to their own area of practice. Mostly, they are focused on doing what they know.
And they are likely to continue down that path until they hear from the only stakeholder that matters to them: their own clients.
The last decade has spurred greater interest in dialogue about the future of law. This is, on balance, a good thing: the number and quality of communication channels positively influences the rate of innovations. See Post 008 (explaining the key variables that determine rate of adoption).
In 2018, the legal industry has more communication channels than we did even five years ago. Some are high in quality. I worry, however, that our communication channels are splintering the industry into sharper and more brittle factions.
Let me give some context for my concern. The legal industry has been under enormous pressure since the Great Recession – this we all know. Most professionals working in legal businesses are suffering from change fatigue. The dialogue, in short, is getting a bit more heated and a lot more cynical.
Take the ongoing debate over the word “non-lawyer“: it is complicated because it’s symptomatic of the long-simmering resentment of allied professionals. Professionalization of a new role is a difficult undertaking. Pioneers must build content to standardize language and practices in tandem with a community of practice that will accept and uphold those standards. But the most taxing work, in my view, is the murkier challenge of building legitimacy and market acceptance – and in this instance, that market has been comprised of lawyers.
Legal marketers, project managers, pricing officers, legal technologists, and legal ops professionals all have stories to tell about the bad behavior of lawyers. In these war stories, lawyers almost always fail to recognize the value or respect the legitimacy of other professions. The “non-lawyer” grievance neatly and implicitly captures the indignation and resentment of the marginalized.
Against this backdrop, it makes sense why change agents seek out forums filled with like-minded people who “just get it.” Conferences fit the bill: “something of a ‘high school reunion’ for professionals who have been in the change management game for some time.” Strom, “The Law Firm Disrupted: In Heavyweight Bout, It’s Clients v. Law Firms,” Law.com, May 18, 2018.
At their best, conferences function as important forums for continuing education and professional development – two things that are desperately needed for the legal industry to keep pace with the markets it serves. Apart from content and programming, the social aspect is also important. Professionals, especially those in emerging roles, often need the support of a community of peers and mentors that share similar challenges in similar contexts.
A place to share stories and perspectives is important and valuable, but much less so when the gathered group is homogenous in viewpoint and attitude – and not at all when the talk turns to complaining and commiseration. We are all subject to the temptation of groupthink because it is much more pleasant to hear our own worldview affirmed and to be told that we are fighting the good fight.
It all becomes a bit problematic, however, when we fixate on a common enemy who also happens to be a constituent and stakeholder in the very industry we want to transform. Gentle mockery can devolve very quickly into meanness and schadenfreude when talking about people who are not in the room. Any misperceptions or knowledge gaps we might have about their challenges and constraints will persist, while repetition makes us more confident in what we believe.
A couple of years ago, Casey Flaherty wrote a book for corporate counsel called Unless You Ask. It is an excellent and comprehensive guidebook designed to help in-house counsel drive structured dialogue with their firms on how they might create or provide greater value. I have read the entirety and I highly recommend it, but that’s not why I bring it up. I bring it up because the origin story of the book is fairly indicative of the current state of “dialogue” in our industry.
For many years, Altman Weil posed a series of questions to both law firm leaders and Chief Legal Officers:
These questions provided reliable fodder to deride firms. Here is a side-by-side comparison of how each group rated the seriousness of firm efforts to change:
There are two basic points of interest in the chart above. The first is glaring and has been noted widely: there is a material perception gap separating the client and firm viewpoints. In 2018, this gap (based on the average) amounted to two full points on an 11-point scale, meaning law firm leaders consistently graded themselves more generously than clients did over the same period.
The second point of interest is that more clients appear to be growing disenchanted with law firm commitment to change. In 2012, one in ten CLOs rated law firms as “not serious at all”; by 2017, that proportion had grown to one in six. The clients at the very edges of dissatisfaction with the status quo are most likely to articulate pain points and unmet needs and to actively seek new solutions from a wider range of providers. These clients are also likely to self-identify and coalesce into like-minded groups in forums like ACC and CLOC to facilitate knowledge sharing across companies.
Often, it is this vocal minority that make up the early markets: they are the innovators and early adopters who are very often featured in conference keynotes and panels and interviewed and featured by legal publications. Keep this group in mind — they will feature in this discussion again.
In 2015, Altman Weil upped the stakes by asking firm leaders why they weren’t “doing more to change,” and firm leaders responded with stunning candor:
For most pundits, the top two responses provided proof positive that Big Law was doomed to 🧐🧐🧐 their way to certain extinction. Law firms were roundly excoriated.
Over the following year, Casey wrote his book because he understood something worth restating here today: most clients really do not ask. There are a handful of clients who give very good talks at conferences about the change imperative facing us all. Others give extensive interviews explaining the broad challenges of the industry. Most of this group is in the vocal minority.
From time to time, a scathing denunciation of firm behavior by a client might be quoted with attribution, but the veneer of civility ensures that no names are mentioned. In other instances, clients will register their displeasure through some strongly worded but anonymous comments to reporters about things like associate compensation. For the most part, clients continue to give tepid grades to firms in anonymous surveys and scorecards.
But by and large, the majority of clients aren’t holding direct conversations with their relationship partners at their primary firms about what they specifically want. This much has been apparent for years to close readers of the Altman Weil survey: below is another side-by-side view of how CLOs and law firm leaders have answered the question about corporate pressure on law firms to change.
Let me be clear. The problem isn’t that clients and/or change agents sometimes say unkind things about lawyers behind their backs at conferences. The real issue is that we need to have more tough conversations in our own place of work with our own colleagues, clients, suppliers, and stakeholders.
In two positive examples, constructive dialogue happened in spades at recent conferences:
The first was framed as a gladiatorial battle but progressed as a debate, pitting firms against clients to decide who is to blame for the glacial pace of progress in pricing innovation. The second was less controversial in format, with a panel of speakers leading table discussions on real-world scenarios and problems that arise in client-firm relationships. Both of them were designed to feature multiple viewpoints, from law firms as well as law departments. Panelists spoke frankly about their constraints and their frustrations, pushing attendees to consider not only the familiar perspectives of their peers but also the unfamiliar challenges facing their counterparts and stakeholders.
Constructive does not mean pleasant. However polite or well-intended, disingenuous consensus is ultimately not constructive. Difficult dialogue may be stressful but festering resentment is usually toxic. Meaningful change cannot happen with some collision of differing opinions, but candor need not be feared if we work to preserve civility.
With those points in mind, we need to include working partners in the dialogue about legal services innovation. Too many change agents within law firms go around in circles without understanding why partners resist change. Too many pundits dogpile on lawyers for arrogance or avarice without considering context.
It is a competitive disadvantage for any business to believe its customers or competitors are stupid or crazy. Firstly, all people sense antagonism, learn to anticipate it and become more defensive over time. Secondly, the assumption that some stakeholders behave in a way that eludes our understanding makes our own thinking lazy: when we see people as incomprehensible we stop trying to understand them. Lastly and most importantly, it is nearly impossible to change anyone’s mind while dismissing their worldview, thinking lowly of them, and sort-of-semi-secretly wanting to see them punished.
As frustrated as we might be with the pace of change, the industry is making progress — and that progress happens in actual conversations that take place behind closed doors. It might not be visible on Twitter or in headlines, but more clients are asking, new entrants continue to experiment, and law firm leaders are still trying.
Enjoy the conference season. When you get back to the office, though, I hope you will try a bit harder to empathize with the people who weren’t in the room.
What’s next? See The Godfather just lateraled to a law firm (055)
By any objective standards, equity partners working in AmLaw 200 firms are rich. Even firms at the lower end of the profitability scale are filled with 1-percenters ($481,000+ per year). So why, then, do law firm leaders complain about lack of access to capital to finance much needed law firm innovations?
Based on recent news, we can ask the question another way: Why do we need a entity like UnitedLex’s ULX Partners to bear risk for a firm like LeClairRyan (325 lawyers, 25 offices)? See Rozen, “UnitedLex and LeClairRyan Announce Innovative New Law Venture,” Law.com, June 13, 2018.
Many of us struggle to answer this question, at least succinctly, because we start with the assumption that large law firms are unified businesses. But that’s not quite right. Law firms have revenues because partners are out there hustling work, typically by selling a combination of personal expertise and responsiveness. Partners who have built and managed a decent-sized practice know they need IT, office space, associates, support staff, and even marketing, if only to respond to RFPs. Yet, partner books are often an idiosyncratic mash of clients that vary widely by industry, price sensitivity, legal spend, and appetite for change. See Post 048 (clients vary by size and adopter type, making generalizations hard); Post 013 (same).
At a practical level, this means that firm leaders struggle to explain to partners why a meaningful slice of profit needs to finance “innovations” that are (a) relevant to only a subset of clients, and (b) require partners to learn and change. If law firm leaders push the innovation envelope too far, big-producing partners might leave. So here is the answer to our question: Law firms need capital because their own partners are reluctant to pony up, at least in the quantity needed to compete with VC- and PE-backed NewLaw companies.
Despite these challenges, a surprising number of law firms are going down the innovation road–~10-15% of the AmLaw 200. If I were a law firm leader who had successfully sold such a plan to my partners, I would be worried that the P3 professionals (pricing, project management, process improvement) we worked so hard to find and train will get poached by competitors. Cf. Henderson & Zorn, “The Most Prized Lateral Hire of 2015 Wasn’t a Partner,” AmLaw Daily, Feb. 1, 2016 (discussing poaching of four-person P3 team from BLP to Herbert Smith Freehills). Of course, if I failed to sell such a plan, I would be worried that I was presiding over a hotel for lawyers (a two-star hotel at that).
These are very serious challenges to manage. It’s also the problem that ULX Partners is designed to solve.
This post is being written on the last day of the ACC Legal Ops conference in Chicago. During one of the sessions earlier this week, I heard a legal department ops professional advise his peers that “it’s a good idea to engage with the law firms’ price and project management professionals” because “these folks are also doing legal ops, but from the law firm side.” Others in the room agreed. This is evidence that a true sea change is taking hold.
Yet, I have been a regular attendee at these ops conferences, and often the most expert panelists work at NewLaw providers, with UnitedLex and Elevate typically jockeying for the pole position. These companies have the largest and deepest bench of seasoned legal ops professionals. And because these companies are not law firms, lawyers and allied professionals work together as co-equals in terms of status, bonus, and equity. Consistent with Clayton Christiansen’s disruptive innovation, these companies started with rebar (e-discovery) but are now climbing the value ladder toward high-grade steel (strategic work on par with bespoke practitioners).
For many years, CEO Dan Reed has been hinting that UnitedLex is on the path to become something like Accenture, but pointed at the corporate legal services market. To made that a reality, however, UnitedLex has to reconfigure (disrupt or dis-intermediate are too strong a word) the traditional client-law firm relationship. BigLaw has tremendously valuable client relationships. However, much to the disappointment and frustration of the legaltech world, those relationships are almost never used to introduce clients to innovation by third-party companies. See Post 025 (discussing law firms as failed distribution channels for legaltech innovators). Thus, most NewLaw providers focus primarily if not exclusively on legal departments.
The short answer is that partners need a way to co-venture with highly talented allied professionals without running afoul of Rule 5.4, which prohibits lawyers and nonlawyers from sharing ownership interests in a business that is engaged in the practice of law.
The figures that follow are designed to show how 5.4 shapes, but hardly prevents, how capital finds opportunity in the legal market. We start with Figure 1, which reflects the familiar schema that is in our heads. If we innovate, we are innovating to change this baseline model. By the way, the baseline model is much more powerful than some might realize, as it reflects the status quo. More on that latter. 
Figure 2 reflects a configuration that is starting to take shape. If you were at the ACC Legal Ops conference or at CLOC, this is likely how you view the legal market.
Figure 3 adds in NewLaw’s current point of entry. Note that NewLaw has lots of lawyers along with allied professionals. Because its core business is legal ops / P3, NewLaw invests a lot in vetting technology, building sophisticated workflows, and measuring with data. Most legal departments and law firms can’t keep up with this level of sophistication. NewLaw, however, can’t engage in the practice of law. So, as a workaround, lawyers — usually in purple but sometimes in green — have to “supervise” them.
Figure 4 shows what Accenture’s legal vertical would look like but for Rule 5.4.
Thus, Dan Reed and others need a workaround. Figure 5 is a depiction of the ULX Partners configuration.
The UnitedLex-LeClairRyan initiative will conduct its business through an entity called ULX Partners, LLC, a Delaware Limited Liability Company with several subunits organized other the laws of Florida, California, Massachusetts, Virginia, and the District of Company. This structure has surely been set up so that no ULX Partner revenue accrues from the practice of law–i.e., no ULX employee will be signing pleadings, making appearance on behalf of clients in court, writing opinion letters, or negotiating with regulators at the FTC, DOJ, or EPA, etc. But absolutely every other activity that occurs within a law firm, including all the pre-work done by associates, staff attorneys, and other professionals before the partner signs off, can potentially be done better, faster, and cheaper inside ULX Partners.
UnitedLex will be the majority owners. LeClairRyan will be a minority shareholder, with ULX Partners set up to take on additional member firms. The law partners will continue to manage client relationships and perform their usual work. In the meantime, ULX Partners can drive lower-cost, higher-margin engagements. To make this as concrete as possible, about 300 employees of LeClairRyan will be “re-badged” as employees of ULX Partners. Instead of issuing paychecks to these folks, LeClairRyan will pay a service fee to ULX. If this workforce gets supercharged through UnitedLex’s superior legal ops capabilities, LeClairRyan will share in the upside as a ULX owner.
The configurations above (and in the appendix below) were predicted back in 2010 by Nick Baughan, a managing member of Marks Baughan & Co, an investment bank with a specialization in legaltech.
‘If the law firms themselves can’t have outside investors, the market will continue to chip away at every part of a law firm that is not the pure provision of legal advice,’ says Nick Baughan, a managing member of investment banking firm Marks Baughan & Co., with offices in Conshohocken, Pa., and London. ‘Anything that can be provided legally by a third party will be.’
Rose, “Law, the Investment,” ABA Journal, Sept. 2010 (also quoting the late Prof. Larry Ribstein, “The question used to be: ‘Will the ABA change Rule 5.4?’ … The question now is, ‘Who cares?’”). For the last decade or so, Baughan’s firm has been running a large proportion of the major legaltech deals. So if this feels new to you or me, it’s old news to the professional investors tracking the legal sector.
Now that the market has shifted in a way that could really disrupt traditional law practice, it’s possible state bar regulators will interject themselves into these more aggressive NewLaw structures. This has long been a risk factor in NewLaw PPMs.
That said, regulators will have to work very hard to find a public interest rationale in Rule 5.4 or Rule 5.5 (pertaining to the unauthorized practice of law) that will contain NewLaw’s growth. These rules are grounded in a presumption of asymmetric information between lawyers and unsophisticated clients. If knowledge is asymmetric, clients have little choice but to trust lawyers. Thus, under this policy rationale, lawyers as a group must be completely independent. Obviously, this asymmetry does not exist in large corporations with legal departments comprised of former BigLaw lawyers. As a result, protectionist motives dressed up as consumer protection won’t cut it. Ironically, NewLaw will have no trouble finding BigLaw lawyers willing to take their case.
All of this, however, may be premature, as ULX Partners (or related models) may not be a sufficiently large or imminent threat. As noted by Jae Um, “legal innovation is an extreme sport.” Post 051.
Well, I can think of five reasons, with higher profits being the least important.
These are five very compelling reasons to ink a deal with UnitedLex. But will other firms follow suit? And if so, when? The answer to these questions is complicated.
LeClairRyan is not your typical AmLaw200 firm. It was founded in the mid-1980s by Gary LeClair, who specializes in venture capital businesses, and Dennis Ryan, a now-retired tax lawyer. So it is a “young” AmLaw 200 firm. Gary stepped down as chairman in 2015. But during his tenure, he was one of the most visionary and innovative law firm leaders I have ever met. He is also a person of exceptional discipline and character who attracts a large client following. Thus, Gary always had the respect of his partners even if only a few had the time and patience to digest the full sweep of his futuristic thinking.
One of the consequences of a decade or two of give-and-take with Gary is that LeClairRyan partners understand the shifting economics of modern practice, at least compared to other AmLaw 200 lawyers. Under LeClair, the firm did a large deal with UnitedLex around the firm’s e-discovery practice. See Cassens Weiss, “LeClairRyan opens ‘legal solutions center’ in collaboration with tech company,” ABA Journal, Nov. 1, 2013. The current CEO of LeClairRyan is Erik Gustafson, a litigator who formerly served as head of the firm’s litigation practice. For the five reasons listed above, plus a longstanding relationship of trust with UnitedLex, Erik and the firm’s executive committee were able to make business decision on par with a corporate client in a highly competitive sink-or-swim business environment.
I suspect and hope that UnitedLex gets a few other takers in the relative near term. (They will get a lot of meeting with law firms, primarily to shake them down for competitive intelligence. David Perla has an obscene term to describe this ritual. Fill in the blank: grin ____ .)
The most receptive firms would be in the NLJ 100 to 300 range with a diverse range of practices (i.e., not specialized). These firms would also need an innovative-visionary-realistic leadership team and partners who want to stay middle-market for reasons related to clients and culture. Suffice it to say, this is not a long list. If, three or four years from now, ULX member firms get their promised 5-15% return and praise from clients regarding service delivery, UnitedLex may get the early majority to tip, see Post 004, setting off rapid adoption in the rest of the social system. Dan Reed and his senior leadership team will be declared geniuses who changed everything. And they will deserve it.
However, this could play out in a different way. The most lucid account of BigLaw’s possible futures can be found in TomorrowLand by Bruce MacEwen. First among the eight competing scenarios for how the market might evolve is Chapter I, “Nothing to see here, folks; move along.” Its core point is that all noise from the blogosphere and legal press may be nothing more than Chicken Little. Through the passage of time, BigLaw proves itself endurable. If Chapter I is right, doing nothing is the wisest strategy.
Chapter II is titled, “Lawyer Psychology and the Partnership Structure Win.” In this scenario, law firms also do nothing. The difference is that “outside forces impose urgent requirements that [firms] change, but they simply cannot bring themselves to do so. This scenario, in short, is populated by firms that would rather fail than change” (p. 26).
This is a funny line. But I have spent enough time around large firm lawyers to understand how this would play out. In fact, it’s a short walk to failure:
Perhaps this is what game theory would predict. I think the ranks of the NLJ 350 are going to get thinned out, either through planned mergers, rescue mergers, or run-on-the-bank implosions. But lawyers with their own books of business will never miss a meal.
It is important to remember that UnitedLex is maneuvering on several fronts. In addition to its current point of entry (Figure 3) and ULX Partners (Figure 5), it recently launched a deal with DXC, a large information technology and professionals service firm. See SenGupta, “In-house legal teams take the lead on speed and spending,” FT, Dec. 11, 2017; Orum Hernández, “UnitedLex to Support Bulk of DXC Technology’s In-House Department,” Corp. Counsel, Dec. 5, 2017.
DXC is the product of a merger between Computer Sciences Corporation (CSC) and the Enterprise Services business of Hewlett Packard Enterprise (HPE). The new company has roughly $26 billion in annual revenues, which will eventually place it in the top quarter of the Fortune 500.
In the post-merger company, a portion of the lawyers and staff from CSC and HPE legal departments were re-badged as UnitedLex employees (and others were laid off). According to the press release, UnitedLex now “deploys more than 250 senior attorneys, contract and commercial professionals, engineers, and other experts in support of DXC around the globe.” Interestingly, AdvanceLaw is another part of this deal, handling the selection and management of DXC’s panel of outside law firms. See Sprouls, “Welcome to Legal 2.0,” Modern Counsel, Dec. 13, 2017. UnitedLex projects a 30% cost savings along with greater price certainty. Other anticipated benefits include a bump in quality and transparency.
Figure 6 shows the UnitedLex-DXC configuration, which is yet another Rule 5.4 workaround.
DXC’s general counsel, Bill Deckelman, believes that the sourcing and management system they have put together is “Legal 2.0.”
Last week, I attended a plenary at the ACC Legal Ops meeting that included Deckelman along with the GCs of Walmart, Medtronics, and Chicago Public Media (who had previously worked at Motorola Mobility). After Deckelman explained the new platform with UnitedLex, one of the GCs expressed tremendous skepticism that any cost saving would be worth the risk. Her point was that lawyerly judgment requires business context, and that context is made more attenuated through such aggressive outsourcing. (The other two GCs are building out a mix Figure 2 and Figure 3 models, so they listened with interest.)
What the skeptical GC did not grasp, however, is that DXC is a professional services firm whose core business is the sale and execution of outsourced solutions. DXC has decided to eat its own cooking. Further, although most GC’s are anxious to protect and preserve their headcount — because headcount equates with status and power in most corporate environments — operational legal work is not core to any business with the exception of insurance. The last 20 years have been characterized by an in-sourcing binge of legal work. See Post 003 (graphing growth). The next 20 will be focused on outsourcing to NewLaw or innovative AmLaw200 firms. Either way, UnitedLex wins. See Figure 5 (ULX Partners); Figure 6 (UnitedLex-DXC). The timing, however, may still be an irritant to Dan Reed and many others.
Folks, I am going to make a point grounded in diffusion theory. But this puts everything into full perspective and is arguably the most important point in a very long post. Sorry, it had to come last.
For a moment, consider the Figure 1 baseline model.
Each one of the lawyers in purple and green has a view on how things are going and what needs to be changed. In a corporation, the legal budget (in-house and outside counsel) runs around .3% of revenues with variations by industry. See Henderson & Parker, “Your Firm’s Place in the Legal Market,” American Lawyer, Dec. 2015. Is that too much money? Well, are we talking a relatively simple thin-margin business (e.g., transportation or retail), or a complex business involving IP and extensive regulation (telecom)? A lawyer content with the status quo can spin a story of risk best managed by a big in-house team and/or elite outside counsel. How many CEOs or CFOs can see through the law-is-a-black-art handwaving? Probably not many, though their ranks are growing as they compare notes while socializing.
Granted, agency costs are not the full story. Quite a bit of change is driven by the desires and preferences of innovator/early adopter lawyers (on both the client and law firm sides). It’s just that actual client urgency, and thus law firm urgency, is far from a given. It is also distributed unevenly and somewhat randomly.
Now, consider the UnitedLex configurations (Figures 3, 5, 6) in light of the perceived innovation attributes of the Rogers rate of adoption model in Post 008 (five factors explain 49-87% of rate of adoption). See also Post 011 (slow versus fast innovations).
In summary, ULX Partners (and the UnitedLex-DXC model) appears to be, at best, a slow innovation. See Post 011 (fast versus slow innovations). UnitedLex is competing against in-house legal ops and more innovative law firms, see Figure 2, which are (a) more culturally compatible and (b) require less complex changes in how the work gets done. For some clients, in the short to medium-term at least, these factors may weigh heavier than lower cost and higher quality. Remember these adoption decisions are made by groups of lawyers. All day long, collective adoption decisions impede the diffusion of valuable innovations. See Post 008 (basic model); Post 048 (comparing individual and corporate markets based on type of adoption decision). This is why leadership is so crucial — to serve as a counterweight to paralysis-by-analysis so common among lawyers.
Lawyers might confuse slow change with no change. But they are different. Further, to benefit from slow change, you might need to act very soon in relatively significant ways lest the door of opportunity permanently close. One can’t put off change for a decade and then, when the heat gets unbearable, change overnight.
ElevateNext appears to be a cross between the two UnitedLex models. Basically, most of the legal department functions, including outside counsel management, are being moved to ElevateNext, a law firm that will be very tightly integrated with Elevate Services. The client in this case is Univar, a global chemical company currently ranked #349 in the Fortune 500.
Under this configuration, those practicing law in ElevateNext have best-in-class process, technology, and staffing options. This effort is being engineered by Univar GC Jeff Carr, who is famous in in-house circles for his ACES model and his excellent track record at FMC Technologies, see, e.g., Davis, “Playing with ACES,” ABA Journal, Oct. 7, 2009. In fact, this opportunity got Jeff to un-retire. Thus, ElevateNext will be highly incentivized to optimize their use of Elevate legal ops functions. Also, when Univar needs the specialized expertise of a law firm, the firm will enter into an ACR with Univar, but ElevateNext lawyers (i.e., another law firm) will, in most cases, manage them. (By the way, the DNA here descends from Mark Cohen and Clearspire.)
Below is the ElevateNext configuration.
The analysis on the UnitedLex models applies wholesale to ElevateNext. Jeff Carr is a thought leader, but he is not an opinion leader that triggers the early majority to follow. Instead, they watch with interest, as happened with the ACC Value Challenge. All of this will take longer than reason or self-interest would suggest.
What’s next? See BigLaw partners aren’t dumb: they are just not in the room (054)
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)
