Legal Innovation

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Click to enlarge / Match the data-enabled deliverable, service or product to stakeholder needs.

How should legal teams get started with data?  Here’s a prescription, along with a #RealTalk diagnostic.

In Post 066, I shared that law firm and law department leaders often ask me how to get started with data analytics. I also shared that I usually respond by asking about their most important strategic objectives.

For today’s post, I will play doctor and take a cut at a framework to serve as a prescriptive roadmap. The above graphic is the result. It visualizes a practical framework to think structurally about high-value applications of data.

To Design a Value Proposition for Data Analytics, Start with Clear Thinking Around Needs

As with any new idea, tool, service or product, the key to designing a successful value proposition is to think deeply about the needs of the intended end-user.

Decision support, when applied to sufficiently high-stakes contexts in both the business of law (e.g. new business models for legal service delivery) and practice of law (e.g. litigation finance), likely offers the highest probability of generating material economic returns or a strategic leap forward for the sponsoring organization. Of course, identifying the decision opportunity and shaping the analytics approach requires a high threshold of domain knowledge as well as technical expertise across both data engineering and data science competencies — hence the need for a multi-disciplinary team.

Execution support. That said, for the time being, the most widespread data efforts in the legal market probably still focus on fairly familiar products around business intelligence, operational dashboards and financial reporting.  While there is plenty of opportunity here for useful deployment of data-informed decisions and actions, the pace of innovation here is unlikely to hit a drastic inflection point due to the heavy burdens around process improvement and change management for data handling, on an organization-by-organization basis.

Persuasion. Broadly in the world, the art of storytelling has gotten almost as much adoration as data science in recent years, but this is one area that hasn’t gotten much traction in legal. (Let’s see if 2019 brings us a bit more ✨ sparkle.)

Common Complaints, Pain Points & 😱💀 Horror Stories 👻🤡

As with many other topics about new and evolving capabilities, dialogue about data in the legal industry can be confusing and contradictory. There is a material level of hype (Big 📊 Data 🤯 disrupting 🤯 Big ⚖️ Law!!) – paired per usual with the requisite cynicism and skepticism (LOL 😆 lawyers can’t speak data 😖😰🙄).

In the abstract, I 💖 data. Full stop. 😍

Out in the real world, however, my adoration for data has many disclaimers, disclosures, and exceptions — particularly when it comes to the legal industry.  In this section, I address a few of my misgivings about the current state of data usage in the legal vertical, drawing not only on my own experiences but also the most common complaints I hear in my travels.

1. We Have the Data Sets We Deserve (but Not Always the Ones We Need 🦇)

This is often how it starts. Because most legal organizations are in possession of some data assets, and because data-informed or data-driven methods are all the rage these days, many organizations embark on directionless and costly exercises to squeeze insights from the data they already have.

Common scenario, full of traps.

Conversations that begin this way are hugely concerning to me.  What I hear in this exchange is “sure, I’d love to see something interesting or cool because it sounds like it’s free.”  That’s not a cost benefit equation with a high probability of a happy ending, for two reasons:

  1. Overvaluing existing data assets without regard to data quality or sufficiency (more on this a bit)
  2. Underestimating the cost and effort required to extract business value from those assets

On the business of law side, both data sufficiency and data condition are material concerns. A point worth noting here is that much of the existing business data in the legal industry oriented around cost to the buyer: most of the readily available data sets across law firms and law departments tend to come from time-and-billing systems and provide the history of transactions, essentially as accounting events. Of course, these data sets often suffer from material quality issues that require time and money to resolve.

Very few law firms and law departments have comparable depth or volume of data oriented around value delivered. In other words, there are precious few readily available and reliable systems of record that capture the history of legal events through which the service provider created and delivered value to the buyer of legal services. On a per-organization basis, more practice management or experience database solutions are emerging to help create this record, and in very few cases correlate those events directly to billing data. However, in 2018, such efforts are relatively nascent, particularly relative to the time-and-billing systems that have served law firms as their primary mission-critical system for many decades.

In such instances, the upside potential of the project often has a hard ceiling — yet issues with data condition can mount, not just in hard dollar expense but also time lag and overall drag on the organization. Particularly in projects without a sharp focus on the end-goal, those costs and subsequent adverse impact on the organization can be significant: not least, the potential for change fatigue and mounting resistance to future endeavors involving data.

In short, designing an analytics program at scale represents a material investment of organizational resources.  To secure sufficient ROI on such an effort, analytics must meet a higher bar than simply being interesting — analytics must be useful. And the overall utility and value proposition of the data effort should, whenever possible, be articulated at the outset, not while a costly effort is in flight.

2. Mostly Neglected Everywhere: Assessments of Data Sufficiency

My favorite question format on the GMAT is unique to the exam: data sufficiency. (Yes, it is weirdly 🤓🤓🤓 to admit I have a favorite question type on standardized tests. For inquiring minds, I 💕 logic games on the LSAT and analogies on the SAT.)

I provide an example below:

Source: PrepScholarGMAT

For everyone whose eyes glazed over, that’s OK. Data sufficiency enjoys a flavor of notoriety even among the b-school crowd. The question doesn’t directly test for quantitative problem-solving aptitude; the provided problem (in the example above, the ratio of full-time to part-time employees in Division X and Company Z) is usually asinine and beside the point.

Rather, data sufficiency questions test aptitude for metacognition: how to 🤔 think about 🤔 thinking. Correctly answering a data sufficiency question is at its core an exercise in logical reasoning, in addition to a test of content understanding of number properties and statistics. More precisely put, this question format demands rigorous and structured thinking about the underlying method of problem-solving, and most importantly the ability to correctly identify the factual inputs required to generate insights relevant to the problems or objectives at hand.

This represents hard work for our brains that feels unnatural, because the exercise of evaluating data sufficiency requires that we focus on the white space — something beyond reacting to or dealing with the facts and numbers that are right in front of us. This question asks us to think categorically and descriptively about whether we might need facts and numbers that are not readily available.

This is a very specific type of thinking that we don’t often practice in the legal industry. We ought to.

3. Data Sets Have Origin Stories, but We Often Ignore Them

Most data sets don’t simply appear out of thin air via immaculate conception. In some way shape or form, most data sets are generated by people.

In most brick-and-mortar businesses and product-heavy sectors, sensors do much of the work around collecting and gathering data, often unobtrusively in the background. The same is true for high-tech platform plays where data on user behavior turns out to be the core product to be monetized.

That said, the legal services market is still a services-first category, and our industry still relies heavily on manual data inputs. As a result, busy and stressed people are clicking buttons or filling out fields to generate many of our data sets, particularly in intra-organizational initiatives in knowledge management and practice data maintenance. This type of data work demands accuracy and precision, which are two areas where humans tend not to excel. These tasks also tend to comprise the more tedious and soul-crushing components of anyone’s job: data upkeep/maintenance is usually the “one last thing” on the checklist or to do list before quitting time, and on most days, these tasks probably don’t get done. 🤷‍♀️

Particularly because we tend to function in environments that produce low-fidelity data, understanding the means and mechanics of data collection is a critical prerequisite to defensible analysis and interpretation. Too many teams working with data in law firms and law departments function as database (or spreadsheet) administrators, overwhelmed with the mechanics of data collection and cleaning without a serious attempt to engage with the content of the data sets — i.e. what the data says and what it all might mean.

The Root Cause Diagnostic: New & Different Methods Require More & Different Skills (but Not in One New Super-Lawyer)

Out in the real world, using data to actually solve real problems is much 😓 harder and more 😩 effortful than a day of GMAT prep, and the requisite skills are both valuable and rare. The ability to identify the needed inputs and assess the best method of obtaining them are skills we don’t associate directly with data analysis. These upstream competencies in fact-finding and fact collection are skills taught in research, investigation and intelligence work — across academic, enforcement, military and corporate traditions.

In practice, work to assess and achieve data sufficiency tends to look both non-linear and messy, because it is. In addition to a firm grasp on the mechanics of research design, the team must bring to bear some depth of domain knowledge (content understanding of the specific facts and data points relevant to the problem at hand) and environmental familiarity (the ability to navigate the available universe of sources and to assess each information source for reliability). Lastly, this type of work benefits from a few specific attributes: intellectual curiosity, resourcefulness, and tenacity.

Often, generating original and useful insights requires multiple cycles of hypothetical reasoning followed by factual investigation. Formulating smart and specific questions to explore requires creative and open-ended thinking rooted in meaningful understanding of the problem, and actually going out to verify what is happening out in the real world requires a willingness to engage in legwork.

All this is a tall order. In 2011, McKinsey predicted that “by 2018, the U.S. alone could face a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the analysis of big data to make effective decisions.”  See “Big Data: The Next Frontier for Innovation, Competition, and Productivity,” McKinsey Global Institute, June 2011.  Fast forward to this year: big data and analytics has topped the skill shortage list for the 4th year running in the annual Harvey Nash/KPMG CIO Survey, and two-thirds of IT leaders say this shortage is “preventing them from keeping up with the pace of change.” See “Big Data Skills Shortages – and How to Work Around Them,” Computer Weekly, June 2018.

A 2017 analysis by PwC echoed McKinsey’s 2011 prediction, noting that the overall talent need will be “mostly for business people with analytics skills, not just analysts.” See “What’s Next for the Data Science and Analytics Job Market?,” PwC Research and Insights, January 2017.

The grid above sets forth their recommended skill inventory mapped to jobs across two categories: analytics-enabled business roles and more technical data science roles. This is an instructive model for legal practitioners and legal educators alike: increasingly, there is a need to rethink the boundaries of the legal practitioner role, either as “data-driven (legal) decision makers” or “data-enabled (legal) analysts.”

I particularly favor this PwC model because it sidesteps a couple of familiar traps. Once in a while, Law Twitter revives the debate over whether lawyers should learn to code (strong opinions abound). I’ve never been fond of how this question is framed. Firstly, I’m not sure it’s helpful to debate whether all lawyers should learn to code. Secondly, I think the question lacks nuance and specificity about what level of conceptual literacy or practical prowess “learning to code” would or should comprise. (As for my two cents on the “learn to code” debate, I agree 🙌 with Jason Barnwell’s hilarious tweet below.)

What the PwC skill grid accomplishes in one visual is to remind us that the full complement of analytics skills modern organizations need must be spread across several jobs. Analytics is a team sport. What’s more, the PwC grid also communicates very effectively that each distinct role demands a differing mix of skills.

Click to enlarge / Don’t try this at home alone 😱

Modern law, too, is increasingly a team sport. Legal teams are particularly challenged to field a high-performing team that brings together the full complement of necessary skills, for several reasons. In the current state, the vertical not only has a skills shortage but no real pipeline strategy to attract high-caliber analytics talent. See Post 066 (talent shortage as structural barrier to innovation).  That talent shortage is exacerbated by the extreme fragmentation in the industry. See Post 051 (key graphic). Indeed, as a mental exercise, I’d be willing to lay 10-to-1 odds that there simply aren’t 200 qualified candidates to lead serious data analytics initiatives at each of the Am Law 200 firms.

The industry relies on pockets of brilliance for thought leadership (Dan Katz of Chicago-Kent & LexPredict and Evan Parker of LawyerMetrix come to mind). However, advancing analytics-enabled thinking at scale will require a much larger talent pool and/or a more creative market-making solution to help scale the limited supply of talent to a broader swath of demand.

A New Hope, Always: the Legal Industry Isn’t Actually That Far Behind the Curve

Before I close, though, let’s take a slightly different look at the state of data analytics in legal — because tech products represent one pathway to scaling the promise of analytics on a one-to-many model.  See Susskind, The End of Lawyers? (2010) (introducing one-to-one and one-to-many terminology). Certainly as of late, more and more legal tech and content players are focused on data applications with the potential to arm legal practitioners and business stakeholders to make better legal and business decisions faster: these efforts currently coalesce around natural language processing, from extraction to categorization and reasoning. Some of these component technologies are already baked into mainstream products in legal research and document intelligence categories:

Click to enlarge / Partial view of the Research and Document Intelligence categories

Many of these products are still likely enjoying success in early markets, but both categories seem poised on the cusp of penetrating mainstream markets. The Research category demonstrates an unsurprising level of consolidation given the longstanding oligarchy of incumbent content publishers. The document subcategories are still fairly crowded, particularly in the diligence engine subcategory: whether a clear winner will emerge, it is too early to say.

One last noteworthy point is that the legal vertical may represent a fairly optimal lab environment to test frontier technologies in the more advanced NLP subcategories like machine translation. In that sense, the perpetual notion that the legal industry is perennially behind everyone else may be a bit fatalistic — and signals in the marketplace suggest that there is likely sufficient interest from both capital and the buying market to drive those experiments forward, particularly in the upmarket segment of Big Law:

  • Eigen Technologies, which works closely with both Linklaters and Hogan Lovells, raised a $17.5m Series A round in June of this year, with Goldman Sachs as lead investor. See “Eigen Technologies Raises £13m,” finextra.com, June 11, 2018.
  • Luminance raised a $10m Series A round in late 2017 with Slaughter and May on its investor roster. See “Slaughters Ramps Up Luminance Investment in $10m Round,” The Lawyer, November 29, 2017.

So, is the legal industry really a decade behind everyone else in how we use and consume data to make decisions? While it probably feels that way to many market participants, I take a slightly more positive view. The advance guard is certainly charging forward. As for most of us in the middle of the pack, I’m here to tell you that many of our frustrations and complaints are commonly heard outside the legal industry.

What I do think we need to improve might be our attitudes: more willingness to invest in attracting new technical talent and more attention to developing the talent we already have by way of education and training would probably go a long way.

“In hindsight, the new solutions are all going to look obvious” — Paul Lippe, circa 2010

Sometimes a technical innovation languishes on the innovator’s shelf despite working perfectly and doing everything the innovator hoped. What’s missing is a business model that can coordinate a fair exchange of value. Continue Reading PartnerVine and Last Miler’s Club (072)

Innovation hype is alienating too many practicing lawyers. This is because we forgot that lawyers innovate in the realm of substantive law.  It’s time to fix that.

Last year I was at a conference on law firm innovation organized by the Ark Group. To close things out, the event’s chairperson, Patrick McKenna, walked attendees through an insightful 30-minute flipchart session that could have been the centerpiece of the entire conference.

Above is a depiction of what McKenna drew on the first page of the flipchart (I’ll call it the McKenna Lifecycle of a Practice Area). Patrick was making the point that legal work moves along a time continuum that starts with lawyers building relatively lucrative practices by becoming experts in difficult and emerging areas of law.  Yet, at some point a substantial portion of that practice area becomes relatively mature.  Notwithstanding one’s level of mastery, the market is filled with other lawyers with a similarly deep skill set. As demand flattens and starts to decline, what was once a cutting-edge area of practice becomes a commodity.

Patrick McKenna

Patrick gave the example of synthetic biology as an emerging practice area.  As Patrick pointed out, synthetic biology raises extremely complex and novel issues of intellectual property, regulatory law and consumer safety to name but a few. In the growth area, Patrick suggested googling “virtual reality law practice” to see that lawyers from Cooley, ComputerLaw Group, and Kelley Drye have planted their flag in this important new practice area. Securities law is a good example of a practice area that has reached relative maturity — complex but sufficiently settled that portions of it can be brought in-house.  Finally, Patrick pointed to debt collection as an area that has become fully saturated and thus subject to pure commodity pricing.

I have been studying the legal market now for more than 15 years. For the last ten years or so, I’ve tried to refine the tool of just talking to lawyers about their practices. In each conversation, I’m listening for novel or recurring patterns.  In my experience, very few lawyers or law firm leaders attribute their success to catching the right practice waves. Instead, conversations almost always focus on the abilities and intellect of individual lawyers.  Perhaps this is because the waves of change in law move slowly and are hard to decipher without a lot of additional effort. As a result, we fixate on the surfer (and the surfer fixates on the surfer) and overlook the importance of the powerful waves that hurl them forward.

In this post, I’ll explain how McKenna’s Lifecycle of a Practice Area is a remarkably useful tool for delineating between two types of legal innovation: Type 0 innovation (substantive law), which is the engine that powered the rise of the world’s most successful law firms, and Type 1 innovation (service delivery), which is crucial for reigning in the problem of rising costs and complexity in a highly regulated, interconnected and globalized world.  Type 0 remains as important as ever, but clients would also like help with Type 1.

For a recent and in-depth treatment of this topic, see McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 1“, Legal Executive Institute, Oct. 14, 2018; McKenna, “The Advent of the Legal Practice’s Micro-Niche, Part 2“, Legal Executive Institute, Oct. 18, 2018.  It’s noteworthy that McKenna believes that the most important law firm strategy occurs at the practice group level.

Type 0 Innovation

As McKenna explained his diagram, I recalled numerous lunches and dinners with rainmakers who explained to me how they build their practices.  Some fit the profile of the trusted advisor — they were great listeners, excellent at identifying core issues, very practical, and excellent at delegating technical tasks to other lawyers in the firm.

But another group, who were not particularly charming or charismatic, described how a series of assignments early in their careers took them deep into the business and technical aspects of their client’s industry. Eventually they came out the other side with a series of solutions that proved to be very valuable and useful.  As a result, they got more work from their client and others with similar type problems.  These folks caught a wave in the blue or early green portion of McKenna’s lifecycle.

This is Type 0 Innovation. It happens organically when a lawyer has the opportunity to immerse herself in the business and legal complexities of a new or changing industry. Although it often produces the same economic benefits as a major R&D initiative, lawyers and law firms seldom frame it that way.  This is because clients are paying the bill, often by the hour.  It’s just legal work.  The lawyer who develops such an opportunity into a major practice is viewed as a rainmaker and is compensated accordingly.

I call this Type 0 innovation because it is common throughout the legal profession.  Virtually any lawyer has the intellectual tools to do it.  It requires zero additional training. Yet it’s undertheorized almost to the point of being invisible to practicing lawyers.

To illustrate this point, McKenna cites several years of data from law firm retreats where he has polled partners using anonymous clickers. In sessions related to the importance of business development, McKenna asks, “How many of you right now can think of something you’ve observed in your practice that could be turned into a compelling service offering for one or more of your existing clients?”  McKenna says he consistently gets scores in the 65% to 85% range. Next question, “How many of you have shared your idea with firm management?” Remarkably, scores of 25% or lower are the norm.

When asked why, partners explain that they doubt the firm or practice group will support them. Specifically, to “innovate” is to put yourself at risk of being on the wrong side of numerical targets needed to maintain one’s status in the firm. Stated another way, the partners are not sharing risk. As a result, too many partners are stuck trying to sell services in the “mature” portion of the lifecycle, often at prices that cause clients to question the value they are receiving. This is a failure of both strategy and leadership.

That said, some law firms, particularly those that are highly specialized by practice area and/or industry, understand the importance of underwriting the development of substantive law innovations.  For example, one of the attendees of Patrick’s session was Tim Mohan, Chief Executive Partner of Chapman and Cutler LLP, an AmLaw 200 law firm that specializes in financial services.  Tim later told me that Chapman had adopted a system of innovation hours whereby partners and associates could obtain credit on par with billable hours for innovation efforts likely to result in future revenues for the firm.

One area where this approach has paid large dividends is marketplace lending, which is the relatively recent development of non-bank financial institutions matching up borrowers with lenders, often by leveraging technology to evaluate and process loan requests.  Obviously, this has been tremendously disruptive to traditional banks.  Back in 2013, when this industry practice was at best an “emerging” [blue] practice area, two Chapman partners, Marc Franson and Peter Manbeck, wrote a whitepaper called “The Regulation of Marketplace Lending: A Summary of the Principal Issues.”  The first draft (the authors now keep it updated) took several hundred hours to research and write.  But once posted on the Chapman and Cutler website, it became a hotbed of download activity that has led to $10M+ in firm billings. This is pure Type 0 innovation. Far from going away, Type 0 opportunities are growing in number and importance.

Chapman and Cutler is also a shining example of Type 1 innovation.  See Post 039 (discussing the career path of Eric Wood and the founding the Chapman Practice Innovations as a successful example of law firm intrapreneurship).

Once McKenna’s Lifecycle model got into my head, I began to see Type 0 innovation all around me.  Consider the following examples:

Gary Marchant at ASU Law

Gary Marchant is a Regent’s Professor of Law and director of the Center for Law, Science and Innovation at ASU Law.  He is also on the speaker’s circuit, wowing legal audiences with novel questions of law that judges, regulators, and practicing lawyers are grappling with as a result of massive advances in science and technology, from autonomous cars to drones to cloning to global warming to digital data that captures our every move and hence of great value in determining issues of guilt or civil liability.  Several times over the last few years, I’ve had the privilege of being the same program with Gary, where he consistently knocks the ball out of the park.

Our most recent panel was earlier this month in San Francisco. Fortuitously, we shared a cab to the airport.  Thus, I got to ask Gary, “How in the world do you come up with all these examples of new and emerging issues?”  Gary replied that he teaches seven classes a year at ASU Law (e.g., Law, Science and Technology; Genetics and the Law; Biotechnology: Science, Law and Policy; Health Technologies and Innovation; Privacy, Big Data and Emerging Technologies; Environmental and Sustainability Law; and Artificial Intelligence: Law and Ethics). To scale his expertise, each is taught with a co-instructor. “But they’re all paper classes.  I read and grade 400 papers a years. All my examples come from my students.”

Gary Marchant is astonishing example of how to get the three circles of teaching, service and scholarship to overlap in near perfect unity. Kudos to the enlightened deans at ASU Law who found a way to make this work!

Carolyn Elefant at MyShingle.com

Carolyn Elefant, the clarion voice of the solo and small firm bar at My Shingle, has recently written a book called “41 Practice Areas That Didn’t Exist 15 Years Ago.”  The table of contents can be viewed online here. Elefant is renowned for being a solo practitioner who stays busy doing challenging work she loves.  So, how in the world does she have the time to identify 41 new practice areas?  Similar to Gary Marchant, Elefant skillfully leverages the time of student law clerks she regularly employs in her practice.

Carolyn compiled this list not necessarily for her own practice but to prove the point that new practice niches are growing at an accelerating rate.  As a result, any lawyer can pick an emerging area of law that is causing heartburn for some distinct population of clients and, by dint of some research and writing in an ebook format, translate that know-how into seven figures of income. This is because the community of interest passes around the ebook, building goodwill and credibility with future clients. This isn’t theory — this is Carolyn’s own experience which she learned through trial and error as she created a landowner rights practice.  See “Seven Figure Ebook,” My Shingle, Aug. 23, 2018.  She’s turn this insight into an easy-to-follow methodology for creating a lucrative and rewarding Type 0 law practice.

I know all this because I signed up for one of Carolyn’s webinars this past August — for me, it’s field research.  I greatly admire Elefant because she is passionate about helping other lawyers become successful. She reflects the legal profession at its best.

Kevin O’Keefe at LexBlog

Kevin O’Keefe is the Founder and CEO of LexBlog, which is an online publishing platform that currently hosts 1,400 law blogs, including Legal Evolution and the majority of blogs published by AmLaw 200 law firms.  Arguably, LexBlog has become the epicenter of Type 0 innovation, as the vast majority LexBlog content is focused on substantive law.  In most cases, the unit of production is either the boutique law firm or a practice group inside a major law firm.

Like Carolyn Elefant, O’Keefe spends a lot of time helping lawyers see the abundance of ripe fruit hanging less than a foot off the ground. The only catch is the modicum of effort necessary to reach down and pick it up. This is the world of content marketing, demonstrating through your writing your insights on a set of problems that afflicts some discrete universe of clients. When someone in that small universe goes online in search of relief, your content appears near the top of the Google search (the LexBlog platform aids SEO).  That content builds trust and credibility.  Although some readers will use it for pure self-help, the complex work flows disproportionately to the authors and the authors’ firm.

A good, but far from unique, example is Ballard Spahr, which puts out five publications on LexBlog:

In the year 2018, lawyers can skip the rubber chicken dinners and make rain by developing and sharing their expertise online.

Kevin O’Keefe has an infectious laugh and a life story so inspiring that every year I invite him to Indiana Law to talk with my students. Without fail, Kevin marshals example after example of young lawyers who create life-altering career opportunities for themselves by researching the legal issues around what interests them.  Step 1 is to find the online legal experts. Step 2 is to read their content and the materials they point to.  Step 3 is to contribute to the conversation via social media.  That’s right, to get off the ground, cutting-edge Type 0 innovation often leverages a twitter account.

Type 1 Innovation

I hope it’s obvious to readers that the vast majority of Legal Evolution content is focused on Type 1 innovation — i.e., service delivery improvements (data, process, technology, etc.) that chips away at the problem of lagging legal productivity.  For example:

  • Post 001 (lagging legal productivity negatively impacting entire profession)
  • Post 006 (discussing impact on legal education and courts)
  • Post 009 (importance of ODR to solve bottleneck in courts)
  • Post 019 (legal productivity is a “last mile” problem that requires new business models)
  • Post 022 (CLOC is response to lagging legal productivity problem affecting large corporations)
  • Post 036 (discussing dire statistics because of productivity problem in PeopleLaw sector)
  • Post 042 (consumers are coping with higher costs by foregoing legal services)
  • Post 048 (framework to see differential impact on people versus organizations)
  • Post 058 (Landscape report for Cal Bar that emphasized the problem of lagging legal productivity)

Yet, as important as this topic is to the future of the legal profession, it is near impossible to get lawyers to go on this journey when innovation hype ignores or denigrates the innovations routinely occuring at the practice group level.  I hope the Type 0 / Type 1 framework can start to mend this riff.

Definitions

Lawyers value definitions.  I would proposed the following as a starting point:

  • Type 0 innovation.  Adapting law to fit changing social, political, economic and technological conditions.
  • Type 1 innovation. Improving the quality, cost and delivery of existing legal solutions.

[click to enlarge]
We can plot these innovation types on McKenna’s Lifecycle of a Practice Area, with Type 0 (emerging, growth) being in the wheelhouse of skilled artisan lawyers and Type 1 (growth, mature, saturated) being the foundation of one-to-many legal solutions and thus requiring the collaboration of lawyers and multidisciplinary professionals.

Isn’t it obvious that Type 0 and Type 1 innovation are both distinct and interdependent? Further, isn’t it obvious that the legal profession’s tool box needs to include both types of innovation, albeit with lawyers and legal professionals tending to specialize in one or the other but retaining the ability to effectively collaborative across the two types?

Additional Frameworks

As I’ve reflected on Type 0 / Type 1 innovations, I’ve snapped them on to other frameworks.  Below are two examples based on other Legal Evolution posts:

The T-Shaped Legal Professionals graphic (above left) has been discussed in Posts 043 and 048.  Type 0 innovation is enabled by the traditional law school curriculum. If you’re reading the news in the year 2018, it’s obvious that Type 0 innovation is crucial to the functioning of an open society based on the rule of law.  Yet, to address the problem of lagging legal productivity, legal professionals needs a bigger toolbox that includes the ability to collaborate effectively across multiple disciplines. Type 1 innovation is enabled by the disciplines at the top of the “T”.  Solutions to crucial PeopleLaw/Access to Justice issues require quantum leaps in Type 1 innovation. There’s literally no time to waste.  This is why so many of us are working tirelessly to stand up the Institute for the Future of Law Practice (IFLP, or “I-flip”).

Likewise, variations of the Traverse the Pyramid Strategy (above right) have been discussed in Post 010 (the rise of managed services) and Post 055 (law firm strategy that combines substantive lawyering with data, process, and technology). It’s foolish for legal services to migrate away from the pyramid model, as Type 0 innovation is built on the foundation of “mature” law in the operational and commoditized space. It’s also the type of work that law firms have historically used to train junior lawyers. Less than 15 years ago, the process usually began with banker boxes filled with documents as part of the discovery or due diligence process.  Likewise, legal operations and the P3 disciplines (pricing, project management, process improvement) all exist within the Type 1 innovation vertical — though more prices sensitive, it reflects the bulk paid legal work.  Thus, we need to retool the traditional law firm talent model so that it can flex in the direction of both Type 0 and Type 1 innovation. This is yet another challenge that is being taken up by IFLP.

Conclusion

Neither Type 0 nor Type 1 innovation are easy or costless.  Both require continuous learning and an investment of time and resources without a guaranteed financial return.  Yet both add immense value to clients and form the basis for challenging and rewarding careers.  Thus, for both lawyers and legal professionals, the future is bright.

What’s next?  See PartnerVine and Last Miler’s Club (072)

Photo by Louis Reed via Unsplash / Microsoft is bringing the scientific method to legal innovation.

Microsoft is pushing legal buy and provider engagement to the next level and asking their primary firms to come along. Here’s why it matters: they’re thinking bigger, committed for the long haul, and bringing a STEM mindset to legal innovation.

Continue Reading Huge, If True: How Microsoft’s Big Ideas Could Transform Legal Buy (069)

Microsoft’s legal department has the talent, resources and vision.  With enough time, a “Microsoft system” could evolve that will be as influential as the original Cravath system.

I was very fortunate to be invited to the most recent Microsoft Trusted Advisor Forum, which took place on September 20 at Microsoft’s Redmond campus. The Forum featured 13 key Microsoft legal service providers (12 law firms + one of the Big Four) giving presentations on an innovation that “demonstrably improves legal service delivery to Microsoft.” Although ambitious and unprecedented, the Trusted Advisor Forum on Innovation is but one small moving part in a much larger and well-resourced strategy.

This strategy was announced last summer in a widely read essay by David Howard, CVP & Deputy GC at Microsoft. See “Microsoft’s New Strategic Partner Program,” LinkedIn, July 27, 2017. What caught people’s attention was Microsoft’s commitment “to move 90% of our work to AFAs within two years.”  The mechanism for achieving this goal is the Strategic Partner Program, which asked 13 law firms to co-create solutions within the context of long-term business relationships. This collaboration theme was recently re-enforced at Microsoft’s Global Summit when General Counsel Dev Stahlkopf asked all of Microsoft’s outside counsel to “[p]artner with us to continuously improve and innovate.” Zach Abramowitz, “Why Microsoft is Hosting Their Law Firms in Redmond This Week and Why it Matters for Everyone Else?,” BigLaw Business, Sept. 18, 2018.

These are big ideas. Someone, however, has to execute.

This task has been given to Jason Barnwell, Microsoft’s Assistant GC for Legal Business, Operations and Strategy.  To give the Strategic Partner Program continuity and weight, Barnwell and his team started running the Trusted Advisor Forums. Last fall the topic was Artificial Intelligence. This spring it was Competition and Data. Later this year will be Diversity & Inclusion. Sept. 20 focused on Innovation.

Both Jae Um and I were at the Sept 20th event. We felt it was sufficiently important for the broader legal industry that it warranted two detailed write-ups. Mine (068) applies the lens of diffusion theory to the SPP/Trusted Advisor Forum innovation, examining the obstacles to adoption and the likelihood that MIcrosoft, through its leadership and systems-level approach, will eventually be successful. (For a primer on diffusion theory, see Posts 004, 007, 008.) Jae’s post (069) goes deeper into the substance of the Innovation Forum.  Both 068 and 069, however, discuss how and why MIcrosoft’s efforts matter for the broader legal industry.

Will it work?

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:

  1. The quality of leadership driving and supporting the SPP
  2. The “adoption” of the SPP by law firms
  3. The duration of the adoption period (measured in years)

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.

September 20th Trusted Advisor Forum

Trusted Advisor organizations were invited to make presentations on two topics:

  1. tell us about one thing you have done in the last year to get better; and
  2. tell us about one thing you will try to do next year to get better.

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.

1. Quality of leadership driving and supporting the Microsoft initiative

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:

  • Link to an HBR podcast from the Chief Strategy Officer of Alibaba with Jason noting the growing role of creativity in knowledge work.
  • Link to an article titled “How to Solicit Negative Feedback When Your Manager Doesn’t Want to Give It” with commentary on how these ideas are being used at Microsoft.
  • A summary of research documenting the lag time between changes in business school orthodoxy and changes in corporate strategy (roughly three decades) and analogizing this process to the legal profession.

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.

Jason Barnwell at the whiteboard (all day) during Sept. 20 Trusted Advisor Forum. This is what innovators do.

2. “Adoption” of the SPP by law firms

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.

a) An innovation designed to spawn other innovations

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.

  • Innovation is not a synonym for tech: Quantums leaps are possible with a well-designed process and high-quality training of paraprofessionals.
  • Outstanding P3 (pricing, process improvement, project management) and KM professionals can add immense clarity and value to workstreams.  These folks are “sell-side” legal ops professionals. No JD required.  Just get out of their way.
  • Mine your data — we are all impressed by an international firm that studied its own cross-border M&A transactions to identify patterns that are sure to be valued to clients.
  • The innovation presented by the Big Four participant was very sophisticated and advanced, giving the impression that it was just popping the hood on its ongoing strategy. The Big Four does not have a legal culture problem.

Expect next year’s presentations to have a lot more A’s.

b) Likelihood of adoption

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.

3. The duration of the adoption period (measured in years)

The combination of low relative advantage and low compatibility is what I refer to as the legal culture problem. And it affects all firms in the AmLaw 200 on a continuum that ranges from “challenging” to “extremely severe.” But for the SPP’s multiple iteration/repeat player design that will, hopefully, extend for a period for years, I would be writing off this whole initiative. The legal culture problem runs that deep.

For the purposes of this last section, I’m going to refer to the multiple iteration/repeat player design as the “Microsoft system.” This is useful for two reasons. First, if Barnwell and his team are permitted to stay the course, the SPP/Trusted Advisor Forums will evolve into a system.  Second, the emphasis on “systems” is appropriate because virtually all elite U.S. lawyers now operate in the late stages of the Cravath system, though few appreciate what that means.

The Cravath system was developed in response to an acute shortage of sophisticated business lawyers during the rapid growth of financial and industrial enterprises in the early 20th century. See Henderson, “Three Generations of U.S. Lawyers: Generalists, Specialists, Project Managers,” 70 Maryland L. Rev. 373 (2011). The core of the system was a partner-associate training model that aligned incentives so that young lawyers got excellent training, clients got excellent service, and partners enjoyed security, profits, and prestige. Further, it was scalable, meaning that it could keep pace with the relentless increase in client demand without compromising quality. Indeed, the purpose of the system was to build “a better lawyer faster.” All of the system’s key moving parts are laid out in remarkable detail in the first 12 pages of the second volume of the Cravath Swaine & Moore firm history. See Robert T. Swaine, The Cravath Firm and Its Predecessors, 1819-1948 Vol. II (1948).

The results of the Cravath system were so powerful that its principles were adopted by every major U.S. law firm.  Yet, how may BigLaw partners today know what those principles are? The legal culture problem is, in essence, the problem of ahistorical partners. Each successive group of lawyers has paid less and less heed to the system’s operating principles until little more then an emphasis on elite credentials remains.  Yet, because of the system’s tremendous forward momentum, decades later partners are still collecting its late-stage financial rewards.  This is very powerful operant conditioning, re-enforcing some very misguided ideas about how value is created.

Because so many in-house lawyers also came of age at late-stage Cravath system firms, they too fail to appreciate the value of systems-level thinking.  Casey Flaherty’s “Lawyer Theory of Value” describes the absurd result — just clear the room and let a few well-credentialed lawyers do what they think is best.  See Post 040 (laughing and crying with Casey). Thus, as an industry, we are at a place where lawyers–both in-house and in law firms–have to rediscover the power of systems thinking so we can, once again, as we first did over 100 years ago, coordinate our behavior in service of what the client truly needs. If we do it right, as a second-order effect, lawyers who follow the resulting system will enjoy another several decades of financial prosperity.

The Microsoft system has the potential to make this happen because the multiple iteration/repeat player design can slowly change the culture and reorient incentives and payoffs (i.e., relative advantage) toward the long-term. If it’s not long-term, then it’s not a system. Further, Microsoft’s odds of success are made higher because (a) David Howard, the original architect of the SPP and a person who controls a huge external legal budget, saw the wisdom of promising a stream of high-value work to partner firms who operated in good faith; and (b) Barnwell and his team are fostering a “psychological safe” environment — to break down resistance, the many lawyers involved need assurances they won’t lose what they have, which is primarily a sense professional accomplishment and status.

Microsoft’s biggest execution risk is an underestimation by senior leadership regarding the nature of the resistance they will eventually encounter.  The SPP/Trusted Advisor Forums, and the Microsoft system it will create, is at best a “slow” innovation.  See Post 011 (slow versus fast innovations).  In the short- to medium-term, the only reward for participating (and investing time and firm resources) is to keep the Microsoft work you already have. This puts relationship partners in a vulnerable position vis-a-vis the short-term financial goals of their own firms.

Think I am being too cynical?  It is noteworthy that Microsoft asked 13 Strategic Partners to participate in the Forum on Innovation.  Nine accepted, four declined. Thus, Barnwell and his team filled the four open spots with service providers who “saw value” in the exercise.  That is how CMS, Eversheds, Reed Smith, and EY got into the mix. And this is just the beginning. Eventually, as real change begins, there will be whisper campaigns of naysayers (both line lawyers at Microsoft and partners at law firms) who are going to complain that the SPP’s implementation is “impractical” and should not apply to their workstream. This is what “non-adoption” of the SPP looks like.

Here is my message (of encouragement) to Microsoft’s leadership: When things get hard, don’t mistake the hardships for a flaw in the underlying strategy. This is what the naysayers want you to believe. They lack your long-term perspective; they would be most comfortable being left alone. Success requires that you face them down rather than grant their exceptions. Cf. Post 047 (discussing failure of major in-house change effort at Fortune 100 company because leadership lacked resolve).  As Jae Um has correctly pointed out many, many times, see, e.g., Posts 051, 052, 062, 063, 066, and with due credit to her former boss, Josh Kubicki, innovation in the legal vertical is just lots of hard work over a very long period of time. Your multiple iteration/repeat player design is the right way to conquer this problem; but it won’t make it easy or comfortable. Thus, stay the course until the end. Pay the price. The resulting Microsoft system will be worth it.

What’s next? See Huge, If True: How Microsoft’s Big Ideas Could Transform Legal Buy (069)

Photo by Carson Arias via Unsplash / When innovation dreams fade, heads often roll.

Great things don’t just happen.  People make them happen.  So who is actually working on legal innovation (and why haven’t they fixed everything already)?

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.

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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.

This is What a First-Rate Innovation Team Does

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. Innovation Is a Team Sport that Requires Specialized Skills

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.

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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.

1. Desirability — Customer Needs

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).

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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).

2. Feasibility — Tech Advances

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.

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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.

3. Viability — Business Value

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.

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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.

B. Innovation in Action: Fact-finding, Decision-making and Execution

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.

The Current State of Play: A Talent Diagnostic

Regarding the current state of play, we can ask two broad questions that reveal a lot:

  1. Do (most) legal innovation teams have access to individuals with the necessary skills, knowledge and experience?
  2. Do (most) legal organizations have the necessary capabilities, processes and systems in place to attract, retain, develop and deploy innovation talent?

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:

  • Who are the individuals that comprise these teams now?  Are they the right people?
  • What are the “necessary” skills, knowledge and experience for our specific innovation agenda?  Do we have (enough of) the right skills, knowledge and experience?
  • How are these teams organized and deployed?  Are they working on the right problems?
  • Are these teams sufficiently supported, funded and guided?
  • To the extent there are gaps in the current state, why do they exist?

A. We Need Candor to Counterbalance the Hype (#RealTalk!)

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.)

B. The Market-wide Challenge: Serious & Widespread Skill Gap

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.

Click to enlarge

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.)

C. Strategy First, Innovation Second (Otherwise, Shiny Things ⇒ Emotional Labor ⇒ Arrested Development)

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.

Access to Talent: Likely a Slow Burn to Improve, But a Few Potential Pathways

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.

Click to enlarge

A careful examination reveals several clear takeaways:

1. Recovering Lawyers Play Prominent Roles

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 upmarket trajectory of ALSPs is a representative example of the opportunity for high-caliber lawyers to lead legal innovation.  The most prominent ALSPs are led by highly pedigreed lawyers with experience in the upper echelons of the Am Law 100: Axiom Executive Chairman Mark Harris hails from Davis Polk; in his previous life, Alex Hamilton of Radiant Law co-Chaired the global Technology Transactions Group at Latham.  The unbundling, disaggregation and reassembly of  increasingly sophisticated tranches of work is a challenge tailor-made for ex-practitioners with depth of experience in both legal buy and service delivery in relevant practice areas.
  • Shift of legal tech toward practice-specific solutions is another opportunity for ex-practitioners to lead the market in spotting innovation opportunities and designing products or platforms that are superior to current market alternatives.  Transaction management platform Doxly is led by Hayley Altman, formerly a corporate and securities lawyer and partner at Ice Miller.  Former Gibson Dunn litigator Alma Asay founded litigation management platform Allegory and served as its CEO until its acquisition by Integreon.

2. Increased Mobility Across Segments and Functional Roles

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.

  • Law firms and law departments swap business talent.  The recent move by David Cambria from ADM to Baker McKenzie is a headliner example, but there are several prominent example of switch-hitters in the opposite direction.  Before he joined Shell to manage global sourcing and legal operations, Vince Cordo served as the head of pricing at Reed Smith.  Rebecca Benavides, the Director of Legal Business at Microsoft, was previously the Director of Legal Project Management at Norton Rose Fulbright.  Before she was Google’s Director of Legal Operations, Mary O’Carroll reported to the COO of Orrick, where she managed large-scale projects to improve profitability.
  • Lawyers as product evangelists.  Lucy Bassli is another example of a recent high-profile move out of the in-house function.  Formerly an associate general counsel overseeing contracts for Microsoft, Bassli now serves as the Chief Legal Strategist for LawGeex.

3. Agency Model for Specialized Talent

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.

  • Build versus Buy.  As Josh Kubicki taught me when he was my boss at Seyfarth, new competencies might be expensive to buy but they are incredibly time-consuming to build.  Upskilling existing talent is an imperative, but one that can be accelerated only so far. The current supply-demand mismatch demands a market-level solution, and recent developments suggest that an agency model might fit the bill.  (He’s doing this now, at Bold Duck Studio, which offers a range of packaged services to facilitate innovation activities.)
  • Innovation as a service.  Jason Moyse at LawMade and Ryan McClead of Sente Advisors are two more examples of business and technology professionals who are looking to leverage their respective market-scarce competencies to facilitate innovation processes for a broader swath of the legal market.  Nicole Bradick‘s Theory and Principle is another example of specialized technical skill set on offer: an outsourced legal tech product development capability.

4. Still, We Need Systemic Investment in Human Capital

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)

Credit: Institute for the Future of Law Practice

A handful of farsighted legal employers are seeking to build a better talent pipeline. You’re invited to join them.

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?

Call to Action

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:

  • Basic accounting, finance, and industry analysis. According the After the JD Project, law graduates two and seven years into practice report lack of business training as the most significant shortcoming of their legal education.
  • Introduction to legal operations (data, process, technology, design). Legal budgets are not keeping up with the growth in legal complexity. The emerging field of legal operations is dealing with this challenge head-on. The profession needs more operationally aware lawyers.
  • Real-world case studies and simulations. Knowledge can be taught in a classroom, but skill acquisition requires practice within a relevant context. IFLP designs experiential modules so that students can efficiently acquire both knowledge and skills.
  • Teamwork, communication, collaboration, feedback, leadership. Sophisticated law practice has become a team sport. This is reflected throughout IFLP’s curriculum.

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.

IFLP Wave One Launch

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.

Originally published on LinkedIn on August 23, 2018.  Republished here to help spread the word. wdh.

What’s next? See Legal Evolution’s 2018-19 publication schedule (065)

Photo by Geoff Greenwood via Unsplash.  Rot Fai Train Night Market, Thailand / The legal market is just as fragmented and complicated, and more painful to navigate.

Legal markets are chaotic.  For innovators, that chaos can be a pit or a ladder – depending on how quickly they can find a market to serve.

We get it.  Legal innovation feels slow.  Very, very slow.

Continue Reading Legal Innovation Woes, Part II: TBD Markets + MIA Customers (063)

Photo by Jimi Filipovski on Unsplash

2018 has been a watershed year for capital flow into legal markets.  Will it be enough, at last, to push legal innovation forward?

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:

Click to visit / “Legal Tech Startup Financings Take Off As Automation Hits White-Collar Industries” (Oct 2017)

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?

A Roadmap to Innovation Woes: Key Innovation Drivers

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.

Click to enlarge / Money can’t buy innovation, but it can and often does buy poor substitutes.

The above graphic lays out the roadmap, along with a brief description of the critical function of each component.

  • Part I (062) provides an overview of recent trends in capital investment into legal innovation. While several valuable directories, listings and analyses have already covered this topic from many different angles, the aim of this post is to explore why we are seemingly stuck in the “early days” of legal innovation despite an overarching trend toward expanded access to capital.
  • Part II (063) probes a critical problem facing all new offerings in every permutation of legal innovation: the difficulty of identifying and understanding the customer.  Part II summarizes the various customer roles in B2B service environments and the common reasons that new offerings fail to achieve problem-solution and product-market fit.
  • Part III (066) addresses the people side of the equation for teams and businesses trying to drive change to the status quo in legal markets. Whether the goal is (a) to drive incremental improvements to existing offerings or (b) to develop and bring to market a wholly new service or business model, legal evolution is a team sport that demands differing configurations of specialized skill sets.  Part III will summarize the necessary competencies and capabilities, with the goal of evaluating whether it is feasible for most legal businesses – whether incumbent or new entrant – to assemble a winning team.

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.

Regulatory Constraints Affect Capital Flow (in Obvious & Non-Obvious Ways)

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:

1. The Role of Incumbents (Yes, That Means Law Firms and Lawyers)

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.

2. Practice vs. Business of Law

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.

3. Follow the Money

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.

Who Funds Innovation & Why?

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.

Traditional Sponsors: PE Firms Are All About That Multiple 💰❌💰

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.

Source: Preqin via Wall Street Journal

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).

  • Holding times. On average, PE firms hold portfolio companies for about 6.5 years, although early-stage venture capital investments will have longer holding periods (sometimes much longer).
  • Returns/exit multiples.  Target multiples are more difficult to generalize than holding times.  Venture capitalist Fred Wilson of Union Squares Ventures is famous for saying often that he looks for one investment that “will return the whole fund.”  This is a different way of indicating that VCs usually make many high-risk investments with the expectation that most will fail, with a few wins that will make the losses look minuscule.  Still, it’s probably a safe and meaningful rule of thumb to say early stage VCs will seek something in the neighborhood of 10x returns while mid-stage investors will be looking for a 3x to 5x range.

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).

Big Law Both Funds AND Manages Innovation (And It Sometimes Works 😲)

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:

  • Why?  Clearly articulated strategic objectives for innovation investments, tied to financial KPIs that measure the impact on the core business or progress toward profitable exit
  • How?  Process and governance around build, buy or partner decisions
A few bright spots exist

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.

Click to enlarge / Before innovating, firms should establish clarity on what they are trying to accomplish from a strategy standpoint.

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.

Capital for Legal Innovation: Current State & Emerging Trends

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.

  1. Liquidity events suggest sorting/matching behavior by market participants
  2. Platform + bolt-on strategy by serial acquirers and mature scale-ups
  3. Smart money eyeing legal, to the tune of $500m+
  4. Capital gets creative: working around the regulatory moat

1. Liquidity Events: Not Necessarily a Silicon Valley-Style Bonanza

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.

Click to enlarge / Like Sean Parker said, a billion dollars is cooler than a million dollars, but it is also easier said than done.

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 Avvo, BAL and Riverview Law deals give indications of a strategic sorting in which major players with strategic goals acquire specific assets; in contrast, the Lawyers On Demand and LegalZoom deals feel more like capital churn/injections that will lengthen the runway for these companies to prove out an independent scale/growth strategy that may still be in the works while providing liquidity back to the early stage investors.
  • Traditional PE exit strategies favor strategic acquirers and IPOs over financial sponsors, who tend to be more sophisticated and able to negotiate a lower purchase price.  Those dynamics may or may not hold in legal markets; the available data is too scant to speculate.
  • The exits by BCLP and DLA Piper raise an interesting question about the optimal role of most law firms in the midwifery and nurturing of new ventures.  For reasons we will cover in upcoming installments, law firms have unique assets that make it a fertile environment for experimentation and testing — whether they are well positioned to hold their equity positions to a late exit remains to be seen.

2. Platform + Bolt-On: Next-Level Serial Sorting

The activities of serial acquirers and emerging platforms deserves some mention.

  • Unsurprisingly, Thomson Reuters and LexisNexis remain most active acquirers as they supplement internal innovation agendas with strategic M&A. LexisNexis, in particular, has been aggressive in sourcing new product & service innovations through recent acquisitions of Ravel Law, Intelligize, and Lex Machina — all prominently on display at the recent AALL conference.  in contrast, Thomson Reuters’ recent launch of WestLaw Edge appears to be powered much more heavily by internal innovation and R&D.
  • Epiq, Consilio, and Mitratech are all PE-backed and have access to the capital to continue bolt-on deals to round out their market offerings.  Most recently, Mitratech acquired ThinkSmart for an undisclosed sum.
  • Relativity may emerge as a likely platform looking for bolt-on acquisitions: the company has invested in Heretik and HealthJoy, signaling financial commitment to extend its platform beyond eDiscovery into contracts and highly regulated data stores.
  • Earlier this year, Elevate announced that it had secured a line of credit from Morgan Stanley Expansion Capital to fund its growth. See Press Release. Elevate did disclose that the proceeds would be spread out across strategic acquisitions as well as investments in product and service expansions.

3. “Smart Money” from Silicon Valley Continues to Eye Legal Vertical

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.

4. Capital Gets Creative: Workarounds for Regulatory Barrier

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.

Access to Capital: Could Be Better, but Not the Choke Point 

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)

Is legal operations a discipline or a job within a legal department?  The market just provided an answer.

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.

1. If legal ops is a discipline, where will it get maximum traction?

“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:

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

Right now, I see no clear winner. Yet, from a human capital perspective, the solution set is the same for all three.

2. Is there is human capital model for legal ops?

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.

3. What is the law firm strategy that requires the talents of legal integrators?

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.

Endgame

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)